We know everything there is to know about FHA loans. While FHA has been the hot and “new” topic for the past few years, we have been doing FHA loans for over 10 years.

We know how important it is to make your home affordable and this is why we have chosen to excel in the FHA loan program.

With an FHA Loan, you get:

• Low Down Payments
• Great Interest Rates
• Easier qualifications than normal financing

Whether you are looking to simply learn more about how much you can get approved for or needing to refinance out of your high interest rate loan, we can help!

We make the FHA mortgage process simple and stress-free by offering you great advice, great rates, great service, and most importantly, and great experience.

The only economic report for today is the Jobless Claims, and that figure has come in at 434k, a little bit lower than the 439k that was expected, and not much different than the prior 433k.

Mortgage bonds are not moving much from yesterdays losses, as we are currently up 3 basis points and we are hugging the 1st level of support.

We’re going to have a huge day tomorrow in terms of economic reports. The Hourly Earnings, Non-Farm Payrolls, Unemployment Rate, and the Average Work Week are all coming out tomorrow all at 8:30, so looking on how today plays out to work up a rate-lock strategy for tomorrow.

We’re teetering right under the 200 DMA and in volatile territory, so hopefully you’ve taken advantage of our FREE advice of locking in your loan programs a while ago. Right now is not a time to be risking your rate, and a locking stance is what I see to be of most benefit.

Sound risk management is a strategy that I use when advising clients of whether it is more beneficial to lock in or float their mortgage loan, and let me be the first to tell you, this is extremely crucial when you are dealing with the biggest debt of your life. Analyzing economic reports and their effects on the mortgage bond market is something that you have to keep on top of, and without this data (yes, I sound like a nerd), you and your loan are gambling!

Guys, another holiday week, so that means its short in terms of economic reports and its time for YOU to enjoy! Lock in your mortgages and spend some QT with your family.

The New Home sales dropped 11.3% in November to 355K as opposed to the 438K that was expected, and while this helped MBS, the Treasury is now going to auction off $122B instead of the $118B that was expected, so this brought them back down.

If you have a new transaction in the works today, I’d go ahead and just lock it and play it safe.

The voice of mortgage originators and housing professionals was broadcast loud and clear by Federal Reserve Governor Elizabeth Duke today.

Speaking at the Mortgage Foreclosure Policy Conference in Chicago today, Duke’s prepared speech, Envisioning a Future for Housing Finance, called attention to overtightened mortgage underwriting standards and pointed out the effects it was having on the housing recovery.

“Even taking into account the excesses of the bubble period, it appears that lenders have tightened underwriting terms so much that the lack of credit availability is at least partially an impediment to homeownership,” said Duke.

Duke highlighted the lack of available lending products:

“The scarcity of available mortgage lending at present–especially the lack of relatively low-down-payment products beyond the Veterans Administration (VA) and Federal Housing Administration (FHA) market–most hurts modest-income households who lack other assets. This makes it especially difficult for first-time and minority homebuyers to enter the market.”

She pointed out the fact that banks are missing an opportunity to lend to eligible borrowers because of over-tightened guidelines:

“Some would argue that most of the really risky behavior is now out of the market. But, unfortunately, the backlash has restricted a lot of perfectly responsible lending as well. Banks are reluctant to put any but the lowest possible risk loans in their portfolios. And the market for new private mortgage loan securitizations is essentially closed. Thus, borrowers face tight underwriting requirements, even if their own risk profile looks relatively “safe” by historical standards. Moreover, even homebuyers with the requisite down payment realize that their home equity is much less liquid than in the past. Once, borrowers could count on cash-out refinancing or home equity lines of credit as a means of cheaply accessing their home equity; these avenues are now much more restricted.”

Duke then outlined four principles we should focus on when evaluating mortgage reform proposals, here is an outline:

1. Adequate consumer protection.

First and foremost, any new system must contain adequate protections for consumers. In the aftermath of widespread abuses, consumers need to feel confident that they can satisfactorily negotiate a reasonable mortgage.

2. Transparency.

Second, there must be transparency at all levels. Retail products should be as transparent as possible, so that consumers find it easy to understand the terms and risks of their mortgages. Lenders and servicers should also make as much information as is reasonably feasible available to investors. Indeed, adequate information for due diligence is likely a prerequisite to attract capital back to the mortgage market.

