The toughest challenge by buyers' agents in Sonoma County now is getting an accepted purchase offer in the below $300k price range. Many of the new buyers encouraged by the current low affordability index are first time home buyers using FHA financing. Making a strong FHA purchase offer will give your client the best chance in getting into escrow. We know from experience, your first time home buyers are up against all-cash offers and larger downpayments than the FHA 3.5% minimum. So the FHA offer needs to be as strong as you can make it.
An FHA financed offer used to be something sellers were wary of. In the past, FHA required sellers to pay for some of the transaction costs. FHA also used to be very strident about the condition of the home. And FHA used to take longer to close than conventional financing. In the past 3 years, FHA has gotten much easier to use as buyer financing. There is no requirement of seller payment of closing costs and no pest-report requirement as long as it is not cited in the contract or recommended by the appraisal due to obvious infestation. An FHA purchase transaction can now close in less than 30 days. This government insured financing has been the easy-to-use workhorse of new buyer financing throughout our credit crisis. And FHA comes with some very good features for a borrower like the low downpayment, no rate hike for lower credit scores, and reasonable mortgage insurance. Once a borrower has an FHA loan they can refi easily, often without appraisal or income qualification. And FHA loans are assumable, a feature that may be valuable 3 years from now when market rates are much higher than they have been in the past 2 years.
But as great as FHA loans are, they still are a hard sell to a seller fielding multiple offers. There are 5 factors that go into making a strong FHA purchase offer.
Offer Price
If a typical homeowner seller was comparing a cash offer with a higher offer using FHA financing, chances are they will take the FHA offer provided the preapproval is strong and the home has no physical issues that may preclude FHA financing (like obvious pest issues or structural damage). But the majority of sellers in Sonoma County now are banks and asset management companies. Taking a cash offer over a financed offer allows the bank to avoid any required repairs on these often debilitated properties. Cash offers also eliminate the chance that the financing will be an impediment to sale during the escrow process. In light of these considerations, the bank will often accept a cash offer even if it is as much as 10% lower than a financed offer.
The FHA offer must be limited to what the house can reasonable appraise for using a HUD certified appraiser. Sometimes now, the sale price is above the appraised value. This is occurring in often Sonoma County as multiple offers on limited inventory drive up the price without any historic comparables to support the higher price in an appraisal. If the appraised value is lower than offer price, either the buyer has to come in with the difference, or the price be negotiated down, or both. So the offer price needs to be strong to go up against competing offers, but not so high that there is no chance of appraised value coming close to offer price.
Preapproval Letter
To provide a strong preapproval letter with your offer, the letter needs to state clearly that it is a preapproval, as opposed to a prequalification. The letter should state the nature of the financing being FHA, approved to specific guidelines and up to a specific rate. When using a mortgage broker instead of a large lending bank, the broker can specify which investing lender the loan will be going to. This gives a recognizable name to the seller, whereas often, they hadn't ever heard of the mortgage broker. For example, I am a broker with First Priority Financial. My preapproval letter on my letterhead can state
"This financing utilizes FHA insured financing underwritten to HUD and CitiBank guidelines."
DU Approval
Desktop Underwriting (DU) is the automated underwriting system (AUS) utilized by the entire lending industry. Fannie Mae, Freddie Mac and FHA all have their guidelines in this software allowing a loan application to be entered and run for automated approval. This is the basis of a solid preapproval. By getting an "Approved/Eligible" finding on a borrower, the report indicates that this loan can be underwritten by a lender provided all information is accurate and the property itself meets title and appraisal requirements.
Attaching the DU findings detailing the Approve/Eligible status of the borrower allows the seller to see that the preapproval process is thorough and above board, making a strong offer. The findings do not reveal personal information like social security numbers or bank accounts numbers for security purposes.
Proof of Funds
Providing "proof of funds" with the offer is a requirment of some selling banks. Proof of funds consists of recent bank, retirement and investment statements (with account numbers whited out for security) showing the buyers ability to come in with down payment. Providing proof of funds makes a strong FHA offer if provided upfront.
2nd Approval Request
Common today in Sonoma County is the seller's request through the listing agent that your offer be qualified by getting a 2nd preapproval by a lender of the listing agent's choice. This confirms for the seller that buyer's financing is solid. The buyer's loan agent can expedite the process by contacting the 2nd lender directly and forwarding the required documents for the 2nd lender to do a quick preapproval to complete the offer.
When this process first began, there was a fear that the 2nd lender would try to 'steal' the buyer as a loan client. I very rarely see this happening these days. Occasionally a less scrupulous loan agent who as been assigned as 2nd approval lender will hammer the buyer to try to get them as a client in the deal, sometime misleading the buyer about the 2nd lender's ability to influence the acceptance of the offer. Luckily I don't see much of this in Sonoma County. The 2nd lender agents of the highest production listing agents for REO are professional, prompt and move the offer process along quickly for all parties.
