bubbleinfo.com

From the latimes.com:

Could gloomy popular assumptions about how tough it is to get approved for a mortgage be scaring away large numbers of qualified people?

You bet. Lenders and economists will tell you flat out: The lack of accurate information about the availability of loan programs designed to address special needs is discouraging far too many consumers from even considering an application, much less shopping around.

For example, what’s needed for an acceptable down payment? Is it 20%, 10%, less?

Yes, it’s less - and potentially a lot less if you qualify for the right program. The widespread erroneous assumption that banks require a minimum 20% for conventional loans may have arisen from heavy media coverage of a controversial proposal by federal agencies calling for borrowers to put down that much if they want to get the best interest rates and lowest fees.

If you have little or no cash to put down, there are multiple options: The Federal Housing Administration requires just 3.5% down on its insured mortgages. Other programs let you go to zero — even finance more than the price on the house when fees are rolled into the mortgage — provided you fit into an eligibility niche. If you qualify as a veteran or active member of the military, you can get a zero-down Veterans Affairs-guaranteed mortgage. Plus the VA allows your seller to pay your loan fees and closing costs provided that they don’t exceed 6% of the house price.

What about credit? Haven’t lenders been pushing up minimum FICO scores into the mid-700s and rejecting applications with lower scores outright? Not everywhere. Though most lenders doing FHA loans require 620 to 640 scores to get you in the door, a few of the biggest FHA originators, such as Quicken Loans, will accept scores down to 580. Bob Walters, Quicken’s chief economist, says underwriters scrutinize low FICO applications extra carefully but are seeing good to excellent performance from them: Not one has gone seriously delinquent this year.

And how about debt-to-income ratios? Aren’t they tighter than ever? Not really. Lenders say that when loan applications go through the “automated underwriting” systems used by Fannie, Freddie and FHA, borrowers with high total monthly debt levels of 45% to 55% of household income — well beyond the posted limits — frequently get approved if they have positive compensating information elsewhere in the application.

Bottom line: Don’t assume you can’t qualify for a mortgage in 2012. Talk to lenders and seek out loan products that offer flexibility where you need it. You just might be surprised.

From the latimes.com:

After a year characterized by grumpy partisan gridlock, Congress came up with a Thanksgiving compromise that could change the mortgage choices of buyers and refinancers in more than 660 markets across the country: It raised maximum loan limits for the Federal Housing Administration while leaving loan ceilings untouched for Fannie Mae and Freddie Mac.

In effect, this may make FHA the go-to financing option for borrowers needing loans up to $729,750 with down payments as low as 3.5% in high-cost areas of California, the District of Columbia, New York, New Jersey and scattered counties in other states including Massachusetts, Florida and North Carolina. Fannie Mae- and Freddie Mac-eligible loans in those areas, meanwhile, stay capped at $625,500.

Equally important, the new plan raises the FHA ceilings for purchasers in hundreds of more moderate-priced markets. Seattle-area buyers’ maximum FHA loan amount jumped to $567,500, while the Fannie Mae-Freddie Mac ceiling remains at $506,000. In Hartford, Conn., the limit for FHA is now $440,000, up from $320,850; Fannie and Freddie remain capped at $417,000.

The new loan ceilings in hundreds of markets are at the core of the compromise: They raise the maximum FHA loan amount in all areas of the country to 125% of the local median home-sale price, while leaving Fannie Mae’s and Freddie Mac’s limit at 115% of the median.

What will this mean for buyers from now through the end of 2013, when the compromise expires?

“There’s no doubt this will drive more business to FHA,” said David H. Stevens, former FHA commissioner and current president and chief executive of the Mortgage Bankers Assn.  “FHA is going to become the darling of the industry again,” said Annie Austin, a loan officer with Cobalt Mortgage in Bellevue, Wash.

Bob Walters, chief economist of national lender Quicken Loans, said he thinks the increased loan limits will benefit many consumers, “especially those looking to borrow larger amounts,” he said, but who “are in a credit situation where Fannie Mae and Freddie Mac loans are not available or optimal.”

