Maybe the mortgage insurance companies have finally figured it out!

This just in; one of the leading mortgage insurance companies has announced plans to insure conventional loans up to 95% LTV with a minimum fico of 660.

In addition they have increased the maximum debt to income ratio they will accept for borrowers with fico’s over 740.

What does this mean? It means that since tightening their lending guidelines they have lost all of their insurance business to FHA. In the meantime they have continued to lose money paying out claims on all the bad loans that they have insured. You don’t have to be an economics major to understand that if your revenue goes down and your expenses go up you will lose money. In an effort to try to get more revenue they have made these moves. Will they work? Only time will tell, but for now it could be the beginning of loosening of credit that will help stimulate the mortgage market after the tax credit ends on June 30, 2010.

Someone else is thinking what I am thinking!

I hate to simply rely on other people to say what I am thinking, however this article on MSN is the perfect advice for those who are getting greedy and thinking that rates are going to continue their downward trend.

http://articles.moneycentral.msn.com/Banking/HomeFinancing/dont-wait-nows-time-to-refinance.aspx

Just because your neighbor got a certain rate does not mean you will get the same rate either better or worse. The days of a simple rate are long gone. Your FICO, loan amount, amount of equity in your home, type of loan, and many other factors will determine your rate. Take the time now to get a "Mortgage Fitness Checkup" to see what is the best plan for you and your financial future!

Sooner or Later I am Right!

Some of you may recall that 45 days ago I predicted the 30 year note to get to 6%. Then 2 weeks after that I again reiterated the stance. Well after the Fed stepped in and took over Fannie Mae and Freddie Mac, we have now seen the rates drop to 6% on a 30 year fixed. That is the good news, here is the bad news.

By taking over these institutions the government has put there finger in the dam. Now they are stuck there with there “finger” in the problem that is our mortgage industry. It is going to cost the tax payers BILLIONS to rescue these two giants. Compared to what we are spending in Iraq, that is a drop in the bucket, but none the less, it is Billions in dollars that could be better used to lower our debt as opposed to raise it. If the gamble pays off, and the money the government invests in Fannie and Freddie has a return, then they have made money. But when was the last time you wanted to gamble Billions of your hard earned dollars and that of your children?

A more realistic scenario is that these two entities become part of HUD in the next 4 years and lending guidelines for the next 4-8 years are slow to loosen. Regional banks and local banks will become the place creative financing, but only for those people that have excellent credit and significant assets or equity.

For questions or comments on this please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Miracles Never Cease!

Back by popular demand, at least in my mind! I will be returning to the airwaves on Tuesday, August 12, 2008 on the mighty mox; that is KMOX for all of you who are not hip to the lingo of St. Louis and our toasted ravioli, hwy farty far, and pork steaks.

At 10:20 in the morning, please tune your radio to 1120 on your am dial or go to www.kmox.com to listen live over the internet. I will be on the air with Dave Simons of Merrill Lynch discussing the new legislation that was signed by the President on July 30, 2008.

Thanks for your support! By the way, if you know anyone who is looking to purchase or refinance please send me their information and I will be happy to keep you posted on how things go!

As always, for questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

New MHDC

Here we go! It is actually going to happen! The new rates for the 2008B are as follows:

CAL for Government loans 6.9%

NON CAL for Government loans 6.45%

CAL for Conventional loans 7.3%

NON CAL for Conventional loans 6.85%

The window for reservations will open at 8 am on Monday August 4th. As soon as you have a confirmed reservation you may close loans. All loans in this bond issue will be sold to the new master servicer US Bank. Training with the master servicer will start on Tuesday August 5th in Columbia and on Wednesday August 6th in St. Louis. I will go over the changes to the program in depth at the training but I will state the changes briefly in this email.

Rates

As you can see we will have 4 rates instead of 2 due to the conventional market. Only Fannie Mae's My Community Mortgage or Freddie Macs Home Possible programs can be used with this bond issue. There will be no charge of 1.25% for LLP and adverse market fee in this issue only. However, there will have to be a $175 servicing fee charged to the borrower for the all CAL loans.

