Ron Brown FHA & VA Home Loan Specialist

How does FHA determine if a property is located in a Flood Zone?

FHA released Mortgagee Letter 2009-37 this past week to clarify responsibility for designating property as being in a flood zone. In the Washington's North Pierce, and South King County areas of the Green River Valley, this is very timely given the recent news about the Howard Hanson Dam. FEMA does not currently consider much of this area to be a Special Flood Hazard Area (SFHA), but both the Federal, and County government have issued several flood warnings to local residents, as well as taking precautionary action themselves.

Recently, I was asked about eligibility for an FHA loan in the lower elevation areas near the Green River. Part of an FHA appraiser's responsibility is to comment on the appraisal whether the property is located in an SFHA as determined by FEMA. At this time, FEMA is in the process of updating much of Pierce, and King Counties with respect to SFHA zones, but they have not made any changes public yet. This leaves the appraiser in a position where they cannot say the property is in an SFHA because as of right now, it is not. The FHA appraiser is not supposed to evaluate property value based on what might happen. FHA does allow for a "hypothetical" appraisal when there is work to be done; such as with a rehabilitation, or FHA 203k loan, but that is not used for a traditional appraisal.

My FHA borrower heard that King County issued letters of warning to nearly all the residents of Auburn, Kent, and Tukwila urging them to get flood insurance, which is why they were curious if FHA would require them to have the coverage. The mortgagee letter mentioned above states, "final responsibility for determining if a property is located in a SFHA rests with the originating lender." In my case, this means that FHA/HUD will not require flood insurance to guarantee the loan, but they are leaving the door open to renege on their guarantee if a flood does indeed occur. As with many FHA guidelines, it is left up to the investing lender to require the added precaution.

My recommendation is for anyone in this situation to seek out information from their specific insurance company about the cost, and coverage limitations of a flood policy. In most cases, purchasing flood insurance for a home that is not in a designated SFHA is inexpensive, especially in comparison to a property that is in a flood zone. The fact that FHA does not require the insurance does not mean it is wise to go without it.

Ron Brown FHA & VA Loan Specialist First Mortgage Company of Washington 253-881-4699

It has been quite some time since I put out any new blogs using this site. Thankfully, that is because I have been busier than ever with providing loans for both buyers and refinances. During this time (basically, the last couple of months) there has been an awful lot of talk, speculation, rumor, and misinformation about the First Time Home Buyer $8,000 tax credit.

It began when a bill was introduced to the Senate creating a budget addendum that would be used to allow First Time Home Buyers (FTHB) to monetize their tax credit for use as the down payment on the purchase of a home. This sounded like a great idea because FHA's required 3.5% down payment was typically less than $8,000 for many FTHB's.

The problem was in accessing that tax credit. After a purchase closed, the buyer could amend their taxes, and claim the credit right away, which would result in the IRS sending them a check for the $8,000 within roughly 12 weeks. The key here is that the IRS rules only allow that refund check to go to the address of the recipient, and be in the name of the recipient. The agreement HUD gave for using the tax credit as the down payment requires a non-profit such as a State Housing Commission to provide the money in the form of a loan at time of closing, and be paid back under specific circumstances.

In the case of the Washington State Housing Finance Commission (WSHFC), they wanted the IRS to send them the money directly rather than trust the buyer to pay it upon receipt. The IRS declined to change their long-standing rules for what is a temporary program. The result is the WSHFC has discontinued their development of their "Tax Credit Bridge Loan program" due to unacceptable financial risk for them. What this means is FTHB's in WA will not be able to use the tax credit for down payment while those in other states may.

While this is not good news, it is the truth, and it needs to be communicated to the public. However, what I have seen is an irresponsible rush by local lenders to promote this option for a down payment before the authorization, and procedures were in place. I am afraid it has been used as yet another "bait & switch" tactic to get more borrowers in the door.

There are still programs available for buyers who do not have the 3.5% down payment necessary for FHA loans. VA loans have always been one of the very best ways to buy, and locally we do a lot of RDA 100% financing loans which are roughly the equivalent of a VA loan for civilians with some extra qualification requirements. For now, the only thing we can do is try to get the word out that the tax credit is not going to be directly available for down payments.

Ron Brown - VA & FHA Loan Specialist

First Mortgage Company of Washingoton

615 E. Pioneer Ave., Ste. 203

Puyallup, WA 98372

I wanted to share some things that we all generally grumble about in a way that reflects more appropriately to the spirit of the season. I typically send something like this out every year to the many people I've had the pleasure of working with. Perhaps more importantly, I send this out as a way to remind myself that I could be far less fortunate.

I am thankful for...

... The High taxes I pay because it means that I am employed.

... The clothes that fit oh so very tight because it means that I have enough to eat.

... My shadow because it means that I am outside, and the sun is shining.

... Tall grass needing to be mowed, and gutters that need cleaning, because it means I have a home.

... Piles of dirty laundry everywhere because it means my kids are still with me

... The parking spot I find at the end of the parking lot on a rainy day because it means that I can walk.

... How tired I feel at the end of the day because it means that I have been productive.

... The many emails that clog up my inbox because it means that someone thought of me.

... Not knowing everything because it gives me the opportunity to learn.

... All the challenges that face me, because they build my strength and character.