The buyer's loan agent needs to be accessible; ready to participate and expedite these requests for 2nd approval. Each 2nd approval lender asks for different documents for the process. Often they want to see a formal application, credit report, income documentation and proof of funds. If this part of the process is holding up your buyer's offer being reviewed, you need to work with a responsive buyer's lender to make sure the process doesn't get bogged down with unreturned phone calls.
How a buyer's agent puts together their client's offer makes a difference. Making a strong FHA purchase offer in Sonoma County will give your client the best chance at an accepted approval in a challenging buyers market.
For up-to-the-minute interest rates www.sonomacountyhomeloans.com
For up-to-the-minute-rates www.SonomaCountyHomeLoans.com
95% LTV Available Again for Sonoma County Home Loans
Genworth mortgage insurance company is now insuring and has made available financing up to 95% LTV home purchase loans in California and Sonoma County for specific conventional loan programs including Fannie Mae's My Community Mortgage and Freddie Mac's Home Possible financing. This is an improvement over the previous 10% down requirement for all conventional lending in any declining market. And all of California and Sonoma County had been deemed a declining market. There are some restrictions but the pricing is good (5.125% - 5.25%). An advantage of the My Community Mortgage program is the mortgage insurance to 95% LTV comes at a lower MI rate than standard for conventional. Here are some highlights.
Fannie Mae's Deed for Lease (D4L) Program
For loans owned by Fannie Mae (http://loanlookup.fanniemae.com/loanlookup/), the program Deed for Lease is meant to allow some homeowners facing foreclosure to hand the deed back to their lender but remain in the home as a renter. The servicer has to decide that the borrower qualifies for a "deed in lieu of foreclosure." The rent can't exceed 31% of their monthly gross income, the borrower cannot have 12 or more past-due payments on their mortgage and they must have made at least three payments since the loan was first taken out. Primary residence only - and no non-Fannie loans please! The borrower's credit score is indeed impacted, but not as badly as a foreclosure.
Tax Credit Extension
Just a reminder that for the new tax credit, it needs to be paid back if the buyer sells the home within 3 years after purchase.
Rates
Rates remain excellent as the stock market retains strength in spite of unemployment numbers. The 7/1 ARM is an excellent product to consider as rates are down to about 4.125%. Especially good for first time homebuyers or investors getting into the market who know they will be out of that property within 7 years.
Today's Rates http://www.sonomacountyhomeloans.com/
For Today's Rates up-to-the-minute www.SonomaCountyHomeLoans.com
The Affects of Losing a Home on your Credit Report
Affects of bankruptcy, short sale and foreclosure on credit report are becoming clearer as we move forward through these wild economic circumstances.
Here we are two years into the incredible economic damage caused by the collapse of the housing market and home foreclosures show no sign of slowing. National data shows August 2009 foreclosures increased 18% over last year. We all know someone who is going through hard times having lost their job, their stream of business, or their home. With the increase in payment defaults on mortgages, the lending industry has been adjusting and clarifying the impact of the recent events like bankruptcy or losing a home through short sale or foreclosure on your credit.
Short sales and foreclosure are the most common methods by which a lender would take back a home in the event that the home owner cannot sustain payments. A short sale is the sale of property by the homeowner while they still own it, but foreclosure seems inevitable. Since the home sale price will be inadequate to pay off the seller's mortgage, the lending bank will have to take a loss (go "short") on the loan when the home is sold. This would show up on a credit report as a debt "settled for less than owed".
A foreclosure occurs when a creditor exercises its right to take back the secured property upon default of the loan. Foreclosures are costly to a lender and can take 6 months or more to execute.
Short sales and foreclosures are reported on a credit report for 7 years. A borrower's FICO credit score could drop 200 points, more or less after a short sale or foreclosure. But if all credit payments have been made on time prior and during the short sale, score recovery can be quick, within 12 months. Re-establishing good credit is done by having a variety of credit sources and using them responsibly. A lender will consider granting a new mortgage loan to a borrower 2 years after a short sale or as soon as 3 years after a foreclosure in some circumstances.
In the case of a personal bankruptcy, FHA home financing lending allows a home buyer to be considered for a mortgage 2 years after the discharge of a Chapter 7 bankruptcy or after 12 months of on-schedule payments in a Chapter 13 bankruptcy. Fannie Mae lending requires a 2 - 4 year period after discharge of a bankruptcy depending on circumstances.
The current minimum FICO score requirement for an FHA home loan is 620. Rebuilding credit is challenging after a bankruptcy, but can be done within 12-24 months with a focused effort by using secured credit cards, student loan payments, and on-time utility, insurance and rent payments. The Chapter 7 bankruptcy discharge usually raises the FICO score from pre-bankruptcy late payment period because there are no "past-due" amounts showing on the report after the settlement of bankruptcy discharge.