The switch to the FHA could entail some pain, however. Tim Kepler, a loan officer with Land Home Financial in Danville, Calif., noted that the agency raised its upfront mortgage insurance premiums from 0.5% of the loan amount to 1.15% earlier this year. This will increase applicants’ closing costs over a Fannie or Freddie loan, he said.

The premium can be financed, but can add substantially to the costs of high-balance mortgages. Bruce Calabrese, president of Equitable Mortgage in Columbus, Ohio, said the hefty new premiums make “FHA too restrictive and unattractive” for most refinancers in his area, even with slightly higher loan ceilings.

Bottom line for house shoppers: Take a hard, close look at FHA with a local loan officer, in light of the rule changes. Pencil out the costs, down-payment requirements and more generous standards on credit. FHA may be your best option. But then again, the higher fees just might change your mind.

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Other benefits of FHA financing:

1. FHA accepts credit scores under 620.

2. FHA takes higher back-end qualifying ratios – up to 58%.   Fannie/Freddie caps at 45%.

3. FHA allows non-occupant co-borrowers, and you can add as many as needed.

4. Lower down payments, as low as 3.5%.

People want to think the sky will be falling once Fannie Mae and Freddie Mac close up shop.

On October 1st, both will likely be rolling back their super-conforming loan limit of $697,500 to $546,250 in San Diego.  Eventually Fannie/Freddie will be morphed into some quasi-private enterprise, and someday will be phased out altogether.  But there are banks ready to lend – besides the Big Four, we have already heard from Union Bank – here’s another.

Mutual of Omaha Bank is open in Carmel Valley, and Susan has a variety of mortgage options:

With Fannie/Freddie’s policy of taking loans from borrowers with “extenuating circumstances” just three years after their short sale, we should start seeing some of those folks getting back into the market soon – as long as they re-establish good credit. 

From the latimes.com:

Millions of Americans whose credit scores have declined in recent years because of economic stresses could start rebuilding their scores if their rent, utility, cellphone, insurance and other monthly payments were reported to the national credit bureaus.

But typically they are not, and as a consequence fail to show up as positive factors on credit scoring systems such as FICO or VantageScore. These on-time payments essentially go to waste for consumers, even though monthly rents often can be as large as mortgage bills, and years of utility and other payments are widely recognized as strong indicators of creditworthiness.

Now for the secret: Under federal law, these unreported accounts need not go unused. You as a mortgage applicant are guaranteed the right to bring evidence of your unreported on-time payments to lenders, and they in turn are required to consider those records in making a decision on granting you a home loan — provided that you request it. If a loan officer refuses, he or she could be open to legal penalties.

Although federal financial regulators generally acknowledge the right to present supplementary data that consumers enjoy under the Equal Credit Opportunity Act, only one — the National Credit Union Administration — has published guidance informing lenders that they are required to comply.

Factoring in so-called nontraditional credit accounts not only could provide important help to buyers and owners with recession-scarred scores but could also aid the estimated 35 million to 54 million consumers who don’t — or barely — show up in the files of Equifax, Experian and TransUnion, the three national credit bureaus. Many of these are young people with thin files with just a couple of credit accounts, and many are minorities.

Read the rest of this entry »

A question not asked in this video with Ted Lange, a reverse-mortgage specialist for Wells Fargo:

Does the loan balance go up?   Answer:

Yes, the interest payments are tacked on, based on today’s 30-year fixed rate (which is 5.06%):

Hat tip to Trisha for sending along this article by Lynnley Browning in the nytimes.com:

Homeowners looking to lower their monthly mortgage payments and also save some on interest may be able to do so without all the hefty fees and daunting credit requirements of refinancing.

A little-known strategy, called “recasting,” or “re-amortization,” is available through some mortgage lenders and servicers.

It involves paying off a lump sum of the principal amount and asking to have the monthly payments reset according to the original interest rate and loan terms.

