This week President Obama announced the Homeowner 
Affordability and Stability Plan. You can view a summary of this plan on the White House web site. Additional details are to be forthcoming on March 4th.
The three legs of this plan are:
Earlier I wrote a blog on the 1st leg, refinancing. Now I would like to share with you information on the second leg, stability! This component actually includes 5 sections. I will further elaborate on some of these sections in future posts.
A $75 billion homeowner stability initiative to prevent foreclosures and help responsible families stay in their homes
President Obama declares that this is designed to reach out to homeowners that are struggling to afford and make their mortgage payments. Further this will focus on subprime borrowers and those that took out exotic loans. It is an attempt to help those that will commit to making “reasonable” payments to stay in their homes.
These initiatives are for owner occupied properties. The programs will not be available for owners of second home or investment properties. Also, your loan balance cannot exceed current Fannie Mae and Freddie Mac loan limits. This does concern me for those areas where jumbo loans were prevalent. Where will the help come from in those areas?
The premise is that the plan will aid in stabilizing home prices. Certainly, this would be one the best consequences if successful, in my opinion.
Loan modifications will be available to homeowners even before they become delinquent on their 
mortgage. This is another premise that I find myself in agreement with. Currently, in many cases, if you are not behind on your mortgage you run into a dead end trying to modify your loan or negotiate a short sale.
The goal of the program is to reduce the monthly payments, for those that qualify, to levels they can afford. There are a series of financial incentives to the homeowner, mortgage servicers and mortgage holders to participate in the plan. I will discuss those incentives in greater detail in later posts.
So this concludes the overview of the stability leg the latest housing plan. I will provide additional detailed information on some of the components soon.
What do you think? What questions do you have? I am interested in your observations. What will be the unintended consequences?
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The $75 Billion
Related Posts
Homeowner Affordability and Stability Plan---Part 1
What The Fed Is The Treasury Department Doing
Jay Williams
The White House, this week, announced the Homeowners Affordability and Stability Plan. An executive summary of the plan may be viewed on the White House web site.
President Obama’s plan for the housing market consists of three components:
Today I want to address the first component of Obama’s plan. Understand that the final directives of this plan are to be announced on or around March 4th. Specifics and changes to the plan are to be addressed then.
This writing expresses my views, opinions, agreements and concerns. You should not take these as facts because at this point in time we don’t have all the facts. Further details, again, are to be announced on or around March 4th.
Part 1---Affordability: Provide low cost financing for responsible home owners to refinance.
This has been occurring prior to the announcement of this plan. Everyone in the mortgage lending industry is gleefully aware that we have been experiencing a refinance boom since mid December 2008. And the plan acknowledges this.
I wrote a post last month titled What The Fed Is The Treasury Department Doing discussing my opinion that the government wanted everyone that could possibly refinance to do so. So this component of the plan is not a surprise and has been in play for a few weeks.
What is interesting about the executive summary is that it specifically targets home owners that currently have conforming loans with Fannie Mae and Freddie Mac. This begs the question what if your current loan is not with Fannie Mae or Freddie Mac?
This part of the plan focuses on those home owners that current owe greater that 80% of the current value of the property up to as high as 105% of the current value. These are home owners that are not currently in default and they are paying their mortgage payments.
There are two premises stated for which I take issue:
This group is having a difficult time refinancing?
The White House executive summary is declaring that if your loan to value is greater than 80% you are having a difficult time refinancing. This is a faulty premise!
I and other lenders are assisting customers like this every day now. There are programs available at today’s low rates. One of the examples uses in the President’s material is a borrower that would have a 90% loan to value for a refinance. It states they would be ineligible for Fannie Mae refinancing. I’m sorry this is just not true! This person can refinance and if they are using a conforming loan product it will require mortgage insurance. But it can be done.
One of the primary loan programs today for those with loan to value greater than 80% and less than or equal to 97.75% for a refinance, has been in existence since the 1930’s. This program is FHA.
So to say that a home owner can not take advantage of today’s low rates because they owe more than 80% of the value of the property is, in my opinion, factually inaccurate!
What I do agree with within the language of component 1, in the executive summary, is providing assistance for home owners with current loan to value between 97.75% and 105%. Component 2 does address those homeowners that have seen declines in value that place their current loan to value greater than 105%. I will be discussing that component in a later post. So stay tuned.
