Bill Kamboukos

Obama's Plan for a Consumer Financial Protection Agency

This past week saw the release of information for a potential Consumer Financial Protection Agency proposed by President Obama. Nothing is set in stone yet and it is uncertain if this agency will come to pass. However, it cold lead to additional oversight and changes aimed at protecting consumers with financial instruments including mortgages. However, as with many government proposals and initiatives that we have seen with the end claimed results being helping consumers, we will reserve judgment until we see results. The plan perhaps looks good on paper in Washington, but what effect will this have on Main Street if it comes to pass? Here is what we know so far.

The agency would:

* be accountable as primary federal financial consumer protection supervisor.

* have broad authority to protect consumers of credit, savings, payment, and other financial services and regulate such products and services.

* have "full authority" to enforce protections through orders, fines and penalties.

* define standards for plain products and subject alternative products to greater scrutiny.

* ban unfair terms and practices or restrict terms and practices for products that may have benefits.

* help ensure executive pay does not create conflicts of interest between consumers and financial firms.

* enforce fair lending laws and the Community Reinvestment Act, which requires financial institutions to serve sparsely populated or low-income areas.

* overhaul mortgage laws to make them clearer and fairer to consumers.

* require firms to offer a simple mortgage with straightforward terms and uniform disclosure. Consumers could opt for alternative loans but these would be subject to restrictions.

* ban unfair practices such as "yield spread premiums," which entitle mortgage brokers to higher fees if they steer consumers to mortgages with higher costs.

* require mortgage brokers to be paid over time based on loan performance rather than in a lump sum at closing.

* restrict or ban prepayment penalties.

* require loan originators or loan bundlers to retain 5 percent of credit risk.

When we receive additional information and details on the new proposed agency, we will as always pass them along.

For more information on consumer initiatives, home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

The Basics On Condo Financing:

FHA Approval & Warrantable Condos

Recently we have seen an increased demand for clients looking to purchase condos. The important thing to remember however that financing for condos is different than that of single family residence homes. In today's market, in order to finance or refinance a condo, the property needs to fall into one of two categories: it either needs to be FHA approved or a warrantable condo. We will go over basics of these two types of financing options for condos and how to determine if the condo you are looking at falls into either of the two categories.

FHA Approved Condos

Federal Housing Administration financing is available with no restrictions different then loans for single family residences, except that the property must be inside a condo complex that is FHA approved. Well how do you know if a condo is FHA approved? It is quite simply actually, as the FHA provides a link to check this directly at: https://entp.hud.gov/idapp/html/condlook.cfm. Simply put in the condo project name or other details and you will be able to determine if the condo is approved or not.

Warrantable Condos

On the other hand if you are looking to obtain a conventional loan that is backed by Fannie Mae or Freddie Mac, you must determine if a condo is considered warrantable. Unfortunately, there is not a handy tool like the FHA provides to look up individual complexes. Instead, you must determine if the condo project fits into one of three classes that follow. If it does then it warrantable, if not then you cannot obtain a conventional loan on the condo.

CLASS I

1. Developer's control of the homeowners association has been turned over to the condo owners
2. Project is not subject to additional phasing or add-ons which have not yet been completed
3. All common elements and amenities must be fully installed, completed and in operation
4. 70% of all units in the entire development must have been sold and or legally obligated to close
5. 70% of all units in the entire development must have been sold to owner occupants

CLASS II

1. Recent or current condominium conversions (from apartments)
2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years
3. Project is not subject to phasing or add-ons which have not yet been completed
4. All common elements and amenities are fully installed, completed and in operation
5. 70% of the units in the entire development must have been sold and/or legally obligated to close
6. 70% of the units in the entire development must have been sold to owner occupants
7. No more than 15% of the current unit owners are more than one month delinquent in payment of homeowner's dues or assessments

CLASS III

1. Homeowners Association has been controlled by unit owners (other than developer) for at least one year
2. Project is not subject to phasing or add-ons
3. All common amenities are fully installed, completed, and in operation
4. 90% of the units have been sold (owner-occupancy of at least 60%)

In order to determine if a condo falls into one of these classes a condo questionnaire must be completed to determine eligibility. In addition, depending on the type of down payment, loan purpose, etc, there may be additional restrictions for conventional mortgages for condos.

Always consult a lender for final determination on any type of financing, but now you have a guide to begin to determine what type of financing is available if you are looking at financing or refinancing a condo.

For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

FHA Approves $8,000 Tax Credit at Closing - With a Caveat

Following up on the initial announcement that we presented a few weeks ago, HUD has now finalized a plan to allow home buyers to use the $8,000 tax credit for first time buyers, at the closing of their home purchase.

This new plan will allow buyers who qualify for the current first time home buyer tax credit to utilize these funds at closing, as opposed to waiting for the refund, until after closing. Previously buyers had to close on their home and then file an amendment to their 2008 taxes or wait to file their 2009 taxes next year, to take advantage of the credit.

However, there is one caveat that is included in this new final plan, and that is that the $8,000 can be used for closing costs or down payments, but can not be used for the 3.5% minimum down payment currently required on all FHA loans.

What that means is that this new plan will do nothing to help those buyers who lack the 3.5% down payment required for the purchase of a new home, using FHA financing. Instead, this plan will be aimed at allowing buyers to borrow the tax credit, at closing, for additional down payment above and beyond 3.5%. As well, as allowing home buyers to use the tax credit funds to be used to pay for closing costs.

Borrowers can still receive the required 3.5% down payment in the form of a gift from family members, as has always been the case with FHA financing.

