Ron Withers ----Retired Mortgage Professional

Re-Introducing.... FHA for Your Consideration

I realize that there has been numerous posts over the past few months about FHA but one more post or opinion about the subject matter will always be called for...Here's mine!

Given the turmoil of the past few months in the sub-prime and Alt-A mortgage markets as well as the continued tightening of credit standards I would suggest that it would be prudent to re-acquaint yourself with an "old and traditional" standby mortgage financing program........FHA!

Over the past two years FHA has become more "user friendly" , however FHA has been over-shadowed by the availability of other conventional/creative high loan-to-value (LTV) mortgage financing products....products that are now disappearing or undergoing major changes with the tightening of credit standards. These changes do serve to... and will continue to disconnect more homebuyers from their ability to acquire competitive mortgage financing. As the local housing market continues to increase in its' inventory and more buyers find their financing options dwindling we all must maximize every tool and resource available to promote our survivability, capture our fair market share and provide our clients with mortgage financing options to achieve their goals of homeownership.

Below you find a summary overview for FHA financing. However, before I get into the FHA summary I want to share a few more points with you. 100% financing has not disappeared, it's just that underwriting standards have tightened up, generally only available for SFR owner-occupied, full documentation loans and minimum credit score requirements are increasing. The FannieMae MyCommunity Mortgage (MCM) to 100% is unchanged....at least for now. This is a product that many sub-prime and Alt-A borrowers can get into if their loan officer makes the effort to provide it as a competitive alternative. There is Flex 100. There is USDA Rural Housing at 100%+. It is my belief that FHA will offer 100% financing in the near future!

FHA Summary:

Loan Limits: Information is only provided for the Orlando MSA ( Orange, Osceola and Seminole Counties). These counties are designated high-cost areas. If you want to check on loan limits in other areas the following link will give you maximum loan limits by county: https://entp.hud.gov/idapp/html/hicostlook.cfm The maximum loan limits refer to the base loan amount. The Upfront Mortgage Insurance Premium (UFMIP), generally 1.50%, is financed over and above this amount. The monthly MIP factor is .50% which remains relatively low in comparison to most other conventional PMI premiums.

• 1 Unit-$257,450
• 2 Unit-$289,970
• 3 Unit-$352,300
• 4 Unit-$406,500

General Criteria:

• 97.75% financing, less than 3% down
• Funds for down payment, closing costs and pre-paid items may be gifted
• No cash reserves required
• No minimum credit score requirement
• Can use non-traditional credit references to build credit file
• Seller may contribute up to 6%of the purchase price toward closing costs and pre-paid items
• Maximum of 1% origination fee
• 15 and 30 year terms, fixed and adjustable rate options available
• Non-occupying co-borrowers are allowed
• Standard 31/43% ratios.**I have seen back-end ratios to 50% approved w/good compensating factors and automated underwriting**
• Generally, more flexible with credit issues than conventional as related to collections, prior bankruptcy, etc.
• More flexible with employment histories.

Recent/Updated Changes:

• No More Mandatory Seller Paid Closing Costs, Buyer cannot pay tax service fee of $80+/-
• "AS-IS" Appraisals allowed

Appraisals no longer require:

• Sketch indicating distance between well and septic
• Minor cosmetic repairs
• Automatic repairs for existing properties
• Termite, well, septic or flat roof inspections
• VC sheets by Appraisers
• Homebuyer summary

Refinancing with FHA:

If you are a consumer that has found your way to this post and looking to refinance your existing mortgage loan (particularily if it is an ARM coming due for an adjustment), you should consider the merits of refinancing into an FHA loan. Refinancing can be done up to 95% loan-to-value. Find a good loan officer and ask about this as an option! If you can't find the right loan officer then consider contacting me. I can do loans in several states.

So, to you Real Estate and Mortgage Professionals, do you see yourself re-visiting FHA as a solution to recommend to your clients? What say ye?

This simple list of do's and don'ts during the mortgage application process are compiled based on many years of experience in the mortgage lending industry. These do's and don'ts are provided as a courtesy to help ensure that you have a "stress-free" mortgage loan process. And, most importantly, that you unknowingly do something that could negatively impact on the timeliness of your loan processing and closing, the quality of your loan terms or, as a worse case, your final loan approval.

Do consider reading these related posts that also deal with homebuying and the mortgage loan process:

My Three Rules

Borrower Beware: The Liars Page

Do's: Go ahead, unlock your new door and congratulations!

