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Note that closing an account doesn't make it go away.
A closed account will still show up on your credit report, and may be considered by the score.
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JP Morgan Chase is in "advanced talks" to purchase struggling thrift Washington Mutual, according to a report published today in the American Banker.
Washington Mutual has seen its share price fall more than 75 percent this year, making it a strong takeover candidate for a bank like Chase.
In early January, CNBC noted that Chase was in "very preliminary talks" to acquire Washington Mutual, but at the time no deal was imminent. It now appears as if things have heated up, given WaMu's current point of no return.
Over the last year, the Seattle-based mortgage lender (WAMU) has halted wholesale lending, closed hundreds of stand alone retail home lending offices, depleted a $7 billion capital infusion, and cut thousands of jobs.
The company now expects it's 2008 loan loss reserves to increase to $10.3 billion by the end of the third quarter thanks to ongoing mortgage losses. Share of WaMu were up 20 cents, or 7.06%, to $3.03 in afternoon trading on Wall Street.
Related articles:
Surprise Move WaMu goes to Wells Fargo!
Continued decline of financial giants increases pressure on Federal Reserve to cut Discount Rate
Federal Government Proposes to Create new Bad Debt Holding Company
Experience - The Difference t.m.
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On July 30, 2008 the President signed the Housing and Economic Recovery Act of 2008 (HERA). This bill is actually divided into the following five parts:
· FHA Modernization Act of 2008
· Hope for Homeowners (FHA Rescue Program)
· Reform of Government Sponsored Enterprises (Fannie and Freddie)
· Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act of 2008
· Tax credit for first time homebuyers.
A. FHA Modernization Act
Loan Limits
Under this legislation, the FHA maximum loan limit for high cost areas will decrease to 150% of the Fannie/Freddie limit or $625,500 as of January 1, 2009 and the "multiplier" for a high cost area will change from 125% of the median sales price in the area to 115% of the median sales price. The FHA base loan limit will remain the same as it is now, i.e. $271,050 or 65% of $417,000. Below we discuss the impacts of these changes on the current loan limits.
Impact on areas with loan limits at the current maximum $729,750
Effective January 1, 2009 the maximum loan limit will be reduced to $625,500 for high cost areas (unless national median house prices increase in 2008 which appears unlikely in light of current market conditions).
In areas at the current maximum loan limit of $729,750, the area median sales price must exceed $583,800 to justify the $729,750 ceiling. Under the new legislation, as long as the area median sales price stays above $543,913, the loan limit will be at the permanent maximum amount of $625,500 on or after January 1, 2009. Of course, the wild card in this calculation is the possible decline in area median sales prices in 2008. Impact on areas with loan limits below $729,750 and above $271,050
As mentioned above, the multiplier used to establish the new loan limit in a high cost area is changing from 125% to 115% on January 1, 2009. To show the impact of this change, below we have calculated the new high cost loan limit that would be effective on January 1, 2009 for three markets: Atlanta, Chicago and Denver (assuming there is no decrease or increase in the median sales price in each area).
MSA Current Mortgage Limit January 1, 2009 Limit
Atlanta $346,250 $318,550
(Current area median sales price is $277,000 ($346,250 divided by 125% = $277,000). $277,000 x 115% = $318,550
Chicago $410,000 $377,200
(Current area median sales price is $ 328,000 ($410,000 divided by 125% = $328,000). $328,000 X 115% = $377,200.
Denver $406,250 $373,750
(Current area median sales price is $325,000. ($406,250 divided by 125% = $325,000). $325,000 x 115% = $373,750
Areas at the current base loan limit of $271,050 - 65% of base GSE limit of $417,000
However, areas with area median sales prices between $216,840 and $235,696 will decline to $271,050 on January 1, 2009.
