Christina Dunham's Random Real Estate Musings

Subprime lenders are all but extinct. As of today, 246 major lenders have “imploded,” according to the Mortgage Implode-o-Meter website. Some say that FHA is the next best thing for borrowers with sub-par credit profiles. So how much can FHA really help?

There’s a lot of misconception out there about what FHA loans are. First of all, the FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD).

While Private Mortgage Insurance (PMI) companies only insure the top 20 to 30% of a borrower’s loan amount in case of default, FHA mortgage insurance covers the entire 100% of the loan amount enabling lenders to take on a bigger risk.

Available to all borrowers looking to buy or refinance their primary residences, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.

Contrary to popular belief, there is no maximum income limitation for FHA loan applicants so high income borrowers can still qualify. However, there is a maximum loan limit that varies by area. And under certain conditions, FHA loans may be applied towards secondary residences and investment properties.

Currently, the limit for the San Francisco, San Mateo, Alameda and Santa Clara counties is $729,750, Sacramento county limit is at $580,000, and Solano county is at $557,500. To look up FHA mortgage limits by area, visit https://entp.hud.gov/idapp/html/hicostlook.cfm.

FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.

Some of the other benefits of FHA financing:

1. Only a 3 percent down payment is required. This can come from family members in the form of a gift, or from a non-profit entity as a grant.
2. Closing costs can be financed, and up to 6% of buyer’s closing costs, discount points and prepaid interest, taxes and insurance can be paid for by the seller.
3. Cash reserves are not required for 1-2 unit purchases.
4. Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
5. More flexible underwriting criteria than conventional loans, and interest rates are not based on credit scores. FHA loans look at your entire credit profile over the last 12- 24 months. Borrowers with no credit scores can often qualify with proof of on-time payments for alternate credit sources like utility bills, rent, telephone bills, etc.
6. FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of mortgage).
7. There is no prepayment penalty and the loan can be refinanced or paid off at any time. In addition, loans are assumable to qualified buyers.
8. If rates go down, you can easily obtain a Streamline FHA Refinance to lower your rate as long as you do not have a mortgage late payment in the last 12 months.
9. Non-occupant co-borrowers are allowed for qualifying purposes
10. Citizenship of the United States is not required for eligibility. Permanent resident aliens and non-permanent residents with valid social security numbers and stable employment and income may qualify.

While lending guidelines are more flexible and “less than perfect credit” applicants may qualify, FHA loans aren’t meant for borrowers with multiple mortgage lates and a long history of collections and charge-offs. Some lenders require at least a 600 credit score, and borrowers with no credit scores due to multiple collection accounts or derogatory credit are ineligible for the program.

Borrowers with delinquent mortgages may still qualify to refinance into an FHA loan if:

• They are delinquent by no more than two monthly payments, AND
• They bring the payment current on their own or through the refinance

Because FHA insures up to 100% of the loan amount for much higher loan-to-values, property inspections and appraisal requirements may be a little bit more stringent.

For more information on FHA loans, email me at contact@christinadunham.com or visit www.dunhamgroupmortgage.com/GovernmentLoans.

Until next week, Happy Home loan Shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide multi-billion dollar mortgage banker. She may be reached at contact@christinadunham.com.

Between 2006 to 2007, the number of foreclosures jumped nearly 80 percent. As of Monday, April 28^th, there were 2.45 million homes at various stages of foreclosure. Unfortunately, a 2008 study done by Freddie Mac, entitled “Foreclosure Avoidance Research II,” reports that homeowner’s are generally unaware of the options available to them when they are struggling with their mortgage. One such option in the news lately is a short-sale.

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process.

What is a Short Sale?

A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. In a short-sale situation, the lender – and not the homeowner – determines the winning offer.

And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount.

According to Annie Chang, a realtor from Prudential California Realty in San Bruno, California, a key advantage of short-sales over buying foreclosures at auction is that a potential buyer can include inspection and loan contingencies in their loan offer. While the offer acceptance can take up to months to process, properties on short-sale can often be bought below market value.

If you are planning on buying or investing in short-sales, don't expect a lot of help from the lender without first providing a viable offer price in the sales contract, proof of qualification and/or loan approval, and all the information required by the lender's loss mitigation department. Make sure you work with an experienced real estate agent in preparing your offer package to ensure greater likelihood of acceptance.

Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one.

If you plan to short-sale your home, consult with the lender’s loss mitigation department to determine their requirements. Typically, a written declaration and supporting documentation demonstrating financial hardship may be required. This may include pay stubs, tax returns, and liquid asset statements, among other documentation.