... AND MOST IMPORTANT OF ALL;

The opportunity to work with each of you because it feels great to be part of something bigger than myself.

From my family to yours...Happy Thanksgiving!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

US Stocks are struggling to get back to even for the day, after initially giving up more than half of yesterday's gain. Mortgage Bonds are better than yesterday, but not enough to see any meaningful rate improvement.

Stocks took their cue from today's Retail Sales report that showed a 2.8% decline for October, the biggest drop in 28 years. This marks the 4^th consecutive month of declining sales volume, which has not happened since 1974. While the decrease should not come as a shock to anyone, it was more than economists were expecting, and is representative of the largest month over month decline in two decades. Deflation is a major force behind these numbers as the drop in Gas prices is responsible for nearly half of the drop in total sales with the average price for a gallon of fuel down 17% since September. The other main contributor is Auto Sales with the lowest per capita sales rate since WWII. The Auto Industry is currently lobbying Washington for some of the ever-popular Bailout money courtesy of the taxpayers. There is some positive news in today's reports, as the University of Michigan Consumer Sentiment survey was positive at 57.9 versus expectations of closer to 57 (readings above 50 are considered positive).

Mortgage Bonds took a hit as the result of yesterday's late rally by Stocks. After the Dow fell briefly below the 8,000 level, investors went bargain hunting, and most of the funds came from fixed income investments (Bonds). The market for Mortgage Backed Securities is not looking any stronger as Freddie Mac reported a 3^rd quarter loss of over $25 Billion versus a loss of $1.2 Billion one year ago (a difference of more than 20 fold). As a result, the Federal Housing Finance Agency (FHFA) has requested $13.8 Billion from the US Treasury, and is expecting to receive it by the end of the month. Mortgage Bonds are slightly better off than yesterday's finish, but are continuing to trade in a narrow range, and have failed to break through a technical ceiling of resistance near our 200 day moving average. Bonds have pushed up against this level 4 times in the last 30 trading days, and been turned back each time. Each time we fail to break through this resistance, it becomes much stronger, and harder to get past. The current trend is for a narrowing trading range that indicates a somewhat stable range for mortgage rates looking ahead. The recent news from Treasury Secretary Paulson that the Troubled Asset Relief Program (TARP) funds will not be used to purchase mortgages is not helping to restore confidence in MBS, and for rates to break lower we will likely need some form of positive news on TARP.

If you have transactions closing soon (days rather than weeks), locking would be my choice, but floating cautiously is OK for longer-term closings. There is no indication that our economy is picking up for the holidays, and this is traditionally friendly news for mortgage rates, but keep in mind we are in one of the most volatile markets on record.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington

US Stocks began the day on the upside following the trend from overseas markets, but quickly fell into the red. Mortgage Bonds held early gains longer, but also turned negative before their early closing.

Stocks took their cue from overseas markets early on as the Dow jumped out to a 200 point gain before succumbing to what have become ongoing worries over the global economic outlook. The mood was enthusiastic from China's announcement of a $586 Billion internal stimulus package of their own. Beijing is planning on spending roughly 15% of their country's GDP on infrastructure upgrades in an effort to stimulate their post Olympics' economy. Closer to home, the bailout of AIG was upgraded from its initial $85 Billion price tag to more in the range of $150 Billion after the insurance giant announced quarterly losses of nearly $25 Billion. Investor's euphoria over all this government spending ground to a halt by midday as the focus shifted back to the current negative outlook, highlighted by Circuit City's filing for bankruptcy, and Deutsche Bank's downgrade of GM from Hold to Sell. GM's new target price of $0 (No that's not a misprint!) is a reflection of what has become the worst year for auto sales in the last quarter century, and is indicative of the belief that it is no longer a question of if, but when GM files for Chapter 11. Deutsche Bank does not expect them to last to the end of the year without their own government bailout, and they are said to be losing over $30 Million per day.

Mortgage Bonds struggled to maintain last week's gains as they ran into technical pricing resistance, as well as the initial flow of capital toward Stocks. After hitting a high point last Wednesday, Mortgage Bonds have fallen back below their 200 day average, which has traditionally been a key level of resistance. Thursday & Friday saw mainly mortgage friendly economic reports, but Mortgage Bonds fell lower, driving rates up slightly. Although the key lending rate between banks (LIBOR) has continued to drop, indicating a thawing in credit markets, investor's continue to shy away from MBS as they wait to learn more about how the government is going to spend the $Billions earmarked for the Troubled Asset Relief Program (TARP). Back in September, when the government took over Fannie, and Freddie, Bonds became ever so popular, but that reception has cooled despite efforts to instill confidence in the Mortgage Bond industry. The government has set new volume records with each new massive issue of Treasury Notes needed to fund this bailout, but there has been little detail of where the money is going exactly. The Bond Market has been much more dependent on headline news about TARP than economic news of late, and until further news is announced it is unlikely that Mortgage Bonds will get past the overhead technical resistance.

The bond Market is closed Tuesday for Veterans Day, so rates should not change until Wednesday. Thursday we get the latest Jobless Claims, and Friday is Consumer Sentiment, and Retail Sales data. I am floating to see if Stocks give us reason to hope we break through overhead resistance before then.

Make it a great day!

Ron Brown

FHA & VA Loan Specialist

First Mortgage Company of Washington