Under the legislation, borrowers with loans at the temporary higher Economic Stimulus bill limits (ie the limits in effect now and calculated using the 125% multiplier as outlined in HUD Mortgagee Letter 2008-06) must have their "credit approved" on or before 12/31/08 to close at the present higher limits. "Credit approved" means both the property appraisal was reviewed by the DE underwriter and the borrower credit approved on or before 12/31/08. If TOTAL is used, the last scoring event must be completed on or before 12/31/08. If the loan is manually underwritten the MCAW or LT must be signed by the DE underwriter on or before 12/31/08.
The legislation terminates seller funded down payment assistance programs (DAP) for FHA loans effective October 1, 2008. HERA requires that the borrowers' credit be approved on or before September 30, 2008 in order to use a seller funded DAP. We believe that "credit approved" means that the appraisal has been reviewed by the DE underwriter and the borrower's credit has been approved. Accordingly, this means for DAP cases run through TOTAL to be eligible, the date of the last "scoring event" must be on or before September 30, 2008. For manually underwritten cases, the DE underwriter must sign the MCAW or the Loan Transmittal on or before September 30, 2008. HUD has stated that because of legal reasons it will not be issuing an official Mortgagee Letter on the DAP change.
Right before Congress adjourned at the end of July, legislation was introduced in the House of Representatives to reinstate the seller funded DAP program for borrowers who have credit scores of 680 or above. After Congress returns from summer vacation we will get a better idea of the chances that this legislation has for passage. Both the National Association of Home Builders and the National Association of Realtors have come out in support of the legislation to reinstate DAPs for these borrowers.
Increase in Cash Investment to 3.5%
Risked Based Pricing of Mortgage Insurance Premium
The legislation places a moratorium on FHA's current risk based pricing structure for a period of one year beginning on October 1, 2008. FHA hopes to publish a Notice in the Federal Register announcing the new premium structure in the next several days. The new premium structure will be effective for loans with FHA case numbers assigned on or after October 1, 2008. Loans with FHA case numbers assigned on or after July 14, 2008 that have the current risk based premium structure will remain unaffected and keep the current risk based structure.
Changes to Condominium Program The legislation allows HUD to offer a streamlined process for approving condominium projects. HUD expects to issue a Mortgagee Letter by about October 15, 2008 with the revised condominium project approval instructions and make the revised program effective January 1, 2009. HUD is promising a streamlined process for condominium project approval and also has stated that under the new processing procedures it will permit manufactured housing condominium projects (which are not permitted now) and will allow "site" condominiums (subdivisions that look like regular single family homes but were legally recorded as condominiums for higher density purposes) to be treated like regular homes.
E. Tax Credit The VA guaranty amount for regular refinances has not changed and remains at $36,000. 3. VA ARM Authority VA's authority to guarantee ARMs will expire on September 30, 2008 and any VA ARM must be closed on or before 9/30/08. Although legislation is pending to extend VA's ARM authority it is unclear whether the legislation can be passed by September 30, 2008.
Changes to HECM ProgramLoan officers employed by Federally regulated institutions must have the criminal background check and fingerprinting.
If a State fails to implement a state licensing system, HUD has the authority to establish a licensing system for originators in that State. D. SAFE Mortgage Licensing Act
This legislation creates a nationwide registration and State licensing system for loan officers. All loan officers must be registered in the national Registry and obtain a permanent registration identification number.