3. Simplicity.

Third, the new system should encourage simplicity. Retail mortgage contracts ought to be as simple as possible. Too often, the complexity of mortgages has served to confuse borrowers and make it more difficult to make informed decisions. Similarly, the complexity of the securitizations into which mortgages were packaged made analysis difficult for investors. These structures turned out to be especially fragile when stressed with high defaults and subsequent losses. After the crash, with delinquencies rising, investors found modeling the cash flows under alternative scenarios confusing and uncertain. While complexity may prove to be an inevitable byproduct of financial innovation, investors will likely demand much simpler instruments going forward.

4. Properly aligned incentives.

Finally, the new system should feature clear roles and properly aligned incentives for all players. Too often in the recent turmoil, we saw examples of misaligned interests and competing objectives. For instance, there is evidence that some loan officers and mortgage brokers may have been as concerned about whether loans were profitable to them personally as they were about whether the borrower could actually repay.

She then went on to discuss what the new mortgage market structure might look like. Here is a summary:

1. Lending Practices.

Under Truth in Lending we also have recently proposed revised mortgage disclosure forms for all loans. Despite efforts to improve disclosures and ban egregious practices, obtaining a mortgage and purchasing a home is still a significant and complex transaction. Evidence indicates that consumer counseling, whether for pre-purchase or foreclosure prevention, leads to better outcomes for consumers.

2. Secondary Market

Whether the ultimate vehicle is covered bonds, loan securitizations, or some other model, a mechanism for channeling investment funds into housing finance will be critical to meeting the demands of a normally functioning housing market. Restoration of the residential housing finance market will require more than liquidity. At a minimum, it is likely to require access to information, standardized contracts, and simplified structures.

3. Servicers

Servicers have not always been the most visible part of the mortgage business. Responses to this current crisis, however, including attempts to make large-scale loan modifications, have pointed to the critical role that servicers play through their direct interaction with borrowers. Yet, there have been problems. Many servicers did not have–and some may still not have–adequate systems and personnel in place to deal with the sheer scale of the foreclosure crisis. Servicers are concerned about the competing interest of investors and the threat of litigation for pursuing alternatives to foreclosure. In turn, some investors have questioned servicers’ incentives.

In the future, servicer contracts will need to provide clear guidance and incentive structures that lead to transparency and certainty in loan modifications and other loss mitigation tools.

4. Fannie and Freddie

It would be unrealistic to expect the private mortgage market to rebound without defining the ongoing role of Fannie Mae and Freddie Mac. These government sponsored enterprises (GSEs) have continued to issue large quantities of securities even as private securitization faltered, apparently because investors have continued to believe that the government stands behind them. That experience suggests that, at least under the most stressed conditions, some form of government backstop may be necessary to ensure continued securitization of mortgages.

However, restarting the GSEs in their old forms would do nothing but ask for a repeat of recent history. Without getting into specific proposals today, I’ll simply say that whatever is the ultimate future for Fannie and Freddie, market participants will need to see a clear roadmap for both the individual institutions and the role of government in housing finance before private markets can begin to map a course for themselves.

I have blogging about this for a VERY long time, as the writing has been on the wall from late 2008. As FHA’s Capital Reserve has diminished to practically nothing, this is pressuring lenders to increase credit standards before lending out money.

You may ask, “Why would they do this to SUCH a great program? It’s saving our housing market”

I suggest you then ask yourself, “Why did they stop doing 500 stated? It EXPLODED our Real Estate Market!!!!”

You have to understand that if FHA mortgages continue to default, it does the housing market no good. What’s the point of being able to close on 100 new homes, when 15% will foreclose, only to effect the neighborhoods values. (Sound famliar?”)

I could see the headlines if we don’t take action now- “FHA- The NEW and IMPROVED SubPrime Crisis!”

My prediction is going to be a 640 minimum credit score with a 5% statutory investment in the property.

Let’s see what happens.

Basically what’s going on right now is that there are justifiable rumors that the FHA’s reserves (capital) are hovering around dangerous levels.