Key Considerations to Keep in Mind

It's important to note that the difference between what is owed on a mortgage and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges don't simply disappear in a short sale. In the past, this deficiency or "canceled mortgage debt" was considered taxable income to the borrower. However,

thanks to the Mortgage Forgiveness Act of 2007, the tax burden for qualifying canceled mortgage debt (as high as 35%) for primary residences only has been temporarily waived until the end of 2009.

If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.

Beware of credit counseling and foreclosure scams requiring up front payment. Consult the www.hud.gov first for reputable resources.

Until next week, happy home loan shopping!

The Economic Stimulus Act of 2008 established temporary higher conforming loan limits through December 31, 2003, benefiting residents of high-cost areas such as Alameda, Contra Costa, Marin, Santa Clara, San Mateo, and San Francisco counties.

For a one-unit property, the maximum temporary loan limit is calculated as 1.25 times the median house price for the highest priced county in the property’s metropolitan area. Regardless of the area median home price, the loan limit cannot exceed $729,750 (or 1.75 times the 2008 conforming limit of $417,000).

In March and April of this year, many lenders rolled out their new rate sheets reflecting these Jumbo Conforming loan limits. While the interest rates were at least 0.5% higher than their conforming counterparts, they were still lower than conventional jumbos by as much as 0.5%, making home loans between $417,000 and $729,750 more affordable for borrowers.

In March of this year, the FHA loan limit was also increased on a temporary basis for some areas and soon after, lenders released their FHA Jumbo rate sheets. The good news is that for most of the San Francisco/Bay Area, FHA Jumbo limits mirror the new Fannie Mae ad Freddie Mac limit of $729,750 for one-unit properties (to find out the maximum loan limit in your area, visit https://entp.hud.gov/idapp/html/hicostlook.cfm).

This spells relief for borrowers looking to purchase properties up to the $729,750 loan limit with minimal down payment. FHA loans are particularly beneficial for borrowers with less than perfect credit since underwriting guidelines are more flexible than conventional loans. Some lenders will even allow borrowers with no credit scores to qualify, provided they are able to furnish alternative sources of credit history.

Since FHA loans are offered by different lenders, guidelines may vary regarding credit scores and debt ratio requirements. For example, here are some features of the FHA Jumbo loans provided by Sierra Pacific Mortgage:

• Only 3% down payment required for purchases
• This can come from family members, non-profit entities, employers, labor unions, charitable organization or other public entity (restrictions apply) in the form of a gift
• Gift equity from family members is also acceptable in certain cases
• For example, on a $725,000 purchase, the down payment required is only $21,750
• Seller contributions up to 6% of the property’s sales price towards closing costs
• Up to 97.75% financing available for no cash-out refinances
• 620 minimum credit score for loans between $362,790 to $500,000
• 640 minimum credit score for loans between $500,000 to $729,750
• Interest rates similar to Jumbo Conforming loans
• No prepayment penalty

While underwriting guidelines for FHA loans are more flexible than conventional loans, borrowers must pass HUD’s CAIVRS check (Credit Alert Interactive Voice Response System). This system reveals whether or not a borrower is delinquent on any Federal debt such as a VA-guaranteed mortgage, Federal student loan, SBA loan, Federal taxes. Unless these debts are brought current or a satisfactory payment plan established as evidenced by a signed installment contract, a borrower is not eligible for an FHA loan.

To determine if you qualify for an FHA loan, use the FHA calculator at http://www.ginniemae.gov/fha2_prequal/intro_questions.asp for a rough estimate. If you find that the loan amount you may qualify for is enough to purchase something today, contact your mortgage advisor for further evaluation of your loan potential. He or she can then issue you a pre-approval so you can start contacting local realtors.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a free consultation or more information about the mortgage market, contact Christina Dunham at 866.7.DUNHAM.

According to the latest figures from foreclosures.com, there are 2.38 million homes in various stages of foreclosure in the U.S. today, 1.4 million homes are being auctioned and 1.74 million homes have been repossessed by the banks. That’s 5.52 million homes nationwide.

At the same time, an increasing number of homeowners are falling behind on their mortgage payments. According to the Mortgage Bankers Association, the number of homeowners more than 30 days late on their mortgage rose from 5.59% in February to 5.82% in March. Doug Duncan, chief economist for the Mortgage Bankers Association says, “We don’t expect to see the peak in delinquencies or foreclosures until mid- to late- 2008.”

To help address the housing crisis, Senators Chris Dodd and Richard Shelby introduced a bipartisan agreement on April 2, 2008 that contains provisions to provide badly needed assistance to families facing foreclosures and to reform the Federal Housing Administration so that more Americans will have access to government-backed loans.

