Part of the The American Recovery and Reinvestment Act of 2009 includes bringing back the higher 2008 loan limits to certain areas. Locally this means we may see high balance loan limits increase from $506,000 for single family dwellings in King, Snohomish and Pierce counties back to $567,500. Fannie Mae, Freddie Mac and FHA will move forward and lenders will immediately follow.
Stay tuned.
Mortgage Law Central reports today on FHA’s Oversight Capability.
“Rep. Stephen Lynch, D-Mass., voiced his concern that FHA’s Mutual Mortgage Insurance Fund levels were decreasing and might go under the required two percent threshold. He said the latest data forecast, from June 2008, was done before the meltdown and he believed that the funds could dip below the 2 percent threshold. Heist also had these concerns, stating that the results from the Office of the Inspector General’s (OIG’s ) latest actuarial study show that HUD has sustained significant losses in its Single-Family program, reducing the program’s reserves. He said that as of Sept. 30, 2008, the fund’s economic value was an estimated $12.9 billion. This is an almost 40 percent decrease from over $21 billion the year before. “The current $12.9 billion economic value represents 3 percent of the mortgages insured by the FHA,
King, Snohomish and Pierce Counties loan limits effective January 1, 2009 are:
The new loan limit is lower than the current FHA Jumbo limit of $567,500 and is happens to be the same as the jumbo-conforming (aka high-balance) loan limits for our area for 2009.
This is Part Two of a series of articles on the foreclosure process.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.
Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral. Reduced or free legal aid may be available in some states. Ask for a referral from the state bar association or through a LOCAL HUD-Approved Housing Counseling Agency.
For homeowners who are facing financial hardship, denial is a warm, safe comfortable place to stay, where tough decisions can’t hurt and the decision-making process is put off one day at a time. There is FREE help available from your local state non-profit agencies.
Local, HUD-Approved Housing Counseling Agecies received 1.5 million dollars from Washington State when Gov. Gregoire signed SB 6272. State agencies are already whining that they are “overwhelmed”. Hmmm. How much of that 1.5 million dollars was spent hiring and training competent counselors and how much went into executive salaries, high paid consultants and task force meetings? There are plenty of out-of-work mortgage production people who are (at this point) probably willing to work at non-profit agencies. Put them to work. Perhaps I am in denial as to the extent of the problem at our state agencies. If so, agencies: please enlighten me and RCG readers. If the problems are with the banks and their ability to handle the calls, that doesn’t mean we throw more money at the state agencies. In part five of this series, I will ponder about massive government intervention. For now, we’re left dealing with the problems at hand.
If you are a homeowner reading this article, that means you’re starting to come out of denial. Maybe a friend or relative forwarded this to you. Welcome to raincityguide.com How are you? Don’t say “fine” through tears or clenched teeth. Not so good, right? Okay then. Is your financial distress temporary or long term? THIS is perhaps the most important question you’ll need to answer. This is going to require that you get real with where you are in life. Long term, permanent financial distress situations are going open up options that might be different for a homeowner who has a short term financial distress problem. Let’s try to break things down even more. Long Term: You’ve been laid off and have been unable to find work at your former pay level for along time and you have third party confirmation that the chances of being able to reach that pay level again are very low. Short Term: You’ve been laid off and have been unable to find work at your former pay level but your prospects are good or you’ve recently been re-hired at a similar pay level.
Reinstatement
If you are payment or two behind, which may happen with temporary financial distress, your lender will be thrilled beyond your wildest expectations to accept the total amount owed in a lump sum. Reinstatement often happens simultaneously with a forbearance agreement.
Forbearance Agreement
Your lender agrees to reduce or suspend your payments for a short period of time. These two options are good for people whose financial distress situations are temporary.
Repayment Plan
Your lender helps you get “caught up” by allowing you to take missed payments and tack them on to your existing payment each month until you are caught up.