In addition, this new initiative to receive the tax credit at closing will be more of a short term bridge loan for the borrowers to receive the $8,000 tax credit, as a silent second mortgage from an FHA mortgagee lender or a government agency and then having the funds repaid when the actual tax credit from the government is processed.

This new plan will certainly provide an incentive for some borrowers who are already looking to purchase a home, but will it create an initiative or opportunity for more buyers to purchase? We will have to wait and see.

For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

Mortgage Rates Rise:

Will The Fed Revise Their Plan?

This past week has seen a rapid spike in interest rates moving the average 30 year fixed rate from a national average of near 4.8% to now significantly above 5% with rates still on the move. When and if rates will move back down below 5% is now the question many consumers have on their mind. However, like many other issues surrounding the mortgage market, the answer may just be an issue of waiting and seeing what happens.

Both treasury yields and mortgage rates rose last Wednesday to their highest levels since November, in turn dealing a blow to the Federal Reserve's efforts to stimulate the economy by keeping borrowing costs low.

The Fed has made low mortgage rates a priority in its strategy to help the U.S. recession. In order to achieve that, the central bank has been buying mortgage backed securities and Treasurys. Since this past fall, it has bought more than $460 billion of mortgage-backed securities and more than $125 billion of Treasury bonds.

However, in recent days the tables have been turned against the Fed, as investors worry the government's approach could lead to inflation. The government will sell nearly $2 trillion in U.S. Treasury bonds this year to fund its stimulus programs, and investors worry there won't be enough demand for it. Therefore, excess demand would send bond prices down and push up the government's cost of raising money.

In addition, recent signs of a recovery in the U.S. and across the globe have attracted investors to move out of the relative safety of the Treasury market and into securities that may yield more, such as corporate bonds, stocks and other debt. While that's generally good news for the U.S., it also makes it harder for the Fed to help reinvigorate the battered housing market and keep mortgage rates low.

As such, with higher interest rates on the horizon, investors have been moving out of longer-term Treasury bonds and into shorter-term debt to avoid the risk of rising rates. Treasury traders have expected the U.S. central bank to step in to keep the 10 year Treasury bond yield at 3.5%. However, the Fed has not been so exact in its purchases.

Higher interest rates, in turn, make existing mortgage-backed securities less attractive, because newer securities would be filled with loans that pay more interest. Once Treasury yields solidly surpassed 3.5%, investors sold nearly $10 billion worth of bonds backed by mortgage loans, analysts estimate.

With Wednesday's rise in rates, additional pressure may now be put on the Fed to increase its planned purchases of Treasurys beyond the $300 billion already earmarked. This is after the late April meeting in which the Fed considered raising the amount but held off. Now the speculation is that the Fed may need to address the market's reactions before its next June 24 FOMC meeting.

When and if the Fed steps in again with a new or revised plan to help keep mortgage rates low is still to be seen. In the mean time we will have to play a waiting game as we see where mortgage rates head next.

For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

Government Adds Cash Incentive To Home Owners Who Can't Save Homes

The Treasury Department recently announced a new plan that includes a cash incentive to assist homeowners to move on and to get loan servicers to forgive mortgage debt for mortgages that can not be modified, for which foreclosure will be the best option.

This newest initiative is the latest portion of the government's Making Home Affordable program to be announced. (See: http://www.treasury.gov/press/releases/tg131.htm).

As mentioned in previous articles, the original program was designed to help, homeowners to be eligible for loan adjustments or refinancing if they meet a slew of criteria including being a loan owned by Fannie Mae or Freddie Mac, being a conforming loan limit and being a primary residence, among other things.

However, even if you meet all those qualifications, mortgage help is not assured. The homeowners may still not be able to afford reduced monthly mortgage payments of 31% of income. And to protect the investors who own the mortgage, the value of a modified loan still has to be greater than the value of what would be recovered in foreclosure.

In these cases, lenders first consider a short sale, a deal in which the home is sold for less than the mortgage balance, and loan servicers may forgive the difference.

If that is unsuccessful, the final step is a "deed in lieu of foreclosure," when borrowers voluntarily forfeit the deed and the debt may be erased.

Under the new initiatives, for short sales and deeds in lieu, borrowers will get up to $1,500 to assist with relocation expenses. Treasury will also pay the servicers $1,000 to complete a short sale or deed in lieu.

A deed in lieu might also be better for the banks. Banks acquire the properties back from delinquent borrowers faster and more easily, saving them legal, financial and other costs associated with going through the entire foreclosure process.

Not every deed in lieu involves "cash for keys," but motivated lenders will often pay borrowers something, typically about $1,000, to vacate by a fixed date and to not vandalize the homes or strip it of fixtures.

The borrowers who may benefit most from this program are the ones who would still not be able to repay their mortgages under any reasonable workouts.

These would include delinquent borrowers who are way underwater, owing much more on their mortgages than their homes are worth, people who have lost their jobs with little hope of finding another and ones who have gone through a divorce or another life-changing event.

In those cases, they may be better off cutting their housing expenses by switching to a rental and the cash-for-keys is one more good reason to do so.

However, the deed in lieu may not be simple. If there's a second mortgage, the lender will not allow a deed in lieu unless they get the full cooperation of the holder of the second mortgage.

To help solve that issue, Treasury will also make incentive payments to second mortgage holders, up to $1,000, if they give up all claims.

We will continue to monitor and provide updates on the making homes affordable program as they become available. However, the introduction of this new program perhaps signals that the government is now seeing that not as many borrowers as they once thought will be helped by the making homes affordable program. Or perhaps this is just another initiative to help clarify and enhance the original program.

For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com