Eric Murrietta

We all deserve good news now and again --- So for this week, take the new 95% Conventional Program to the Bank.

In light of FHA raising their Upfront MIP to 2.25% this week, there is now another option for those willing to put an extra 1.5% down in cash on a new home.

Here are the details on the 95% Conventional Program:

• Primary Residence only
• 1^st Time Home Buyers and Move Up Buyers
• Monthly Multiple as high as .94% ($195K loan the monthly mortgage insurance is $151 est.)
• Credit Score above 720
• DTI Ratio at 45% or less

Good information to have just in case you find any buyers that want to put less than 10% down but not go through FHA.

Hope this works for you.

A story on the news ran last week regarding the ability for homeowners to short sale and then finance a new home almost immediately. Although this may be in the case in certain circumstances, if the borrower were to finance the new home through Conventional Financing then certain rules still apply.

For example:

• Borrower is Ineligible if:
  • 30 Day late is reported on their previous mortgage
  • Short Sale on previous home was completed for advantageous reasons to the borrower not due to hardship

FHA Insured Financing is available, in some cases, in a shorter term than the standard minimum of 2 years for Conventional Financing but the following conditions must be met.

• All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale
• All installment debt payments for the same time period were also made within the month due
• Borrowers in default on their mortgage at the time of the short sale are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure

Exceptions can be made if:

• Default was due to circumstances beyond the borrower's control (such as death of primary wage earner, long term un-insured illness, etc.) and/or
• The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower's control that caused the default.

FHA may also allow refinancing on Short Payoffs if:

• The existing note holders agree to write off the indebtedness that cannot be refinanced due to value
• There is insufficient equity in the home based on current appraised value and/or
• The borrower has experienced a hardship.

All of the above information can be found in HUD Mortgage Letter 09-52, 4-155.1.

In summary, there are cases where a borrower could immediately buy a new home following a short sale, but it will be in the rarest of occasions. Most short sales will not occur without a borrower "stopping performance" on the loan (meaning they miss a payment). I believe it will be up to the short sale negotiator/realtor to make the short sale happen without the borrower missing a payment, but it will take an extenuating circumstance and some honest to goodness hard work to get a lender to agree to the short sale if the loan is still performing.

Hopefully the above will help to dispel any questions regarding the story that ran on the news last week.

An article on MSN.com today captured the essence of the problems that FHA has been dealing with over the recent months. FHA has been struggling to keep foreclosures from piling up, they are paying for 1 of every 4 loans that were made since 2007, and there willingness to insure loans with lower down payment are all reasons for the increase of foreclosures that is on the horizon.

These foreclosures are different, in that they are economically driven. They are due to unemployment, furlows, and tanking retirement accounts. These new foreclosures aren't just for people that couldn't afford the loan and were taken advantage of by a Predatory Lender. No, these loans that are now in foreclosure, are from people that got the right loans and worked hard to keep the house but now can no longer afford to do so.

There are always competing arguments as to whether requiring only 3.5% down is really enough for a person to buy a home. My opinion is that with the right person(s) as the owner of the home, then yes it is a good product. It does lend for people to "justify" abandoning a home because they didn't have to give a lot to get into the home, but it also gives people that would otherwise be unable to own a home the security of having a place to call their own.

With the news about FHA facing difficulties with rising foreclosures, it is no wonder that they are raising the Upfront Mortgage Insurance Premium from 1.75% to 2.25% and requiring 10% down for people with lower than 580 credit scores (even though most lenders won't underwrite an FHA file with less than 620 credit score).

FHA is a viable product with the right people and the right loan officer educating them about the process of obtaining a mortgage and what it means. Without the FHA making an effort to help people get into homes, there would be a lot less movement in the housing market. It is still just a matter of selectively choosing (with proper documentation, income, etc.) the qualifications people must meet in order to obtain FHA insurance on their new home purchase.

Do you think that FHA should change their qualifications and requirements or do you believe the product is great for people who understand what they are doing and manage their finances in the best way possible.

I read an article this morning regarding Lenders coming up with new ways to "Guess Your Income".

The article made some interesting points regarding how lenders make decisions based on a person's credit and income.

In mortgages, Income, Assets, and Debts all play a major factor in determining who will qualify to purchase a new home. As a loan originator we ask for these details and require verification that the information provided is accurate. By asking and obtaining the income and asset information, mortgage lenders can use ratios of debt to income, amount of assets, and the credit score together to make the proper determination.

Seeing the information and analyzing it is the best way to make a credit decision. Of course, unforseen circumstances can always change a person's ability to repay the mortgage but diligence up front will hopefully eliminate many of the "problem" mortgages that came about in the last few years.

So what does the above article have to do with mortgages? I think it has a lot to do with mortgages. For example, if a person is unable to obtain a small credit card due to these income estimators, it may affect their ability to establish solid trade lines and credit history that will help them obtain a mortgage in the future.

With lenders tightening up their restrictions on who is issued a credit card, it makes it very difficult for young people to demonstrate responsibility with credit, which is a key determinent in mortgage guideline qualification.

So, should lenders be allowed to "Guess Your Income"? Is it okay for them to use past history and other variables, that you as the consumer, may not even know they are checking, to make the decision on your credit worthiness?

In a time when the credit crunch is still occurring and the mortgage market remains selectively restrictive, are the decision by these lenders today going to impact the future ability of first time home buyers to obtain a mortgage?

All questions that should be considered, especially if they are guessing your income to make a determination on whether you are credit worth or not.

Here is some great information regarding applications received and interest rates for purchase and refinance transactions.

Below is excerpt from the Mortgage Bankers Association

"Refinance activity fell substantially last week," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today's rates."

The average contract interest rate for 30-year fixed-rate mortgages increased to 5.02 percent from 5.00 percent, with points decreasing to 1 from 1.05 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 4.34 percent from 4.33 percent, with points decreasing to 1.14 from 1.19 (including the origination fee) for 80 percent LTV loans.

As you can see rates moved up a bit but the cost of getting those rates decreased, which in some cases is a benefit to the borrower. I think we are likely to see a jump in applications for this week as compared to last week. Rates were mixed this week as early on there were indications of the market in a friendly position due to sales of 5 - Year Notes going well on Wednesday. However, the money left the market and pushed back on rates. This morning we had some more "unfriendly" market news, but rates pushed back for a slight improvement. Overall, rates were up about .125% on the 30 YR Fixed rate note but held constant for most other programs.

I still think we are in hold pattern to see where the overall trend goes.

The FHA Insured 30 YR. Fixed program is still an excellent option for first time home buyers. The rates are in the low 5% range and the changes for MIP and Upfront MIP haven't been put into effect keeping the overall costs of the loan lower than where they may go. Homeowner affordability is the key here.

Don't forget about the tax credit up to $8K for first time home buyers or up to $6500 for "move-up" buyers that have owned their home for at least the past 5 of 8 years.

That is a ton of mortgage market news for the week. As always, should you have any questions or concerns for you or your clients, please don't hesitate to contact me.

My goal will always be to make the loan financing process as worry free as possible.