• Do ask questions and be informed.
• Do your homework: Know and understand everything about the, type, terms, and conditions of the mortgage loan that you are applying for.
• Do expect and hold your loan officer to task in providing you an accurate Good Faith Estimate and Truth-in-Lending Disclosure within 3 days of your application. If meeting face to face, a good loan officer will provide these immediately.
• If you are looking to get an Adjustable Rate Mortgage (ARM) be certain that you fully understand the terms and the financial impact on you at the initial and subsequent change dates. Your loan officer should provide you with an ARM Disclosure.
• Do inquire about the terms and understand the provisions of any prepayment penalty that may be a feature in your loan.
• Do require your loan officer to provide you with documentation/proof of your "rate lock" at such time you decide to lock your rate in.
• Do provide your loan officer all requested documentation in a timely fashion.
• Do keep your mortgage file current with the most recent copies of your pay stubs and bank statements.
• Do continue to make all payments on credit cards, loans and rental or mortgage accounts as agreed.
• Do maintain a paperwork trail on everything connected to your application/purchase. A good place to maintain this is in the document folder that your loan officer provided to you at application.
• Do ensure (if needed) that any seller concessions toward your closing costs are clearly specified in your purchase offer as a dollar amount or percentage of the purchase price.
• Do provide a copy of your pre-qualification, pre-approval or commitment letter and your loan officer contact information to your Realtor.
• Do be very cautious of homes referred to as needing tender loving care (TLC )or "fixer-upper".
• Do consider the merits of having home inspections conducted/required as part of your purchase contract. (An ounce of prevention is worth a pound of cure)
• Do consider negotiating for a "Homebuyer Warranty" as part of your purchase offer (existing homes).
• Do provide your loan officer with a fully executed copy of your purchase contract and a copy of your contract/earnest deposit check ASAP.
• And very importantly, if purchasing a home in a coastal area during the Hurricane season (June 1-Nov 30^th) do arrange for and bind your Hazard/Homeowners Insurance ASAP for the date of your closing with your insurance agent. If you are within 5 days of a potential hurricane event you may not be able to obtain insurance coverage and your loan will not close.

Don'ts: Door is locked and the key has been lost, sorry!

• Do not apply or take out new credit cards or loans or have new credit inquiries in your credit bureau file during the course of your loan process and closing.
• Do not (as applicable) payoff any collections or adverse accounts showing in your credit report without first discussing this with your loan officer.
• Do not make any large unverifiable and un-documented deposits or withdrawals to your checking or savings accounts. Your good faith estimate (GFE) provided to you will disclose an estimate for Required Funds For Closing, do not allow your deposit accounts to drop below this amount.
• Do not quit or change employment.
• Do not write any insufficient funds checks (NSF).
• Do not withhold payments to accounts to be paid off in closing without first discussing with your loan officer.
• Do not make a "contract purchase offer" for an amount higher than your pre-qualification or pre-approved amount without first discussing the details with your loan officer.

Copyright 2007, Ron Withers, All Rights Reserved

A Realtor that I work with approached me about 2+ weeks ago about a buyer she was working with that was relocating from NY State to Florida. There was a fully executed purchase contract. She had obtained a copy of her buyer's good faith estimate from a mortgage broker in New York. She was shocked at the terms being offered knowing her clients creditworthiness. The borrower was being quoted an interest rate of 7.75% (sub-prime)(stated-income) and closing costs of approximately $18,000 on a purchase of $198,000.

I advised the Realtor that if all of her indications were correct about her clients creditworthiness that I could probably do a loan at a better interest rate and cut the closing costs in half (saving the buyer $9000 at the closing table). She spoke with her client indicating what terms that I had offered but her client decided to stay with her NY mortgage Broker. Although frustrated, the Realtor said Ok its your money. Me.... Man......that NY broker must have a "silver tongue."

Three days ago the Realtor called me back indicating that her buyer was willing for me to take a look at what terms that I could put together, the contract had expired and they were trying to work on an extension. The sellers were wanting another $5000 on the price as they were in pre-foreclosure and additional expenses had been incurred. I made a house call that evening....I love doing business at the kitchen/dining room table. I collected enough verbal information and got authorization to pull credit. Also indicating that it would take 10-14 days to get to a close since I was picking up from scratch. By the way...the NY brokers disclosures were two plus weeks late for initial disclosure requirements and she indicated that she had signed a number of blank documents.

Yesterday the buyer called me saying that she wasn't going to stay with the purchase since she didn't want to pay the additonal $5000 on sales price. Also, asking would I work with her on the purchase of another home...yes, absolutely! I advised her that she was pre-approved as I had completed a Desktop Origination to FannieMae (full doc). Interest rate in low six's fixed and $200+/- less on monthly payment. I set a tentative time to meet with her on Saturday to make disclosure and if satisfied, orignate her loan.