The program will provide the opportunity to refinance through the two institutions, Fannie Mae and Freddie Mac?
I really want to hear what this means. Does this mean that the borrower will go directly to Fannie Mae and Freddie Mac?
Does this mean that those of us that are loan officers directly dealing with the public everyday are going to have that source of business taken away from us?
Again, my opinion, what I read into this causes me concern. I can see a delivery system developed that retail mortgage loan officers working for direct lenders will not be able to participate. I can see a delivery system developed that will prevent loan officers working for correspondent lenders from participating. I can see a delivery system devised that will block mortgage brokers from entering this playing field. I can see a complete government takeover of the mortgage industry.
I hope I am wrong!!!
I do intend to address the other two components of the Homeowner Affordability and Stability Plan is subsequent posts.
I will also come back to this component as further details are made available.
In the mean time I am interested in your thoughts, praise or concerns with this program, at this time. A dialogue is in order. Our goal is and always has been to assist home owners. Let me know what you think.
Jay Williams
This review of the Residential Loan Application addresses your assets and liabilities. Quite simply what do you own and what do you owe.
Liabilities
For the most part this information will be populated with data gathered from your credit report. I find that many are very cautious about having their credit report pulled. This is primarily driven by a concern that credit inquiries will reduce your credit score.
I’m not going to go very deep, in this post, about the credit report, because this subject will be best addressed by separate postings in greater detail. However, let me inform you that the credit scoring models have been revised, for several years now, as it pertains to credit inquiries. If you are shopping for a mortgage all credit inquiries pulled by various home loan providers within a 14 day period will be treated as just one credit inquiry.
Today, depending on the type of loan that is most suitable for you, your credit score will determine the interest rate and fees your mortgage provider will be able to offer you. A credit score will need to be obtained to give you an accurate rate quote and/or to determine loan program suitability.
You will need to grant permission for your home loan lender to pull your credit report. What you do not want to do is go out and seek credit from other types of credit providers while you are shopping for a home loan. Do not seek credit for an automobile or credit cards while you are trying to obtain residential financing, these inquiries will affect your score.
You will want to review the credit report with your lender to determine accuracy. Assuming the information is accurate and complete the credit report will provide the necessary information. Your creditors, the type of credit issued, outstanding balances, and required monthly payments and payment history will all be listed.
This is all I’m going to say about the credit report, at this time. Look for additional postings regarding the credit report.
Assets
The assets your lender is going to be mostly focusing on are liquid assets. Savings, checking, money market accounts, mutual funds, investment accounts, 401k, 403b. etc are all of interest to you home loan lender.
As a general rule, your lender will be requesting statements for all of these accounts covering a two month period. If a particular account provides a monthly statement then you will need to provide the most recent two months. An account that only provides statements quarterly, then the most recent statement will suffice.
Gather all of your statements in advance of your application interview. Your loan officer will be recording the type of account, the ending balance, name of institution and account numbers for all of these accounts. Make sure you provide all pages. If your account statement says 1 or 7 pages, then bring all seven pages even if the page is blank.
As your file proceeds through underwriting the account statements will be reviewed in detail. An underwriter will be looking for unusual deposits. You will be asked to explain any large deposits. The underwriter is trying to determine if any of the money is borrowed, or from gifts or the sale of assets. If you have funds that have been deposited such as just described, you will be asked to provide supporting proof for the origin of those funds.
Notices of insufficient funds in an account will require explanation. Common sense should tell you this is not a good sign.
Loan program guidelines differ on the treatment of the source of funds available. As we’ve stated previously in this series, share everything with your loan officer. This information may be critical for the loan program recommendation your home loan officer will provide.
The residential loan application also contains areas to record asset information for cash value on life insurance policies, net worth of businesses owned automobiles and other assets. The schedule of real estate owned will be considered in a later series.
The reason the focus will be on liquid assets is that this is where your funds for down payment, buyer paid closing costs and reserves will be verified.
The better prepared you are at the beginning of the application process the more reliable and smoothly the process will be.
Please feel free to use the comment section for your questions and observations. Realtors and lenders as always your comments are welcome.