Down payment Assistance

As you can see I have changed the acronym from CAP to CAL. This stands for Cash Assistance Loan and will help differentiate between the two programs. The assistance will still be 3% of the loan amount but it will be in the form of a soft second mortgage that will be forgiven over a 5 year period. The loan will actually diminish 1/60 per month over the 5 year period. The borrower will then be given a 1099 every year for the amount that was forgiven that year and will have to claim that as income on the federal tax return. If the borrower sells or refinances the loan in the first five years the remainder of the amount will have to be paid back. We have been discussing the just-enacted housing stimulus bill with FHA staff and they told us today that the just-enacted housing bill does not impose a 100% CLTV cap on FHA loans. It imposes a 100% LTV cap on the FHA-insured first mortgage and requires the FHA mortgage insurance premium to be counted toward the LTV ratio for purposes of the 100% cap. HUD will continue to allow second liens from state housing agencies that result in CLTVs that exceed 100%.

For Questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

We are on the cusp!

Undeniably the stock market has become a Bear market. That means that the Dow industrial average is down more than 20%. Sooner or later, those investors are going to start to move to safer investments. What are safer investments you ask? Well I am going to suggest that Mortgage Backed Securities are safer investments. For the last 12 months, this investment has been out of favor with everyone from institutional investors to foreign investors. As housing prices have fallen drastically on both coasts the middle of the country has done a good job of holding value. The Countrywide Mortgage debacle has turned a corner and is now Bank of America’s problem. The Fed has not had to rescue any more mortgage companies for the last 30 days. Second quarter earnings are being reported this week and by now all the major companies have figured out that they cannot hide the losses from the mortgage mess, so those will be dealt with in these reports.

That leaves us with mortgage backed securities in position to be an attractive investment again; especially the Ginnie Mae government loans. With over 70% of all loan applications that I am taking right now being for FHA or VA loans, I am confident that most other successful originators are doing the same. This will create a huge supply for these investments and the hawkers of these securities will have the product to sell and most of these properties will not be those that are going into foreclosure but being bought out of foreclosure by people who have the means and desire to make their mortgage payments. Sooner or later, Wall Street is going to start moving these securities and then the laws of economics will take over. As demand goes up so does price. On a bond, for those of you that don’t remember, when the price goes up the yield (see interest rate) goes down. Thus, even though there is discussion of the Fed raising short term interest rates, what they really are hoping for is that the lowering of short term rates that they did months ago will finally take hold on the long rates and we will see the 30 year fixed rate get below 6% again.

Now I realize that this is optimistic thinking on my part, but if you listen to the doom and gloom prognosticators out there saying that the economy and the stock market are still in for tougher times, someone has to be willing to bet on the bond market. Today I am that person!!!

What a difference a day makes!

Over the past 11 months the mortgage industry has gone through one of the most tumultuous times in recent history. As mortgage companies went out of business, others were rescued by the Federal Reserve and program guidelines changed like your mother told you to change your underwear; DAILY. Many people, loan officers included were caught not being up to date on the ever changing landscape of guideline changes. I can admit I had challenges with 2 condo loans in particular.

In addition to the ever changing landscape of product and guideline changes we have also seen a rate climate that reminds me of a playground toy, the sliding teeter totter! Rates go up one day, down the next, up again then up and up and then a drastic drop followed by more upward movement. I continue to preach to my clients, that locking in is the best defense in the current market. We can always look to renegotiate if rates go down drastically but, once they go up you are screwed. As my old mentor told me, “pigs get fat, hogs get slaughtered.

Let’s hope that the reforms FHA has instituted effective July 14, 2008 and the merger of Countrywide and Bank of America signal a change to the whirlwind of changes and the rest of the year is filled with calm waters for borrowers to sail in.

For questions or comments on this post, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

FHA Lifts 90 Waiting Period

In a move to help get foreclosures off the books of lenders quicker and help avoid deterioration of properties that have been foreclosed upon the Department of Housing and Urban Development has lifted their ban on writing a contract if the title has changed in the past 90 days. See the following article: http://www.cnbc.com/id/25146122

For further clarification you can visit HUD’s website at http://www.hud.gov/news/release.cfm?content=pr08-082.cfm

For questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

FHA is the King!