About an hour later the Realtor says "Ron...stop everything you are doing for this client." Duh....why? "Ron, she has decided to go ahead and buy the home...pay the additional $5000 in purchase price......and she is staying with the NY broker!" The Realtor has had a number of go arounds with this broker and there is no love lost here. She states that she has lost all her patience with the client and made every effort to serve and protect her interests.....let her waste her money!

Ok, fine with me.....but my thought is there will be some kind of 11th hour or closing surprise! Let me know how it goes.

So....Go figure why this borrower won't smell my roses......or maybe it's that I don't have a silver tongue!

P.S. A final disposition to this post is at the 15th comment to this post.....again....Go Figure!

Given the myriad of creative and even "exotic" mortgages and the 2006-2007 housing market those of us in the mortgage industry that have to be wondering, just when and how much are the national wholesale lenders going to "rein in" their credit standards, underwriting guidelines or even eliminate certain mortgage products?

Lord only knows that there are some that need to be trash canned! But this is not the direct subject of this post.

Yesterday I received an email memo from one of our National Wholesale Lenders that effective Feb. 1, 2007 they were reducing their maximum loan-to-value (LTV) by 5% in their Alt A products where the area or county has been identified as a "declining market." They also published a national list of all these areas or locations.

I subscribe to a number of trade publications that can provide information and insight to the changes or trends that are occuring in our industry, however just like ActiveRain Blogs it is difficult at best to keep totally up to date with the flow of information.

As such, I thought it would be great to have an ongoing blog forum here on ActiveRain where us industry professionals could share information on changes or trends regarding the tightening of credit and underwriting standards and elimination of certain mortgage products.

My intent here is not to create a debate or exchange of ideas about various programs and products, their value or lack thereof, but to implement a collective "information repository" where industry professionals residing here in ActiveRain can make note of matters regarding changes and trends in tighening of credit and underwriting standards which may sooner or later impact on how many of us conduct business.

Mortgage and Real Estate Professionals: I would encourage you to consider Bookmarking this post if you desire to track changes and industry trends and well as provide on-going feedback/comments regarding this subject matter. I believe that as an "Information Respository" it can be a good resource for everyone concerned.

Reserved Parking for Related Subject Matter Posts (Yours or mine!):

Photo courtesy of HAAP Media Ltd.

A WORD OF CAUTION ABOUT PUBLISHED/ADVERTISED MORTGAGE RATES AND UNDERSTANDING THE MORTGAGE LOAN PROCESS

As I was flipping through the Homes Insert in today's local newspaper I took a gander at some published mortgage rates by several Mortgage Lenders/Brokers (none of which I recognized) and immediately began to chuckle at the rates and terms being disclosed.

This brought to recollection an article that I had composed two or three years ago in response to periodic comments that I received from my clients about rates published in the newspaper and in television ads. Something that I would handout occasionally as the subject matter arose. The title of this post "The Liar's Page" is taken from my remarks contained within this article. I thought it may be of use to you or your clients. I have this saved as a word document and would be happy to provide a copy of this by email upon request.

First and foremost, as a consumer, it is important for you to understand that there is no "catch-all" mortgage rate for everyone! What you see advertised or published is just a rate! These rates, if available, generally have conditions or strings attached which may not be readily apparent. The fine print is usually too small to read and if on TV doesn't stay on the screen long enough to read. It may be ambiguous or conditioned or have a disclaimer that covers the advertiser from a legal standpoint. For example, Subject to credit approval, minimum loan amount, certain loan types, payment of origination/discount points, etc.

Many of us in the mortgage industry, "jokingly", refer to those Sunday newspaper rates published in the real estate or financial section as the "liar's page". I don't mean to imply that all the lenders/brokers that advertise their rates are less than honest, but there are bad apples in every profession! Just be aware or careful of "bait and switch" tactics. Ask the appropriate questions! Be careful if you enter into a mortgage broker agreement that requires a non-refundable application fee or a penalty if the mortgage broker obtains a loan commitment for you and you decide to refuse or withdraw from the loan. Again, nothing against the mortgage lender/broker community just be an "educated" borrower.

There are many factors that determine what interest rate you may qualify for which include but are not limited to Quality of credit, credit score, type of loan, type of occupancy (owner/non-owner), fixed or adjustable program, qualifying debt ratios, loan-to-value percentage, amount and source of down payment, etc. These factors vary and interact with each other to profile and/or grade your terms. Generally, your credit scores from the three major credit bureaus heads the list of these factors.