Congress requires that the magic number FHA needs to be at is 2%. At the moment, its speculated to be down to about 3% (down from 6.5%  in 2007) and if it falls below that mark, Uncle Sam has to come in and save the day once again. (Is it just me, or is this a never-ending cycle? Has anyone seen AIG’s stock quote recently?)

At the moment, FHA’s defaults (90 days+) are nearing 8% and depleting a good portion of FHA’s reserves. While that number may not seem that HUGE, you have to see how all this links together.

Several high-cost areas in the US got hit pretty hard the past couple of years. What goes up, must come down, right?

Well because of those declining markets, FHA decided to increase their loan limits and availability to accommodate the supply/demand in those areas. Who has $140,000 stashed under their mattress in CA to buy that $700,000 home? Not too many people. Well, who has around $25,000? Get the point?

And while this WAS needed to help stimulate buyers, you have to think of what happens on the flip-side. When that $5,000 (est) payment can’t be made anymore, and its time to jump ship, and who gets stuck with the bill? FHA.

FHA then has to tap into their reserves to make good on this.

Think about this for a moment:

In Texas, about 4-5 homes have to foreclose to match that ONE home in California. The odds of 4-5 consumers simultaneously defaulting is not that likely, unless they’re Madoff’s advisors.

The point I’m trying to make is that the high-cost areas are affecting FHA a little bit more than other more stable areas. While I am not saying that FHA lending shouldn’t be available here, I think it would be a good idea (especially now) to implement some more stringent measures before approving every Tom, Dick, and Harry that apply. Last thing we ALL want is to wave bye bye to FHA.

The remainder of the year will be quite interesting. An important incentive is coming to an end ($8k Tax Credit), and as for interest rates, well, let’s just hope they keep steady. Too many good things coming to an end is not a good thing.

Tommy’s 2 Cents

I would safely venture to say that FHA credit score requirements will be going up here in the upcoming months, as well as a larger down payments later down the line. While FHA loans have been the hot product, I wouldn’t be surprised to see Conventional loans start to SLOWLY creep back in and create a “2nd hand FHA loan” if capital continues to diminish as it has.

Remember what happened with Sub-Prime loans? High Demand, High Supply, POOF- they’re gone! History always repeats itself, let’s just hope we’ve learned our lesson the first time, and we don’t screw up FHA, especially for Dawson’s sake.

To break it down very simply, and this is USUALLY always the case, when a family member sells to ANOTHER family member, FHA looks at that as an Identity-of-Interest Transaction.

I get at least 1-2 calls per month with this scenario, and want to post it on my mortgage blog to educate YOU, the consumer.

So even though FHA has a minimum down payment requirement of 3.5%, in THIS case, you would have to put down 15% percent.

Here is ONE of the exceptions to this rule:

1. The family member has rented the property for at least 6 months predating the contract, in which case a rental agreement will be needed.

If you are in this type of  situation and do not have the 15% to put down, feel free to contact me for more info and some other tips that may help you out!

Here are the conditions:

1. You must be back on the job for at least 6 months
2. You must be able to document a 2 year work history prior to leaving

An example of this is saying a person had to take off several years to raise his/her kids, and then returned working again.

Happy Holidays everyone!

The FHA became a part of HUD, which is the Department of Housing and Urban Development, in the year 1965. In the mid-1980′s, the FHA transitioned to what we call direct endorsement and began approving lenders to underwrite and close their own loans. Prior to this time, the FHA did have a hand in the process of the loan.

It’s amazing to me that after 20 years of this direct endorsement program being in effect, nearly eight out of ten real estate agents I speak with still think that the FHA has a hand in the process of the loan. This is something that’s very important for you to know. When you’re working with real estate agents, you need to make it clear to them that the loan will be processed like any other loan.

It’s also very important to know what the FHA actually does and does not do. First, let’s start with what the FHA doesn’t do. The FHA does not buy loans, they do not originate loans, and they do not service loans. What the FHA does do is provide insurance on loans made by FHA-approved lenders. It is actually the pioneer in mortgage insurance. As you know, mortgage insurance protects the lender in case of default on that loan.

Here are a couple of additional FHA facts:

- The FHA is the only government agency that operates entirely from its own income, and costs the taxpayers nothing.

-It is also the largest insurer of mortgages in the world, insuring nearly 30 million properties since its inception in 1934.