As previously mentioned, the new economic stimulus package has allowed HUD to raise its maximum loan amounts for FHA loans depending upon the county of the property. For those in the St. Louis, Missouri area, that means we now can do an FHA loan for up to $281,250. The previous amount was $213,750, so that is a huge jump, almost a 33% increase.

So who can take advantage of this? You could spend days googling FHA loans to get all kinds of information about the FHA insured loan so I won’t waste you time covering everything. What I will do now is touch on the opportunities that I think will make the most amount of practical use for the clients that I see on a daily basis.

1) First time homebuyers: With the end of the conventional 100% financing (see previous post) now more than ever this will be the product of choice for first time homebuyers who have little or no money down. FHA requires a 3% down payment; however those funds can be gifted to the borrower from a relative. The gift does not have to come all from the same relative either. You can get part from one parent, part from another parent or their siblings such as an aunt or uncle and then you can get more from another relative. Thus on the $289,950 purchase price that the borrower needs $8,750 for a down payment, they can get that from various relatives or at least the part that they have not saved up on their own. They can also borrow the money for a down payment, as long as the loan is secured and has a repayment period of at least 5 years. That payment counts against their debt to income ratio, but makes borrowing against a car, a boat, a certificate of deposit or a 401K an option for coming up with all or some of the down payment.

2) Refinance to get out of an 80/20 loan. The second mortgages on these loans were priced higher than the rate on the first. Many people regretted getting them, but because of the change in Conventional guidelines, they were not able to refinance the loans since they owed over 95% of the appraised value. On an FHA loan, we can refinance them at 97% loan to value if we are paying off liens on the property. A great way to get those people out of 2 mortgage payments and into one at a FIXED rate.

3) Refinance for cash out. Both Fannie and Freddie have made it darn near impossible to get approved for conventional cash out loan over 80% loan to value. First your FICO score has to be over 720 and then good luck getting mortgage insurance on the loan. With FHA we can go to 95% loan to value and thus help get people out of the credit card debt or other challenges that are overwhelming them. It will also allow people to borrow money to improve their property, which in the near future will be a key to helping people hold their property values.

These are just a few of the ways the FHA loan can be used. For comments or questions, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.224.9824.

Manufactured Housing

So why is it so hard to get a loan for a manufactured house? Over the past month I have had the opportunity to work a loan that was on manufactured house that had been repossessed by HUD. The client came to me saying they wanted to buy this house without having sold their current home so they could have time to fix it up before moving in. The borrower was self-employed and he felt his tax returns would not support him owning 2 homes. Based upon his excellent credit I told him we had a way to do the loan if he put 10% down. We would allow him to state his income and then when he sold his current home and was ready to pay down the mortgage on the new home we would refinance him. Things were going along swimmingly until the file hit underwriting. Even though the guidelines I had for the investor said they would do a conventional loan using stated income on a manufactured home, the information the underwriter had said otherwise. At this point most loan officers would take a pass and deny the loan. I chose to switch the loan to an FHA loan and ask the borrower for the documentation to support the income needed.

When I met with the client and reviewed their tax returns I found that they did indeed have enough income for two houses. I will be the first to admit that I made the mistake of not taking charge initially and getting all the documentation upfront and being the expert. Instead I let the client lead me down a path that was a dead end. We switched the appraisal to an FHA appraisal and requested that the realtor change the contract to an FHA contract. The listing agent, being a representative for HUD said that if the loan went FHA a work escrow would be required to repair some items they had found when they did their walkthrough after repossessing the house. The work escrow seemed minimal and the client agreed to fund the work escrow themselves.

In the meantime I contacted our investors to see who would purchase an FHA loan on a manufactured home. I found one of our investors that were willing to purchase the loan and then we sent it to their underwriters. As luck would have it, they denied the loan because it had a work escrow. Now we were in a quandary, we couldn’t do an FHA loan on a HUD repo because there was a work escrow required and we couldn’t go conventional stated with the first investor because they wouldn’t do a loan on a manufactured home. So now, I am sure most loan officers would have told the clients that they could not help them. However, I realized that the realtor involved was counting on the commission from the sale and the borrowers were truly buying a great home for them to retire to. There had to be a way to get the loan done!