“Senator Shelby and I have worked diligently over the past 24 hours to develop legislation that will help provide solutions to the housing crisis which is forcing millions of homeowners into foreclosure, freezing up the liquidity in our markets, and causing a tightening of credit,” said Dodd. “The package that we agreed to is not perfect, nor will it solve all of the problems that the economy and American homeowners are facing today. But it is an important step, and sends a strong message to the American people that Congress is willing to put aside our partisan differences and come together to tackle the challenges at hand. I hope that Democrats and Republicans alike will agree that this measure provides some much-needed relief for homeowners and communities, and vote for its passage.”

The Foreclosure Prevention Act of 2008 contains the following provisions:

• FHA Modernization. To ensure that additional families can access the FHA program, which provides safe, fixed-rate mortgages, significant FHA reform is included to modernize, streamline and expand the reach of the FHA program. Under this bill, the FHA loan limit is increased from 95% to 110% of area median home price with a cap at 132% of GSE limit (currently, $550,000), allowing families in all areas of the country to access homeownership through FHA. Down payments of 3.5% will be required for any FHA loan and counseling requirements are enhanced to help provide for stable homeownership.
• Assisting Communities Devastated by Foreclosures. Homes that have been foreclosed upon and are sitting unoccupied lead to declines in neighboring house values, increased crime and significant disinvestment. To ensure that communities can mitigate these harmful effects of foreclosures, $4 billion is provided to communities hardest hit by foreclosures and delinquencies. These supplemental Community Development Block Grant Funds will be used to purchase foreclosed homes, at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods and stem the significant losses in house values of neighboring homes.
• Providing Pre-Foreclosure Counseling for Families in Need. To help families avoid foreclosure, this bill provides $100 million in additional funding for housing counseling. These funds will be distributed by the Neighborhood Reinvestment Corporation by the end of 2008 to ensure families can quickly get the help they need. As many as 250,000 additional families connect with their mortgage servicer or lender to explore options that will keep them in their homes as a result of these counseling funds.
• Enhancing Mortgage Disclosure. To ensure that consumers are provided with timely and meaningful disclosures in connection with mortgages, the bill expands the types of home loans subject to early disclosures (within three days of application) under the Truth In Lending Act (TILA) including refinancings. The bill requires that disclosures be provided no later than 7 days prior to closing so borrowers can shop for another loan if not satisfied with the terms. The bill requires a new disclosure that informs borrowers of the maximum monthly payments possible under their loan, and also increases the range of statutory damages for TILA violations from the current $200 to $2000 to $400 to $4000.
• Preserving the American Dream for Our Nation’s Veterans. To assist returning soldiers avoid foreclosure, this bill lengthens the time a lender must wait before starting foreclosure from three months to nine months after a soldier returns from service and also provides returning soldiers with one year relief from increases in mortgage interest rates. In addition, the Department of Defense is required to establish a counseling program to ensure veterans and active service members can access assistance if facing financial difficulties. Also included is a provision that increases the VA loan guarantee amount, so that veterans have additional homeownership opportunities.
• Standard Property Tax Deduction. To make tax relief available to all American homeowners, the bill will provide a standard deduction – $500 for single filers and $1,000 for joint filers – for the 28.3 million non-itemizers who pay property taxes. Present law allows only those who itemize deductions on their Federal tax returns to deduct state and local property taxes from their income.
• Mortgage Revenue Bonds. To provide for refinancing of subprime loans, mortgages for first-time homebuyers and multifamily rental housing, $10 billion of Federal tax-exempt private activity bond authority is included in this bill. The measure also exempts interest earned on the bonds from the alternative minimum tax.
• Extension of Net Operating Loss Carryback. To aid homebuilders and other businesses hit hardest by the economic slump, this bill will extend a law allowing corporations to apply excess net operating losses to tax returns from prior profitable years and receive any applicable refunds. For 2008 and 2009 losses, the provision would extend the “net operating loss (NOL) carryback” to four years (back to 2004 and 2005, respectively) from the two years currently in law. Measures to prevent companies from abusing the intent of the provision are also included.
• Tax Credit for Purchase of Homes in Foreclosure. To encourage the purchase of homes already in foreclosure and of homes on which foreclosure has been filed, this bill creates a $7,000 tax credit for buyers of such homes, to be claimed over two years. Homes in foreclosure bring down the value of property nearby. Encouraging the purchase of more homes in foreclosure will restore property values for all homeowners

The legislation still has to be passed by the Senate and then the House, and then finally signed by the President before it can become law, so it still has a ways to go. While the bill will be a boon to builders, lenders and buyers of foreclosed properties, it doesn’t provide concrete solutions for borrowers with already damaged credit and who are currently facing a re-cast on their adjustable rate mortgage. It will be interesting to see how the bill undergoes revisions as it moves through the process. At the end of the day, we hope that it serves to help those that need it the most – families on the brink of losing their homes.

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a free consultation or more information about the mortgage market, contact Christina Dunham at 866.7.DUNHAM.