If your financial distress is long term and will permanently affect your ability to continue making your payments:
Consider Selling
With home values going down, if you do have some equity remaining in your home, you may be better off selling NOW rather than waiting until next year when scads of REOs (already foreclosed-upon homes that the lenders must dispose of) will continue to hit the market, driving inventory up and home values down. If you owe more on your home than what the home can be sold for in today’s market, you have probably already heard of the term Short Sales. In this case, the lender is asked to reduce the pricipal balance and allow the loan to be paid off in order to facilitate a sale. Most lenders are not radically motivated to approve short sales unless foreclosure is imminent. This author does not recommend that you stop making your mortgage payment in order to force the bank to approve your short sale. All homeowners in financial distress should have an attorney holding their hand the entire time. If you have assets, you do not qualify for a short sale. Short sales are reserved for homeowners with NO MONEY and you will be asked to provide proof that you have no money. If you have money, this is a different kind of transaction. It’s called “Making Your Downpayment in Arrears” and you’ll be asked to bring that money at closing. Don’t ask anyone to help you hide your assets. Doing so may constitute mortgage fraud which is now a class B felony in Washington State. I could go on and on about short sales. If you need more education in this area, we’ve covered the topic in these RCG articles:
Short Sales
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Question From Today’s Short Sale Class
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Should You Buy a Short Sale Property?
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Is a Short Sale a Bargain?
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Why Do Banks Take So Long to Approve a Short Sale?
Maybe you would prefer not to sell. Consider taking on a tenant or moving out into more affordable living quarters and renting out your home.
Refinancing is a tough road for homeowners in financial distress. On the one hand, they have been hit by some kind of financial hardship and this typically affects their credit score, which means lender’s rates and fees will be higher. In addition, tightening underwriting guidelines is something banks do in order to help stop the rising tide of foreclosures. People who hold mortgage loans today might not be able to re-qualify for that same loan if they had to requalify under today’s guidelines. Income and assets must be fully documented. Find a licensed, local mortgage lender with FHA-approval to see if you might qualify for an FHA loan. For people who made the conscious decision to state their income higher than reality are out of luck, unless they can prove that they were coached to do so by their lender. Consult a local attorney for further guidance. Since refinancing might only be yesterday’s dream for some, Loan Modifications are all the rage in my spam bin. We’ll cover Loan Mods in Part Three.
While doing research for this blog post, I stumbled upon even more money that went from our state government’s rainy day fund, into a state fund to help low to moderate income Washington State homeowners in foreclosure refinance into new loans through the Wash State Housing Finance Commission. Read more here. I sent an inquiry asking the WSHFC how many WA State Homeowners have been helped this far by this new law and they said, emphasis mine:
Dear Ms. Schlicke:
Thank you for your interest in the Smart Homeownership Choices Program. To date, we have not made a loan to a prospective applicant. The good news is that when we have talked to the delinquent homebuyers, it seems they have not been able to make contact with their lenders to discuss foreclosure options. So, we have been able to facilitate getting them to the right person for loan modifications, etc. There have also been homeowners who have not been pleased with the fact that the assistance is in the form of a loan and not a grant. They believe the government should be giving them the money to save their home. While we cannot respond positively to these folks, we do send them to one of our homeownership counseling partners to help them with other options that might be available.
If you know someone who might benefit from the program, please feel free to give them my contact information.
Sincerely,
Dee Taylor
Director, Homeownership Division
Washington State Housing Finance Commission
1000 Second Avenue, Suite 2700
Seattle, WA 98104-1046
(206) 287-4414
Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding
Update 10/18/2008: This post was written in April 2008 and since then, many FHA guidelines have changed. This post has been updated, however it’s very important to not rely 100% on mortgage information from what you read on the web. Our guidelines are changing too quickly these days! FHA Jumbo loan limits mentioned in this post are effective through 12/31/2008 and will be reduced to 115% of the median home value 1/1/2009 (estimated at $522,000). Click here for an update on FHA guidelines.
Update 2/27/2009: Lenders are applying a minimum credit score of 620 for FHA loans and the 2008 loan limits are returning. Is it possible for me to chop up this post any more?