We then switched back to a conventional loan and found just 1 of our investors that would purchase a conventional loan on a manufactured home. This investor had some strict guidelines on the information needed on the appraisal, including the HUD Plate and the Manufactures serial number, make, model and year manufactured. In reviewing the appraisal we found that the appraiser did have the HUD Plate information but was lacking the rest of the required information. For 2 weeks we kept asking the appraiser for this information. He continually said that it was not available. The night prior to the loan closing I googled the term “HUD Plate and on the third website showing in the search I found the information for the IBTS, a company that who will get the information for you that was needed if you have the HUD Plate information; http://www.ibts.org/faq_consumer.htm. They charge a $50 fee for normal processing or for a rush they charge $75. We faxed them the form and had the information within 2 hours. We then gave the information to the appraiser for him to add to the appraisal. By 1:00 that day we were clear to close and the borrowers had their new home.

If you can tell me why a home that is manufactured but is permanently attached onto a foundation with a basement is any different than the quickly built subdivision houses that are thrown up across the country I would be happy to learn. Contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Downpayment Assistance Rule

For the past few years, FHA has allowed charitable non-interested parties to supply the down payment to a borrower on FHA loans. Unfortunately, this practice caused housing prices to be inflated as the seller would raise their price and then contribute the increase to the charity as a donation. The charity would then give a gift to the borrower and thus have the down payment for a home with an FHA mortgage. The challenge is that the borrower had no vested interest in the house and when times got tough it was easy for them to walk away since they would be losing nothing other than a home with an inflated price. Selling the home was difficult in a flat or declining real estate market. This practice is one of the logs on the bonfire of the mortgage industry that is burning across our nation. Here is the latest on this practice:

FHA will issue official guidance regarding implementation of the regulation regarding a mortgagor’s cash investment. In the interim, to address the questions raised by many industry partners, FHA is providing the following information:

1. Nehemiah Corporation of America, due to a previous Settlement Agreement and as discussed in the rule, is granted relief from the effective date of the rule until April 1, 2008.

2. HUD has agreed to grant the AmeriDream Downpayment Assistance Program relief from the effective date of the rule until February 29, 2008.

3. All other similar downpayment assistance providers have not been granted relief from the effective date of the rule, which is October 31, 2007.

Provided that the homebuyer has entered into a contract of sale (including any amendments to purchase price) on or before October 31, 2007, FHA will recognize the gift if made to the homebuyer and properly documented as an acceptable source of the downpayment.

To read the final rule in its entirety and for more information please visit: http://hudclips.org/sub_nonhud/cgi/pdf/4846a.pdf

For questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

FHA Mortgage Insurance May Change!

HUD has announced a proposal to change the cost of both upfront and monthly mortgage insurance for purchases and refinances. This change is based upon loan to value and credit score. Their reasoning is that they want to be able to serve more borrowers and keep the opportunity for home ownership accessible to as many as possible. They have imitated a rate system that has been in place in the private mortgage insurance sector for years. Depending on how good your credit is and how much you put down or how much equity you have, your cost of the mortgage insurance will go down.

Why is this good? As the secondary market continues to shy away from maximum financing i.e. 100% loans someone needs to step up to the plate to keep the ability to purchase lower priced homes feasible for most working class people. When they want and can purchase the starter home or the lower priced home, then the person selling that home has the chance to move up, which keeps the process moving right up the price scale.

You can view the proposed changes and get information on how you to can comment to HUD about this change at this address; http://hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=FR07&s1=FR-5171-N-01$[NO]&SECT5=FR07&SECT1=TXTHLB&l=50&u=../cgi/newsdoc_run.cgi&p=1&r=1&f=G

For your comments about this blog or any questions for Chris Scheer, please contact him at cscheer@cornerstonestl.com.