Art Marine

The following is an article published in todays edition of Mortgage News Daily:

The continued availability of government guaranteed mortgages for rural homebuyers was virtually assured yesterday when the House Financial Services Committee voted to approve H.R. 5017. The unanimous vote will send the Rural Housing Preservation and Stabilization Act of 2010 to the full House of Representatives where sources said it was fast tracked for a vote as early as next week.

If passed, the bill will correct the Section 502 Single Family Housing Guaranteed Loan Program to make it self-funding. Section 502 assists homebuyers living in rural areas to obtain affordable mortgages guaranteed by the Department of Agriculture (USDA). These loan guarantees have become enormously popular during the financial crisis and consumer demand has tripled the annual number of loans that are typically issued each year. The program is set to exhaust its available funds within days. Under the new legislation, lenders will pay up to a 4 percent premium for the guarantee at the time the loan is initiated which will enable the financing of the program to move from a combination of government funding and industry fees to a self-sustaining initiative. The bill authorizes the department to guarantee up to $30 billion in loans in FY 2010.

In order to qualify for the program an applicant must have good credit and reliable and adequate income sufficient to sustain mortgage payments. The average guarantee in 2009 was for a $112,000 mortgage. In an announcement of the bill's passage the Committee said that the program provides a vital source of mortgage credit for people living in rural communities where low and moderate-income residents often have fewer credit options than households in urban areas. The USDA program aims to fill that void and lower the costs of homeownership by giving rural areas access to a home loan guarantee program. The bill was sponsored by Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. He said of the bill, "Since its creation in 1987, USDA's affordable rural home loan guarantee program has helped hundreds of thousands of families to realize the American dream of homeownership, including many in Northeastern Pennsylvania. As a result of the unprecedented demand, theprogram is now unfortunately running out of money. At no cost to taxpayers, my bill will preserve the access of millions of families living in America's heartland to needed USDA loan guarantees, so that they can continue to buy homes with affordable mortgages. Without action, too many families in rural America will have no options for getting home loans. We cannot allow that to happen."

In case you didn't know, we have been hanging in limbo on properties that require flood insurance for several weeks now. The old FEMA flood insurance appropriation had expired and congress had not re-authorized until now. Congress approved the Continuing Extension ACT of 2010 (H.R. 4851), which includes a temporary extension of the Federal Emergency Management Agency's (FEMA) statutory authority to issue flood insurance policies under the National Flood Insurance Program (NFIP). The temporary amendment will expire on May 31, 2010. Many investors, such as Union Bank, Provident, and others, sent out announcements re-installing their previous flood insurance policies.

We are once again in the business of lending on properties that require federal flood insurance!

Art Marine

art.marine@academymortgage.com

Branch Manager/Loan Originator | Academy Mortgage Corporation

10220 SW Greenburg Road, Suite 250, Portland, OR 97223

o. 503-764-4005 | f. 1-866-510-4716

Lenders accross the land are taking different twists on the FHA flipping rule waiver. Just to demonstrate how major lenders are treating this tender topic, I will list some examples from the largest national leaders.

Some things are simple, others not. On January 15, 2010, HUD issued a Waiver of Requirements of 24 CFR 203.37a(b)(2) revising exceptions to the FHA Flipping Rule policies. (Notice that HUD did not actually issue a Mortgagee Letter.) The FHA Flipping Rule prohibits FHA financing if the contract of sale for the purchase of the subject property is executed within 90 days of the prior acquisition by the seller, and the waiver temporarily puts this aside. Where do the various mortgage investors stand on following or not following the waiver?

Wells Fargo has taken the approach of being silent on the issue - and if WF is silent on an issue, the default policy is to follow the agencies with their policies. Therefore these loans are a "go".

Neither Bank of America, SunTrust, nor GMAC have adopted the FHA issued directive on the waiver of the 90-day FHA Flip Rule, however.

With other investors, the issue is not black and white. Chase will buy FHA loans with a sales contract executed in less than 90 days with overlays. If the property seller is a government entity or a Chase REO, and the sales price is less than 20% higher than the purchase price, it is ok. If the gain to the "flipper" is greater than 20%, the loan is unacceptable under the waiver. If the seller is a non-Chase bank, or even Chase, and the gain is greater than 20%, it is not eligible. The same 20% line applies to inheritances; private sales are not eligible.

CitiMortgage also has policy overlays. Any increase of sales price over seller acquisition costs should be documented if the increase is 10% or more, instead of the 20% allowed by Citi's original announcement. The increase in sales price over the seller acquisition cost may not exceed 20%, even if documented per the announcement. If the sales price is greater than $500,000, the increase in sales price over the seller acquisition cost may not exceed $100,000. For Citi, and other investors, all other requirements per the HUD Announcement must be followed.