I thought it might be helpful to provide some information for you to use for when I quote rates on Friday for the FHA Jumbo mortgage. There are other criteria to be considered beyond looking at the rate. You may not have considered FHA before due to loan limits, now it’s more attractive: how else can you buy a home priced at $584,000 with 3% down and credit scores below 720?
FHA Mortgage Insurance
FHA charges both upfront and monthly mortgage insurance regardless of how much money you’re putting down. Seriously, if you’re putting 50% down and using an FHA insured mortgage, you’re paying mortgage insurance. FHA mortgage insurance does not cancel out automatically when your home has an 80% loan to value. You will pay the FHA mortgage insurance for a minimum of 5 years and 78% of the original value (lesser of sales price or appraised value) of the home.
Upfront Mortgage Insurance
Upfront mortgage insurance for a FHA insured mortgage is 1.5% 1.75% of the loan amount for a purchase. With an FHA mortgage, you have a base loan amount and the adjusted loan amount (after you add in the upfront mortgage insurance). For example, if your base loan amount is at the current King, Snohomish and Pierce County level of $567,500, your adjusted loan amount will be $576,012 $577,431 (567,500 plus 1.5% or 8,512 1.75% or 9,931) . Once upon a time, FHA upfront mortgage insurance could be refunded if the mortgage was terminated early with a balance of the mortgage insurance premium remaining, this is no longer the case for new FHA mortgages (which I believe is part of the reason FHA fell from favor during the subprime boom). The adjusted loan amount is what your principal and interest payment is based on. So if the rate going for a FHA Jumbo was 6.500% (this is not a rate quote; this is for example only), the principal and interest payment would be $3,640.79 $3,649.76 (576012 577,431 amortized for 30 years at 6.5%).
Monthly Mortgage Insurance
Yes…as if paying that 1.5% 1.75% upfront MI wasn’t enough…FHA has monthly mortgage insurance as well…the good news is that it is at a low rate compared to traditional private mortgage insurance (especially factoring in a jumbo loan amount, higher loan to value and credit scores below 720). The rate for FHA mortgage insurance is 0.5% 0.55% (for a purchase) of the base loan amount. Using our current example, your monthly mortgage insurance would be $236.46 $260.10 (base loan amount = 567,500 x 0.5% 0.55% divided by 12).
FHA is a fully documented mortgage loan. You will need to provide 2 years of W2s (tax returns if self employed) and your most recent paystubs covering 30 days of income. Any gaps of employment during the past 24 months will need to be explained. There are no income limitations and the DTI is roughly 43%.
Low Down Payment
FHA Jumbos allow for as little as a 3% 3.5% down payment. This means you could be a home priced around $585,000 with the base loan amount of $567,500. Your down payment must be fully sourced and seasoned. Be prepared to hand over your last 2-3 months of bank statements and any asset accounts (all pages) and to explain any large deposits that are not from your source of income. The Seller may contribute up to 6% towards closing costs however the buyer has a minimum investment required of 3% 3.5%. Family members can gift funds towards closing costs as well which counts towards the buyer’s required 3% 3.5%.
Update: Effective January 1, 2009, the minimum down payment will be increased to 3.5%.
Speaking of documentation…
I’ve covered FHA before…and the guidelines for traditional FHA are pretty true for the temporary Jumbo FHA mortgages as well. Here are a few more pointers for our current market:
* FHA does not have price or loan to value limits for geographical areas determined to be soft or declining.
* FHA does not have credit score risked based pricing for credit scores above 620. (Lenders may have their own risk based pricing for credit scores under 620).
Sellers with homes priced around the new FHA jumbo loan limits should consider buyers utilizing FHA financing. A sales price of $584,000 would allow for a minimum down FHA insured mortgage. However a home buyer could always use more towards down payment and opt for a FHA mortgage meaning that if your home is priced higher, you may still want to consider allowing FHA buyers as they may be considering FHA over the price hits conforming has if their score is below 720.
Condo’s are acceptable for FHA financing as well. They may not be on the FHA approved list, however, if the condo meets the requirements for a “spot approval”, they can still qualify for FHA financing.
Act fast…FHA Jumbo is only here until December 31, 2008. loan limits will be slightly reduced on January 1, 2009.