The best way that I can explain this further is to provide the following analogy: Let's suppose that you have just gone out and purchased an automobile and must get car insurance. You contact the insurance agent/company and they complete an application for your coverage. As part of their approval process they will investigate your driving record thru BMV records and other sources and probably pull your credit record as well. Lets assume that you've had a couple of accidents in recent years as well as a moving violation or maybe a DUI. This is part of a "risk assessment" process which ultimately determines whether not you can be insured or rated and drives what premium/cost that you have to pay to obtain your insurance coverage. Obviously, the worse your record the more you will pay to obtain coverage or even if coverage can be provided. This "risk assessment" is essentially the same in the credit industry.

The credit/mortgage industry has evolved exponentially over the past few years and your credit file scores will be the most important factor in determining your rate and terms. Thus, at this point, it's important for you to understand what characteristics drive your score level. Don't try to figure it out just understand the basics. Most loan officers can't figure it out! Too many variables. You can have ace perfect credit record but low credit scores! The "risk models" have been developed and refined over the years using credit data, loan characteristics, credit/write-off loss records, etc., from millions and millions of loans.

Factors affecting your score level may include: Age and length of your active credit file, late payment histories 30-60-90 day or more, profit and loss write offs, collections, public records, bankruptcies, tax liens, excessive credit inquiries, to many accounts, to few accounts, to many credit cards, to many revolving/credit card accounts at or near maximum credit limits and on and on and on! For example, a wallet full of credit cards even with no balances can present a problem or lower your credit scores. Really....Why??? The risk assessment may determine that those 5-7-10 credit cards even with zero balances but with cash out availability of $50-60 thousand or more represents a risk that you could virtually over-night go head over heels in debt! Yes, there is a "science" to all this but far be it from us to fully understand it!

So where do you go from here? Here's some of my best advice:

If you are looking to buy or refinance, be an educated borrower, do your homework.

Try asking your prospective loan officer/mortgage broker questions that you already know the answers to. Attorneys (in court) generally will never ask a question that they don't already know the answer to. This is how they trip up the witness. If you get the hem-haw or the wrong answers find another loan officer.

No, I repeat no loan officer can ever guarantee you a rate or terms without having completed a "quality" pre-qualification which includes information about employment, income, assets, credit history, previous rental or mortgage history, a review/analysis of your credit report and any other special circumstances. Every deal is its own deal; there will be something that sets it apart from another. If you get that " I guarantee it" without this process being completed...find another lender

Food for thought....going with the best rate quote doesn't necessarily mean that you are getting the best deal!

Before shopping for or selecting a home to purchase complete your pre-qualification, pre-approval or even better get a conditional loan commitment. This will allow you to shop with confidence, improve your ability to negotiate the best purchase terms (bargaining chip) Know what your options are, Conventional, FHA/VA or an alternative program tailored to your special circumstances, amount of down payment and settlement costs, rate and terms pre-negotiated, fixed or adjustable rate options, time-frames, if seller concessions are needed to make the deal work for you. All of this will save you some time, money, less heartaches and maybe some embarrassment.

If you have selected a good real estate/mortgage professional heed their advice, pay close attention to the do's and don'ts.

If you have selected your lender and completed your purchase contract and want to lock your rate, be sure that you can close within the specified rate lock period, consider asking your loan officer for proof of your rate lock. There are unscrupulous loan officers that will tell you the rate has been locked (guaranteed) but then take it upon themselves to float the rate in an effort to increase their earnings on your loan from something we call rate differential or yield spread premium. This differential or premium is not illegal and is commonplace as every company and loan officer expects a reasonable profit for their services. The issue here is if the loan officer floated the rate without your knowledge and the market takes a down turn. Surprise...surprise! There's trouble in River City!

If you have selected your lender/loan officer and are meeting for completion of the formal application process. Expect and obtain full disclosure. State and Federal Laws require several disclosures to be made. The amount of paperwork and signatures can be intimidating only if you don't understand or the loan officer does a poor job of disclosing and explaining everything. Federal law requires that a Good Faith Estimate of closing and settlement costs (GFE) and a Truth-In-Lending (TIL) disclosure be made within 3 business days of application. Although copies of these can be provided to you within the specified period and still comply with the law, beware of any loan officer that is unprepared or not willing to provide them "on the spot" It's not a problem for a competent/professional loan officer!

Also, don't forget to ask me about "My Three Rules About Obtaining A Mortgage Loan."

Stay tuned for Part 2: A Sample Dialogue of What May Be A "Bait and Switch."

Copyright 2006, Ron Withers, All Rights Reserved