For Flagstar, the purchase transaction must be arms-length with no identity of interest between borrower and seller or any other parties participating in the transaction, FHA's guidelines, and there is no history of flipping for the subject property. If the sales price is 20% or more higher than the seller's acquisition cost, the property flipping waiver applies only if the lender obtains certain documentation (such as complete documentation for renovations and repairs, a very solid property inspection, etc.). "While FHA's temporary property flipping exemption applies to all purchase transactions that meet these criteria, Flagstar will continue to prohibit FHA and VA financing for properties owned less than 90 days unless the seller meets one of the following Flagstar seller exemptions: seller is a relocation company or employer who acquired the subject property as the result of an employee transfer, seller is any one of the following: HUD, VA, GNMA, FNMA, FHLMC, seller is a non-profit approved to purchase and sell HUD-owned properties with re-sale restrictions, etc. (Check with Flagstar for the complete list.) And Flagstar Bank requires a second appraisal from an FHA-approved and Flagstar-eligible appraiser or a Flagstar-approved appraisal management company for all transactions having a new purchase price that is 20% or more higher than the seller's acquisition cost.

Good Luck!

Art Marine

Branch Manager

Academy Mortgage

503-764-4005

Borrowers need to be aware that many mortgage brokers are choosing to raise fees to maintain their income on each loan transaction. Following is advice from one major wholesaler to their broker customers:

THE NEW GFE

See the original GFE given to the Customer - Line 1. Contains the following:

Origination fee + Processing Fee + Lenders Admin. Fee + YSP

(plus any other compensation / fee that the broker charges). Once you give the GFE to the Customer your line 1 will not change higher (except if the loan amount changes your origination will be adjusted up or down if a percentage was used).

Line 2 shows the credit that the Customerwill receive (YSP).

So Line A is going to be what is earned on this loan (Original GFE).

Many brokers still think that by increasing the YSP they earn more income on a loan.

Is this TRUE? Answer is NO

If you add in the YSP in Line 1, then subtract it in Line 2 (the credit that goes to the customer). What are you making from YSP?

$2,085- $2,085= $ 0

Now see the New HUD at Closing

Line 801 is from the Original GFE - Line 802 the YSP = Line 803 Total Broker Compensation

Suggestion on How Brokers can make money in this new environment.

Since higher YSP do not increase your earning, it only increases the Credit to the Customer to reduce their costs, you may want to look at charging more Origination Fee (On Conventional & FHA loans, VA limit is still 1%) and as little as possible YSP.

Line 1 - Origination 2% + Processing $450 + Lender Admin $775 + No YSP = $8425

Line 2 - Zero YSP

Line A (income to broker) $8,425

This will made a big difference in the Broker compensation. Plus the Customer benefits by receiving a lower interest rate.

Conclusion- in this new environment the only time to charge a YSP is to lower the closing costs for the Customer (as in a low or no cost refinance).

My Conclusion is that Mortgage Brokers are and will continue to raise fees to cover their operating expenses and profits. Banks and Mortgage Banks continue to have the flexibility to price their profit into rate. Is this fair? Probably not to mortgage brokers...but it does save the consumer from the game playing that many abusive brokers used to play with fees. The question we really need to ask; Did abusive brokers kill the golden goose?

Art Marine

Branch Manager

Academy Mortgage

10220 SW Greenburg Road, Suite 250

Portland, OR 97223

503-764-4005 direct

503-799-7085 cell

1-866-510-4716 fax

www.academy.cc/artmarine

art.marine@academymortgage.com

A few months ago I wrote a blog titled "The Death of an Industry". To say the least it met with a lot of resistance from the Mortgage Broker community. The Mortgage Brokers of active rain showered me with reasons why I was wrong. They contended that mortgage brokers could shop for the best deal for their customers, but of course the HVCC rules that require the lender to order the appraisal cut the shopping off at the knees. Brokers claimed they could deliver loans at a lower price to the consumer. The new RESPA rules are quickly proving a challenge to that claim! When junk fees become part of the origination cost, it takes much of the advantage from the broker. I have a number of broker friends that are really crying about the new GFE. While many of us welcome the change to hold our competitors accountable, the broker community is crying foul.

Currently mortgage broker market share stands at about 12% vs. a peak of around 69% 4 years ago. Maybe not the death of the industry but it certainly is on life support. In spite of these dismal statistics for the broker industry, there is a ray of hope. The extreme contraction in the industry has weeded out the vast majority of the weak and unprofessional broker shops. Those that remain are the cream of the crop. They are the organizations that approach the mortgage business with professionalism and high integrity. Most of these companies will thrive in some form regardless of their business structure. I think there will be further contraction of the wholesale business model but many of the remaining companies will convert to mortgage banking or the net branch model.

The real threat to the mortgage broker industry is the elimination of the wholsale chanel from the remaining lenders. There has been a virtual abandoment of wholesale for many large lenders and that trend will most likely continue. Combine that with major movement (both from citizen watchdog groups and legislators) against the number two wholesale lender (Provident Funding Associates) and it spells trouble for wholsale supply.

I now believe that a small shell of the broker community will survive but in a sense you could say the days of the old fashioned mortgage broker are already dead!