If you or someone you know is in danger of losing their home, there is help out there. The first step is to communicate with the homeowner's bank directly for assistance options. There are many programs in place to help, but each loan and lender is unique in what they can offer. If the lender cannot help, talking to a trusted mortgage broker can help clarify your options. HUD counselors through the various non-profits are on hand to help by phone. Making Home Affordable is a government sponsored program that helps direct homeowners though their options (http://makinghomeaffordable.gov/) and can help one find a housing couselor. Paying a fee to have a service get you out of mortgage trouble doesn't always benefit the homeowner. So try your free options first.
In these economic troubled times understanding what circumstances are within our control and which are not is important to clarify. We need to accept what is out of our control, plunging home values for example, and make decisions based on our options and resources. Sometimes talking about financial difficulties with a trusted friend can help us get out of "circular fear thinking" and give us a new way to look at our resources and circumstances.
Talking about the possible loss of our home is a hard conversation to begin. But bringing these hard choices into the open and shining a light on what the options are is the first step to getting to a new economic place. Any distressed homeowner is in good company these days with one in every 144 homes in California is in foreclosure as of August 2009. Any damage done to one's credit will one day recover, and until then credit restriction and restructuring may be a valuable financial move.
And remember, our truest assets are not ones we keep in the bank.
Monday Morning Mortgages is a brief week-opening report on mortgages in Sonoma County Home Loans news. This is a tool to assist my realty partners on loan trends, rates, program changes, and problem solutions.
Today's Rates in Sonoma County - http://www.sonomacountyhomeloans.com/
HVCC Crumbles
Opposition to the Home Valuation Code of Conduct is gathering steam via an amendment to the HVCC that would eliminate the industry challenging legislation. The rescue amendment came out of the House Financial Services Committee and now has to pass the House of Representatives, the Senate and be signed into law by the President. Congress still needs to hear from YOU! If you oppose the current HVCC, please sign the petition if you haven't already. http://www.hvccpetition.com/.
For more information, check out these 2 videos by Think Big Work Small on the subject.
The first 3 minutes of each video addresses HVCC issues and how to help if you haven't already signed the HVCC petition.
HVCC Crumbles
http://www.thinkbigworksmall.com/mypage/player/tbws/19036/-3620
Appraisal Fraud up 46% in Q309 vs Q308 even with HVCC
http://www.thinkbigworksmall.com/mypage/player/tbws/19433/-3620
No Appraisal FHA Streamline Refinances
Up until the end of 2009, FHA is accepting streamline refinances that require no appraisal and no income/credit qualification. These loans are for FHA borrowers who want to take advantage of a lower rate. Any FHA mortgage currently at 5.75% or higher should be looking at this opportunity. And make it fast; the no appraisal required feature expires at the end of the year. Here are the highlights:
•· FHA to FHA loans only
•· No appraisal/inspections required
•· New loan amount limited to old loan amount including the paid up front mortgage insurance. New loan amount is calculated before adding the new up front mortgage insurance.
•· New up front mortgage insurance is paid at a 1.50% fee, offset by a refund of some of the previously paid UFMIP.
•· Must be a proven benefit to borrower.
•· Borrower can have no late payments on the former FHA loan.
•· Borrower cannot take any cash out of the transaction.
•· No income/credit required EXCEPT when an original borrower is deleted or a new borrower added.
•· Impounds accounts must be re-funded in escrow.
Loan Limits Extended (courtesy of www.RobChrisman.com)
A story came out saying that "The National Association of Realtors thanked Congress for speedy action in passing a congressional resolution...that would extend the current higher Fannie Mae, Freddie Mac and FHA loan limits through 2010. The present loan limits would expire at the end of 2009 and revert to previous lower limits." The resolution is not a law - it would extend the present conventional loan limits for Fannie and Freddie through the 2010 calendar year at 125 percent of local median home sales prices, up to a maximum of $729,750 in high-cost areas. This legislation was approved by both the House and Senate late last week that extends the higher loan limits currently in place for agency mortgages. The higher loan limit measure was attached to a budget and appropriations bill that was approved by the House with a vote of 247-178 and passed by the Senate just hours later, 72-28.
Homebuyer Tax Credit
The expected extension and expansion of the tax credit, probably the last one, is expected to be voted on as soon as today and probably signed in the next few days, at best. The signing may happen in spite of the administration preferring a slightly different version. The latest version, and this has not been voted on by the Senate, would extend the credit to home sales that go under contract by April 30 and close by June 30, 2010. A new, $6,500 tax credit would be available for buyers of owner occupied primary residences who have owned during five of the eight years prior to the purchase. Although the House may have its own version, this extension includes a few items such as the home price limit would be $800,000, and the annual income limit to qualify for the tax credit would be $125,000 if you're single and $250,000 for couples.