Loan officers working for Federally regulated institutions must be registered by their employers in the national Registry. Loan officers working at non-Federally regulated institutions must be State licensed and then registered in the national Registry. State licensing must include fingerprinting, criminal background checks, a minimum of 20 hours of educational courses, passing a written examination and either posting of a surety bond based upon the loan officer's business volume or payment into a State recovery fund. (Persons convicted of any felony within the past seven years or ever convicted of a felony involving an act of fraud, dishonesty, breach of trust or money laundering cannot be State licensed.) C. Reform of Government Sponsored Enterprises (Fannie/Freddie/Feeral Home Loan Banks) This legislation establishes the Federal Housing Finance Agency (FHFA) as the new regulator for the GSEs. It provides FHFA with the power to limit the amount and types of mortgages that the GSEs' retain in their portfolio and expands FHFA's authority to set GSE capital requirements. Further, the legislation gives the Secretary of the Treasury authority to increase the existing line of credit from the federal government to the GSEs and the Treasury can buy GSE stock to stabilize the housing finance market. Finally, the legislation establishes an Affordable Housing Trust Fund that will be funded by payments from Fannie and Freddie to help support the FHA Hope for Homeowners program and other affordable housing programs in the States. B. Hope for Homeowners (FHA Rescue Program)
This legislation establishes a voluntary program for lenders that want to assist borrowers who cannot make their payments on their mortgage by permitting FHA to refinance a mortgage where the lender is willing to write down the debt to no more than a 90% LTV based upon the current appraised value. All subordinate liens must be extinguished by the new FHA refinance and any prepayment penalty on the existing loan must be waived. The loan being refinanced must have been originated on or before January 1, 2008. Any future appreciation in the property must be shared with FHA under a prescribed formula and the borrower is prohibited from taking out any new subordinate liens on the property for the first five years after the FHA refinance. No investors are permitted to refinance and borrowers must not have been convicted of any State or Federal law relating to fraud during the 10 year period prior to the new FHA refinance. The maximum loan limit is $550,440. The UFMIP will be 3% and the annual premium 1.5%. FHA expects to issue a Mortgagee Letter within the next few weeks and implement this program on October 1, 2008. The program expires on September 30, 2011.
The legislation provides a $7500 Federal tax credit to an individual earning $75,000 or less or a couple earning $150,000 or less and who are first time buyers purchasing a home. (The tax credit is gradually phased out at incomes above $75,000 and $150,000. No tax credit is available to single taxpayers who make more than $95,000 and couples who earn more than $170,000.) The settlement of the home must occur after April 9, 2008 and before July 1, 2009. The tax credit must be repaid over a 15 year period beginning two years after the credit is taken or when the house is sold. Since this is a Federal tax credit, the IRS will administer this program.
You can find lists of Frequently Asked Questions about the tax credit at both the National Association of Home Builders and National Association of Realtors websites.
2. Increase in VA Loan Limit The maximum VA loan limit has been increased to the same maximum limit as FHA and Fannie/Freddie ($729,750 until December 31, 2008) and the high cost areas for VA are the same as FHA and Fannie/Freddie. Also, just like FHA and Fannie/Freddie, the maximum VA loan limit has been permanently increased to $625,500 effective January 1, 2009 and the high cost areas for VA will be the same as FHA and Fannie/Freddie.
4.Ginnie Mae and FHASecure Loans
There continues to be some confusion about what FHASecure loans must be placed in special Ginnie Mae pools (called "MFS" pools). In an effort to simplify pooling requirements, Ginnie Mae stated in APM 08-10 that only two loan types must be placed in special pools:
"FHASecure mortgages with the following characteristics are eligible for inclusion only in "M FS" pools:
1. Fixed rate loans originated pursuant to FHA Mortgagee Letter 2008-13 to borrowers that refinanced after having become delinquent; and/or
2. Fixed rate refinance loans to borrowers where the borrower takes out a new subordinate lien."
Note that a FHASecure loan that has a new subordinate lien must be placed in a MFS pool even if the subordinate lien falls within FHA's standard CLTV ratio.
Concerning FHASecure activity, the volume of delinquent conventional refinances in FY 2008 is 3,303 loans (October 2007-July 15th). FHA has insured approximately 257,000 current conventional refinances during the same period. By making the change in the definition of FHASecure loans (i.e. including current conventional refinances), FHA has been able to increase the volume of FHASecure loans.
· Allows a HECM to be used for the purchase of a home. HUD has stated that it intends to publish a Mortgagee Letter by October 1 to implement this provision.
· Increases the HECM loan limit to $417,000 nationwide; but HUD says it is unclear if the legislation also provides the authority to increase the loan limit in high cost areas to the maximum $625,500 as it is for forward mortgages. HUD is seeking additional clarification from Congress on its intent with respect to HECM loan limits.