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Details of Transaction
Previous Series
Property Information and Purpose of Loan
Monthly Income and Combined Housing Expense Information
Jay Williams
The FHA 203(k) program is the loan program to assist you with repairing/ rehabilitating your primary residence. In other posts we’ve discussed improvements that are required, eligible improvements and improvements that are ineligible for the loan program.
By now you have selected your property. You have determined you offer price for the property, as is. Or perhaps you are repairing/ rehabbing your existing home.
You have been working with your real estate professionals to determine your cost estimates for your project. You are meeting with your lender and she tells you we must include a contingency reserve.
What is a contingency reserve, you ask? The contingency reserve is used to cover any extra work not included in the original proposal.
There may be some cases where HUD does not mandate a contingency reserve, but plan on your lender requiring a reserve. HUD’s rules do state that for properties over 30 years old and estimates over $7,500, the cost estimate must include a contingency reserve. HUD goes on to state at the mortgagee’s discretion a contingency reserve may be set up. Trust me, plan on including a contingency reserve.
The contingency reserve must be a minimum of 10% of the cost of rehabilitation. If the utilities were not turned on for the inspection, a minimum of 15% is required. The reserve may not exceed 20% of the cost of rehabilitation where major remodeling is contemplated.
I have found that the concept of a contingency reserve requirement can be confusing. Quite simply, this is established to cover unforeseen expenditures and is for the benefit of everyone involved in the project. Why is that, you ask?
Let’s say, for example, your estimate for rehabilitation costs is $50,000.00. The project begins and somewhere along the way it is discovered that it is really going to costs an additional $5,000.00. Without a contingency reserve what are you going to do?
· Are you going to pay this out of your own funds? You may not have it available
· Are your contractors going to say, just pay me later when you can? Don’t count on it
· Is your lender going to say, it’s ok the project has not been completed? Absolutely not!
· Are you going to be happy the project is unfinished? You know not.
A 15% contingency reserve established and added to your $50,000.00 cost estimate would provide $57,500.00 to cover rehabilitation costs. The $5,000.00 additional cost is covered from the loan proceeds drawing from the contingency reserve.
The key point is, your loan documents must provide for these unforeseen costs. The loan documents are 
drawn for a specific amount and that amount can not be exceeded. Without a contingency reserve you could be stuck. Any unspent funds, from your loan proceeds, after the final work item payment is made, must be applied to the mortgage principal. In other words, you will not be making payments on funds you did not use to repair/rehab you home. For the example we have used your loan balance is reduced by $2,500.00. ($7,500 contingency reserve less the $5,000 in unforeseen additional costs)
I hope this and other posts will be helpful as you prepare to utilize FHA’s 203(k) program.
As always, I welcome comments. What has been your experience with the 203(k) program? Do you have any questions? What observations or opinions do you have toward this financing vehicle?
Tip for real estate agents and contractors: review listed properties needing repair/rehabilitation; develop the estimates for work to be done; partner with a knowledgeable and trusted lender familiar with the FHA 203(k) program; have a turnkey project list to share with prospective buyers
Coming Soon
Specification of Repairs/Work Write Up
Related Posts
Jay Williams
The last couple of posts regarding the FHA 203(k) program have dealt with what are the required improvements and the eligible improvements. Today we are going to review ineligible improvements under the 203(k) program.
While you are putting together repair/rehabilitation estimates it will be good to know the types of improvements you can not include for financing purposes.
Ineligible Improvements for both the traditional and streamline FHA 203(k) program:
Basically, unless you are attempting to include an outdoor 
recreation and entertainment complex you don’t have a lot of restrictions.
It is important to note additional restrictions if you are utilizing the streamline program. If your repair/rehabilitation requests include any of the following items you will need to use the 203(k) traditional program.
I hope this and other posts will be helpful as you prepare to utilize FHA’s 203(k) program.
As always, I welcome comments. What has been your experience with the 203(k) program? Do you have any questions? What observations or opinions do you have toward this financing vehicle?
Tip for real estate agents and contractors: review listed properties needing repair/rehabilitation; develop the estimates for work to be done; partner with a knowledgeable and trusted lender familiar with the FHA 203(k) program; have a turnkey project list to share with prospective buyers
Coming Soon
Contingency Reserves
Related Posts
Jay Williams
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Integrity is the cornerstone of my business. I believe a mortgage should be about building relationships, and helping my costumers achieve their home financing goals, not just a transaction.
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