Michelle Braet

Agreement on appraisal reform to be delayed up to 3 months, regulator says

WASHINGTON (AP) -- An agreement to reshape the appraisal industry is being delayed up to three months, a federal regulator said Thursday.

James Lockhart, director of the Federal Housing Finance Agency, told the House Financial Service Committee that the agreement with New York Attorney General Andrew Cuomo is still being worked out

Lockhart said the agreement will be delayed by one to three months from it's original Jan. 1 start date. While the agreement should be finalized in the coming weeks, "it's taken us longer than we expected to do it," he said.

Widespread complaints of problems with the appraisal process and its impact on the nation's housing market led Cuomo to reach a deal in March with Fannie Mae and Freddie Mac, which are regulated by Lockhart.

The agreement will create a watchdog -- the Independent Valuation Protection Institute -- to monitor the appraisal business. Fannie Mae and Freddie Mac will spend $24 million to create the institute, which will accept complaints from consumers and appraisers. It will also monitor the enforcement and report to Cuomo's office.

Earlier this year, federal bank regulators and mortgage industry interests protested the agreement, saying it violates federal law and could have an unintended negative impact on the mortgage industry.

Let's be honest! USDA loans can't really save the market; however, they do have a place in today's mortgage market. My office has been abuzz about USDA loans for the past couple of months-a program that has become, as of October 1, the only affordable zero-down loan program available (other than VA loans, for which only veterans qualify). USDA loans are filling the void created by the elimination of FHA seller-funded DPA (down-payment assistance) and no-down- payment conventional loans. The strange effect that we are seeing is that demand for homes outside Austin's city limits has been affected by this loan program.

A USDA loan is geographically restrictive, and inside Austin's city limits does not qualify. However, bedroom communities like Leander, Hutto, Kyle, Buda, and Wimberley do qualify; and borrowers who have little or no down payment are refocusing their searches in these areas.

So, what is USDA, and what makes this program better than other programs that offer a low down payment? Over the last 12-14 months we have seen a fundamental change in (1) the way that mortgage loans are underwritten, (2) how their interest rates are set, and (3) how mortgage insurance (MI) premiums are determined.

In the past, the rate the bank set was the same regardless of the borrower's score-580 or 800. Over the last few months Fannie Mae and Freddie Mac have instituted a credit score and LTV (loan-to-value) tier system for setting interest rates. Having a 680 score rather than a 770 score will now net a higher interest rate. Fannie and Freddie have also put into effect an LTV tier system; 90 percent LTV rates are higher than 80 percent LTV rates.

Fannie Mae, Freddie Mac, and FHA have drastically scaled back their liberal underwriting standards; and we have seen an increase in the rate of loan denials. As previously noted, Fannie and Freddie have eliminated their zero-down payment loans and instituted a minimum requirement of 3 percent down. FHA has eliminated the seller-funded DPA, which allowed the seller to pay for the buyer's down payment. They have also raised the buyer minimum from 3 percent to 3.5 percent starting January 1, 2009.

Mortgage insurance has always been that dirty little phrase in mortgage lending. MI is insurance for the lender in case the borrower defaults on the mortgage, with the insurance covering losses based upon the coverage amount. In the past, if you were putting down 3 percent on a $225,000 home, the monthly mortgage insurance payment would be $174.60, regardless of your credit score. Since MI companies have started using a tiered premium model, that same monthly payment is now $254.25 per month.
So, what about USDA? What makes this loan better than the ones I have just discussed, and what is the downside? First of all, and probably most importantly, USDA loans are FIXED-rate mortgages with 30-year amortizations. Most of the problems that we are seeing in the financial markets today have been caused by ARMs (adjustable-rate mortgages) and hybrid loans (loans with negative amortization). USDA loans are fully amortized FIXED-rate mortgages, which provides for a stable payment over the life of the loan, thus giving the borrower security.

USDA loans DO NOT have a monthly MI payment! As pointed out earlier in this article, MI payments can be a burden on the borrower in making his monthly payments; therefore, this is a huge advantage for him. The following examples compare conventional , USDA, and FHA loans with a minimum allowed down payment, a credit score of 640, and $175,000 purchase price :

As you can see, USDA loans provide the most affordable option in financing- low payments, fixed rates, NO mortgage insurance, and little or no money out of pocket.