· Prohibits payment by lenders of borrower counseling fees. HUD expects to issue a Mortgagee Letter by October 1 to implement this provision.
· Eliminates the cross selling by the lender of other financial products and services, thereby eliminating what has become known as the "broker/advisor" program. HUD expects to issue a Mortgagee Letter by October 1 to implement this provision.
· Caps the origination fee to two percent of the maximum claim amount up to $200,000 plus one percent of the claim amount above $200,000 to an overall maximum origination fee of no more $6,000. HUD intends to implement this new cap when the new loan limits for 2009 are published in December 2008.
Required Use of State Certified Appraisers
The legislation requires that FHA use State certified appraisers to complete FHA appraisals. State certification is a higher standard than the current State licensed standard. State certification usually involves requiring the appraiser to have much more experience and education than State licensing. FHA has said that it is still analyzing this section of the legislation and has reached no decision on an implementation date. However, FHA also has stated that nearly half the appraisers on the current FHA roster are State certified, so the impact of this change may be minimal in most States.
HUD Underwriting Issues
· Correcting Risk Based Pricing Mistakes. We have been told by HUD that a number of lenders have made risk based pricing errors and have underpaid the UFMIP on some risk based loans. Currently, there is no easy way to correct these mistakes by paying additional UFMIP in cash because the Insurance Application screen in FHA Connection expects UFMIP to be paid in all cash or be all financed in the mortgage. To assist lenders and to allow them to pay additional UFMIP in cash and correct these underpayments, HUD will be making a change to the Insurance Application Screen in FHA Connection to allow additional UFMIP payments to be made in cash to correct risk based pricing underpayment. HUD expects to make this change in FHA Connection on August 28. (This change was in fact made to FHA Connection on August 28.)
· Termination of Telephone Access to CAIVRS. HUD has issued Mortgagee Letter 2008-18 notifying lenders that telephone access to CAIVRS will be terminated effective October 1, 2008. CAIVRS will have to accessed by using the internet at that time.
· Buy and Bail Mortgagee Letter. We expect HUD to issue a Mortgagee Letter very soon to address the issue of buy and bail transactions, i.e. transactions where the borrower purchases another home with the intention of defaulting on the present home.
· Sweat Equity. With the termination of the seller funded DAPs, we have received an increased number of inquiries concerning the FHA sweat equity requirements. This is just to remind you that the sweat equity requirements are in the HUD Mortgage Credit Handbook 4155.1, Section 2-10.
VA Underwriting Issues
On August 19, 2008 VA issued Circular 26-08-14 addressing VA acceptance of homebuyer assistance programs (HAPs) involving grants or soft second mortgages provided by State, county or municipal government agencies. This Circular states that HAPs administered by government agencies have blanket approval for use with VA loans and do not need prior approval from VA.
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About 1/2 of all US mortgage debt is purchased by Fannie Mae & Freddie Mac. Loans conforming to their underwriting guidelines are sold to these institutions allowing lenders like Bank of America, Wells Fargo, Washington Mutual & others to free up cash to make more loans.
An alarming number of those loans started going into default, draining Freddie Mac & Fannie Mae's financial reserves. This reduced investor interest in US mortgage backed securities worldwide. As investors grew more skittish, rates rose to entice them to continue purchasing mortgage backed investments. This creates higher mortgage rates for consumers.
By placing Fannie and Freddie into a conservatorship, the government is promising investors that the companies' debt is safe again. Greg McBride, a senior financial analyst at Bankrate.com said this move could put the (mortgage) market on the road to recovery.
He expects mortgage rates on a conventional, 30-year fixed-rate home loan to fall over the next few weeks. Rates could fall as much as half a percentage point, he said. But continued investor wariness and a depreciating housing market will keep rates from dropping further.
If mortgage rates fall, that will attract more potential buyers into the market, which, in turn, will help to prop up home prices, he said.
View the entire article View Predictions for 2009/10
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