dcsimg

Tell us what you need, and we'll search our database to find trusted lenders who'll compete for your business.

--Or--


Check out for yourself the latest rates, monthly payments, and loan products lenders are offering.

Government changes rules for FHA lenders

Peter G. Miller
November 3rd, 2010

When we thing of FHA mortgages we’re usually talking about HUD and the FHA itself. However, there is another government player to watch, one which has just upped the ante for FHA lenders.

The Government National Mortgage Association (Ginnie Mae) is part of the federal government. It plays an important role with the FHA mortgage program because it creates a secondary market for such loans — that is, when a lender originates a mortgage that meets FHA guidelines it can then be sold to Ginnie Mae. Armed with new capital, the lender can make more loans and thus generate more income and profits.

As Ginnie Mae explains, it guarantees “investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Other guarantors or issuers of loans eligible as collateral for Ginnie Mae MBS include the Department of Agriculture’s Rural Housing Service (RHS) and the Department of Housing and Urban Development’s Office of Public and Indian Housing (PIH).

Ginnie Mae says its “securities are the only MBS to carry the full faith and credit guaranty of the United States government, which means that even in difficult times an investment in Ginnie Mae MBS is one of the safest an investor can make.” In today’s world such a guarantee is not to be overlooked.

All of which means that lenders want very much to meet FHA standards and to have the ability to sell their loans to Ginnie Mae. Now, however, Ginnie Mae is changing the benchmarks in a way that will knock out a number of current FHA lenders.

Net Worth Requirements

Ginnie Mae says it’s changing baseline financial requirements for lenders “in order to ensure that its program requirements align with the rapidly changing housing finance market. The changes to the financial requirements include an increase in the net worth requirement and new liquid asset and capital asset requirements.”

And just how much more will lenders need? The new base net worth requirement is rising from $1 million to $2.5 million. All current lenders must meet that standard by next October 1st, new lenders applying for Ginnie Mae approval must meet the new benchmark now.

So why is this a big deal? HUD has established new FHA rules and guidelines designed to assure that lenders actually follow FHA requirements. Having such regulations doesn’t mean a lot if they cannot be enforced.

One way to enforce the standards is to dump FHA lenders who break the rules. But another approach is to say that lenders must buy back FHA loans which were endorsed by the government on the basis of faked loan applications and underwriting. The catch is that lenders without capital have little capacity to buy back much more than a cup of coffee and three guitar strings. By raising the capital requirement to $2.5 million Ginnie Mae and HUD will be able to get real damages from lenders who fake loans, damages that are too big to ignore.

  •  | 
  • stumbleupon
  •  | 

 

Refinance your reverse mortgage?

Gina Pogol
November 1st, 2010

There are two scenarios in which it might make sense to refinance with a new Home Equity Conversion Mortgage (HECM). You might be able to refinance to a lower interest rate and save money. You might be able take a larger payout by refinancing.

The new payoff would be determined by the increase in your property value, the balance on your current loan, your age, and current interest rates. Let’s look at these factors one at a time.

Property value increase: a $250,000 home could be borrowed against by a 65-year old to the tune of $150,000 at today’s fixed rates. If the property appreciates at 5% per year, in five years it would be worth $319,070. All other things being equal, you’d be able to take $192,285 out (less the amounts already advanced and interest accrued). But wait, there’s more.

Your age increases: Sometimes getting older is not a bad thing. A $319,070 home with a 70-year-old borrower releases $201,538.

Current interest rates: Chances are very good that interest rates on HECMs today are substantially lower than what you are paying, especially if your current loan has a fixed rate. The lower the rate, the more cash you get. The other consideration is fixed versus adjustable — fixed rates come with higher payouts. If your current loan is adjustable and you choose a new fixed rate for your HECM refinance, you could make your loans less risky and increase your payout. read more

  •  | 
  • stumbleupon
  •  | 

 

New FHA profile evolves during 2010

Peter G. Miller
November 1st, 2010

For the government fiscal 2010 ended September 30th, a benchmark which allows us to see how the FHA loan program compares with fiscal 2009. The results, as we shall see, may be surprising.

To start, credit scores remain enormously healthy, 699 in the latest FHA Outlook report, up from 689 a year ago. This is a very solid credit score, not the top of the heap (850) but far above any sensible notion of subprime.

FHA loan applications were off 19.2 percent. However, a closer look at the applications shows that purchase activity was about as flat as these things get: 1,256,565 purchase applications in 2010 versus 1,256,494 in 2009. However, while purchase applications were steady existing home sales declined. The National Association of Realtors says September existing home sales were off 19.1 percent from 2009. Such numbers suggest that FHA market share for home purchases has increased, news which will not thrill critics of the program.

While purchase money activity held steady, refinancing dropped by a third from 981,160 in 2010 from 1,472,023 in 2009. The most logical reason for this would be the erosion in home values. Since April 2007 — they’re down 13.6 percent. People who once might have refinanced to get additional cash from their properties are now refinancing to get better rates and owe less.

“In the third quarter of 2010,” says Freddie Mac, “33 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table.”

Freddie Mac explaines that “the main causes of the decline in cash-out refinancing were reduced home prices, tighter underwriting standards for loan-to-value ratios, and borrowers’ desire to pay down debt.”

While applications tell us how many attempts were made to get FHA financing, endorsements tell us how many loans were actually made.

The FHA reports that during fiscal 2010 it “endorsed 1,746,997 mortgages for insurance. They included 1,109,699 purchase money mortgages, 558,192 refinance transactions and 79,106 HECM’s. Four out of five of the purchase transactions were for first time home buyers. With respect to refinancing, 252,522 were former FHA mortgages, of which, 212,940 were streamline cases. In addition, 305,676 endorsements were conventional mortgages loans converting to FHA insured mortgages. Included in the refinance total were 107 H4H cases, all of which were formerly conventional cases.”

H4H — Hope for Homeowners — was the Bush-era program that was going to save large numbers of property owners from foreclosure. As you can guess, 107 happy borrowers is not much of a dent given that foreclosure filings have exceeded 300,000 per month for more than 19 months according to RealtyTrac.

If there’s good news from any of this it’s that the FHA program is solvent; that it has not received TARP money despite rumors to the contrary and that it remains a solid alternative for many of those who need to finance and refinance residential real estate.

  •  | 
  • stumbleupon
  •  |