What is the downside of a USDA loan? USDA loans are geographically restrictive, meaning that in certain areas properties are not eligible for USDA financing. To find out which homes in Central Texas qualify, go to www.usdanow.com. Typically, towns with a population above 25,000 do not qualify for USDA financing; however, the best place to check is this website. USDA loans are also income restrictive. Income limits are based on the total projected income for ALL adults living in the household and varies by the number of persons who will reside in the household and the location of the property. Applicants may have an income of up to 115 percent of the median income for the area. Area income limits can be found here, and I have listed the Austin/Round Rock MSA below.

As you can readily see, the income limits are fairly liberal; and a majority of borrowers can and do qualify for this program.

In the opening paragraph I mentioned that borrowers are starting to focus their attention on the bedroom communities that surround Austin. These buyers are choosing this loan program over others, and in doing so they are adding to the demand for these communities. Not many lenders carry this program, and even fewer real estate professionals and buyers are aware of the USDA loan. I believe that this loan program will continue to gain traction and that we will see a move towards more of these. As lending guidelines tighten and borrowers look for alternative options, this program will be in ever greater demand. LOW PAYMENTS, FIXED RATES, NO DOWN PAYMENT, and NO MONTHLY MORTGAGE INSURANCE-this may not save the market; but it is a viable, affordable option for many borrowers

John McClellan, Branch Manager, Supreme Lending

The U.S. House rejected on Monday a proposed $700 billion financial bailout package supported by the Bush administration, the Federal Reserve and the congressional leadership of both parties. The vote was 205 for and 228 against. The rejection of the plan could mean disruption in financial markets and another attempt by officials to craft a compromise plan that will get a majority vote. The administration had been pushing for quick movement on the bailout, which officials have warned is necessary to avert serious consequences for markets and the economy. Some critics said the plan was a giveaway to the very companies that created the crisis, while others said it amounted to socialism.

Here are the 7 things you need to know about these changes:

1. This is a temporary change, and effective as of September 19th, 2008.

2. The borrower must be relocating to a new job location.

3. The new home must be outside reasonable commuting distance from the current residence (UW's discretion).

4. The borrower must have a fully executed lease with at least a 1-year term from the closing date of their new mortgage.

5. The borrower must document receipt of the security deposit and/or first month's rent.

6. Current residence must have an LTV of 75% or less.

7. The value of current residence can be proved with the following:.

• Appraisal no more than 6 months old, or
  
• Original HUD-1 and current bank statement.

Michelle Braet, Mortgage Consultant, Supreme Lending, 512-524-8320, Michelle.Braet@SupremeLending.com, www.MortgageMichelle.com

Uncertainty in Financial Markets Could Cause Dramatic Rise in Existing ARMs at Next Adjustment
If you or anyone you know has an Adjustable Rate Mortgage, this is an important point to consider. Many ARM loans are tied to the London Interbank Offered Rate (LIBOR). In fact, there are six million loans in the United States that use LIBOR to determine the interest rate and as the name suggests, many banks use this rate to lend money to each other.

But, today, banks lack confidence that the money they lend will be paid back. In light of what has happened with Lehman Brothers, IndyMac Bank and others, as well as AIG, banks are requiring much higher rates on LIBOR to offset the added risk.

The Federal Reserve Left Rates Unchanged but...
The Federal Reserve met yesterday leaving the target rate unchanged at 2.00% but just like LIBOR the actual rate being charged by banks to each other is closer to 6.00%. This again suggests that those with ARM loans should consider a refinance into historically low fixed rates.

What Happened?
Financial companies have been under attack. IndyMac was the largest bank to falter in twenty years. What brought IndyMac down was their exposure to defaulting loans. This sapped investor confidence and drove down the stock price until they filed for bankruptcy.

Following IndyMac, we saw Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch succumb and were either forced into conservatorship, to close their doors, or to sell themselves. AIG, the world's largest insurance company was also impacted, forced to make a deal with the U.S. government to stay in business.

What You Can Do Now?
I'd be happy to go over your loan situation and help you understand how the recent events may affect you, and how you can best be protected. Additionally, chaotic times like these often present opportunities. I look forward to hearing from you.

Michelle Braet, Mortgage Consultant, Supreme Lending, 512-524-8320, Michelle.Braet@SupremeLending.com, www.MortgageMichelle.com