FHA Throws Homeowners a Life Vest

As of September 2010, FHA is throwing underwater homeowners a life vest. This new government housing program (FHA Short Refi) is geared to help those homeowners who owe more on their primary residence than what it is worth.

If you are current on your mortgage, but have negative equity, then you could qualify to refinance into a FHA loan. The only catch really is that your existing lender must agree to write off at least 10% of your loan balance. Example:

Before $300,000 loan balance @ 5.0% interest = 1610 (P+I)

After $270,000 loan balance @ 4.5% interest = 1368 (P+I)

Savings $242/month

Like all the other government “help for homeowners” programs, this program is also voluntary and requires your lenders participation. If the homeowner is current on his mortgage payment, I have to question the lenders’ response.

Usually, before a lender is willing to agree to accept additional loss such as writing off part of a mortgage balance, the homeowner would need to be seriously delinquent. In this case, it’s likely to be more costly for the lender to foreclose than to write off balances.

CoreLogic reported in June that 11 million residential homeowners (23%) were in negative equity positions. This program will be funded by $14 billion from the Troubled Asset Relief Program (TARP) funds.

Real Estate & Mortgage Fraud....

Feeling the Whip in San Diego

Right in our own backyard…..those involved with real estate and mortgage fraud are feeling the whip. In recent years, a bookkeeping and income tax office in Vista served as the hub for serious fraud.

Federal prosecutors say the perpetrators created false W2’s, paystubs, and tax records for dozens of real estate agents and loan officers who closed about $55 million in fraudulent loans.

Court documents show examples such as a real estate agent that faxed a letter to the tax office asking for the owner to fabricate 2 years of tax returns with a net income of $8,500/month for a new buyer.

According to officials, San Diego’s fraud activities were highest in 2006, but with new government regulations and task forces, fraudulent activity is expected to decline.

The VP for fraud strategy at CoreLogic, a Santa Ana-based research firm that tracks fraud reported by lenders, stated they are starting to see results.

CoreLogic has reported that the national average for mortgage fraud in 2010 is 0.55%. That translates to .55 cents is fraudulently obtained for every $100 that is loaned. San Diego peaked at .76% in 2006, but is now lower than the national average.

Fraud affects everyone --- banks get stuck with bad loans, properties are foreclosed on, banks ask for bailout money, neighborhood values decline, and the overall market declines.

Other types of real estate and mortgage fraud include: Helping a relative who’s underwater by trying to purchase their home, so the relative can continue to live in the home. Or, trying to short sale a home for non-financial hardship reasons just to purchase a different home that wouldn't be underwater.

FHA Loans – The Price of an Insured Home Loan

Beginning Oct 4, 2010, the following is FHA’s price of insurance on residential home loans.

The up-front insurance premium will be decreased to 1.00% for all loans except the HECM program.

Also, the insurance discount will no longer be effective for first time buyers who attend counseling.

The monthly insurance premium will be as follows:

95% or less Loan to Value = .85% for 20 or 30 year loans

95% or more Loan to Value = .90% for 20 or 30 year loans

90% or less Loan to Value = 0% for 15 year loans

90% or over Loan to Value = .25% for 15 year loans

HECM (reverse loans) will remain at 2.00% up-front and 1.25% monthly.

Example: 250,000 loan amount x .9% insurance = $187.50/month added to your mortgage payment.

After 5 years, the homeowner may request thru the lender, that FHA insurance premiums be cancelled. Also, FHA has been given authority to adjust insurance premiums as they feel needed.

FHA has also included minimum credit score requirements to obtain an FHA home loan, as well as amounts the seller can contribute towards buyer’s closing costs.

HUD Secretary, Donovan, did also say that FHA will launch an emergency home loan program to help unemployed borrowers stay in their homes and, a program to help homeowners who are underwater to refinance.

ill HUD’s new Program Stabilize your Neighborhood?

HUD's new Neighborhood Stabilization Program will provide “emergency assistance” to state and local governments to obtain and redevelop foreclosed properties that might possibly become “sources of abandonment and blight within their communities.” (www.hud.gov/nsp)

The Neighborhood Stabilization Program has provided grants to every state and certain local communities to purchase foreclosed or abandoned homes.

The objective being to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and slow or halt the decline of home values. The statue even includes provisions to “demolish” blighted structures. The program is part of the Housing and Economic Recovery Act of 2008.

Statewide allocations were first determined based on the greatest need, and then the local communities were considered.

The greatest needs, as determined by the Secretary, was based on: the number and percentage of home foreclosures, number of subprime loans, and number of homes in default/delinquency.

Top 7 Grants allocated by the Neighborhood Stabilization Program

Florida $208,437,144

California $149,308,651 (San Diego County not listed)

Michigan $57,524,473

Ohio $51,789,035

Georgia $50,421,988

Arizona $45,377,073

Nevada $43,314,669

RENT vs BUY:

You Can Qualify to Buy a Home in San Diego

Compare renting vs. buying, and you’ll be surprised to know you can qualify to buy a home in San Diego County. If you are renting a 3-4 bedroom house in San Diego County, you are likely paying $1600-$2000/month in rent.

Now let’s assume you qualify to buy a 3 bedroom house in San Diego County for $300,000. If you’re short on cash, let’s work with a 5% down payment of $15,000. Providing your credit score is above 700 and your gross household income is at least $4000/mo, you could buy vs. rent a home.

Your total payment with estimated taxes, insurance, and PMI is only $1868/mo. Aren’t you paying that in rent? And, don’t forget the tax benefits of home ownership, which further reduces the payment impact on your family budget. Dont forget the CA Tax Credit too.

Ask your mortgage broker if you can qualify to buy a home in San

Diego and Buy vs. Rent.

(Interest rates change daily, qualifying criteria applies).