Mortgage Market - What is that crazy Treasury up to?... (Courtesy of www.RobChrisman.com)
The US government ended its program of buying Treasury securities on Thursday after hitting the $300 billion mark. The mortgage-backed market, however, is still reaping the benefits of the US government purchasing those bonds, with several more months to go. Keep in mind that at some point it will end, and the markets know this. Occasionally rates will shoot up for a day, and someone will blame "the eventual ending of the mortgage purchase program". This makes little sense, as it is well known by investors - but there is hope for an extension if the Fed doesn't see secondary market interest.
At the end of last week most eyes were on the stock market, which, on Thursday, had its largest increase in three months, but then had its largest decrease in four months on Friday. The Chicago Purchasing Manager's survey hit a 13 month high and beat expectations, but the University of Michigan Consumer Sentiment survey dropped from 73.5 to 70.6.
The biggest economic event this week will either be the Fed meeting on Wednesday or the unemployment data on Friday. So although overnight rates, which don't directly impact mortgage rates, should stay put, the Fed may indicate future changes in monetary policy. Nonfarm Payroll is expected to drop 165K jobs for October. In addition, the ISM Manufacturing index and Pending Home Sales will come out today. ISM Services will be released on Wednesday. Productivity, Construction Spending, and Factory Orders will round out the busy schedule. The Treasury will announce the size of upcoming auctions on Wednesday as well. Ahead of all that the 10-yr is at 3.41% and mortgages are worse by about .125.
Today's Rates http://www.sonomacountyhomeloans.com/
Monday Morning Mortgages ~ Sonoma County Home Loans Newsletter for Real Estate Professionals
Monday Morning Mortgages is a brief week-opening report on mortgages in our area. This is a tool to assist my realty partners on loan trends, rates, program changes, and problem solutions.
Current rates available at https://www.sonomacountyhomeloans.com
Fannie Mae Upcoming Changes to DTI
Fannie Mae manages the automated underwriting system called DU (Desktop Underwriter). This is the system that loan officers use to run a potential borrower's financial data to achieve a pre-approval. In the past, total expense ratios (debt compared to income or DTI) could go as high as 69% and still get an approval. To go over 55%, the system is acknowledging some compensating factors such as reserves and credit history. The old FHA limit used to be 43% to give some perspective here. Many lenders have put their own "overlays" on DTIs. For example, Sierra Pacific Mortgage will not take a loan over 50% DTI even though DU gives the loan an approve rating. But many other lenders available to brokers will accept whatever the DU system accepts. I like those lenders. Big changes are upcoming to how Fannie Mae approves a loan.
Here is the link to live Fannie Mae Guidelines: https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sg0309.pdf
Well, December 12, 2009 Fannie Mae will usher in a major change in the new DU version 8.0. Fannie Mae is now limiting the DTI to 50%. This change will make for more conservative lending, but also make it difficult for borrowers with non-traditional income to get approved. One of the hardest sectors to get approvals seems to be retirees. Although they can have sizeable investment income and enough assets to buy the property outright, the lending industry is gun shy of stock portfolio values and income. This is in reaction to the volatility in the market in the last 18 months.
Another Fannie Mae change will also make 620 FICO the absolute maximum. Only 60% of retirement account funds can be used on an application, and 70% of stock, bonds or mutual funds. If an asset will be liquidated for downpayment, this will have to be done and documented prior to underwriting approval.
Other news...
Loan-Mods-R-Us Fees
Among the real estate legislation signed into law 2 weeks ago by Governor Schwarzenegger is Senate Bill 94 banning foreclosure and modification companies from collecting any fees prior to completion of the services contracted. That means no non-refundable deposits.
New Laws
Unless you are living under a rock (where I will admit I sometimes spend my weekends) you know it is now a felony to commit loan fraud on a mortgage loan application punishable by 1 year in prison (SB 239). And AB 957 eliminates buyers from being forced to use those Escrow and Title companies selected by the RE) banks and assets managers. Finally! That was a nightmare. They just do things DIFFERENTLY in Southern California...
Rates
The 10-year Treasury note hit 3.5% this morning before setting down to 3.48%. This is an indication of slowing rising rates for the past couple of days. The Fed's mortgage backed securities purchase program, which many mortgage bankers believe is still the only thing keeping mortgage rates as low as they are, still has the capability to absorb close to $15 billion a week through the end of the first quarter of 2010.
Today's Rates (see current days throughout the day with APR calculations at
Licensed mortgage broker navigating today's complex mortgage world. Excellent communication, dependable, experienced, persistant! I offer home buyer education and credit analysis.
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