The lump sum reduces the principal, so your new monthly payments decrease slightly and you save on interest paid over the life of the loan.

Lenders typically charge an administrative fee of $150 or more for this service, though borrowers are not required to pay closing costs or submit to another credit check, because they are not asking for a new loan.

Recasting works well for those unable to qualify for refinancing amid the ever-toughening credit guidelines — perhaps because they are self-employed or have less-than-stellar credit — as well as for those with extra cash, like a year-end bonus.

“People don’t really know about it,” said Alan Rosenbaum, the founder and chief executive of the Guardhill Financial Corporation in New York, “but it’s become more common recently.”

Although the term “recasting” is often used by the mortgage industry to refer to interest-rate resets on adjustable-rate mortgages, here the interest rate and loan term stay the same.

Here’s how it might work. Let’s say that as of late December, you had just over $230,449 of principal left on a 30-year fixed-rate loan for $300,000 taken out at 7.93 percent in 1995. You have been paying just under $2,187 a month in principal and interest. But if you put in $20,000 toward that remaining principal and asked your lender to reamortize your payments over the remaining 15 years on the loan, your monthly payment would drop by $52, to around $2,135. Putting in $100,000 would save $730 a month and bring payments to $1,457.

Making extra payments toward the principal while not asking the bank to recast a loan keeps monthly payments the same and merely shortens the time it takes to pay off the loan.

From cnbc.com:

How many rich people are there in the U.S., how much do they make and where do they live?

According the data from the Census Bureau, there are currently 4.5 million households that earn over $200,000 per year, which is roughly 3.8% of all households in the country. 

1. California

I represented the seller, a blog reader:

The last sentence here should be a deterent, hopefully, but the standards are a bit vague:

WASHINGTON (Dow Jones)–Legislation to overhaul U.S. mortgage lending passed the House Thursday as lawmakers sought to rein in practices blamed for the foreclosure crisis.   The legislation is a tougher version of a bill that passed the House in 2007 but later stalled. The current bill would establish national minimum underwriting standards for home mortgages and require originators to retain a portion of the credit risk of mortgages they sell to third parties.   The legislation passed the House on a 300-114 vote.  

Under the measure, mortgage lenders would be required to offer home purchase mortgages that a borrower has a “reasonable ability to repay.” For refinancings, the lender has to believe the transaction provides a “net tangible benefit” to the borrower.   A lender violating these rules would be required within 90 days to modify or refinance the loan at no cost to make sure it meets the standards.
(Dow Jones Newswires 04:25 PM ET 05/07/2009)

The C.A.R. has put the lenders and their modification plans together in one place:

http://www.car.org/legal/mortgage-workout-programs/?view=Standard

If it wasn’t obvious that they are just throwing these plans together, seeing them in one place will clinch it.  Not that they need to all use the same criteria, but it sure would be helpful for the consumers to identify clearly whether or not they qualify.  Instead, they’ll be inclined to hire a “consultant” and pay for help they probably wouldn’t need if it were a clear, concise, one-size-fits-all modification plan for all lenders to use.

Here is the summary of the differences in plans:

Hope for Homeowners

• Primary residence, can’t own other properties
• Made at least six payments
• Not able to make payment now without help
• Loan modified to 31% housing debt-to-income ratio, as of March, 2008
• Share new equity with FHA created by modification
• 4.5% funding fee to FHA
• Existing lender must participate
• Homeowner has not been convicted of fraud in the last ten years, and did not knowingly or willingly provide false information to obtain existing mortgage.

Countrywide

• Primary residence only, subprime or option-arm only
• More than 60 days late on payments
• Current on payments, but “reasonably likely” to become 60 days late as a result of rate reset or payment recast.
• 34% housing debt-to-income ratio to figure new loan amount

Citigroup

• Primary residence only, must be current on payments.
• 35% housing debt-to-income ratio on new loan
• Program runs Nov 11 – May, 2009

JPMorgan Chase (WaMu)

• Primary residence only
• Program starts 1/31/09, goes for two years
• Goal is to “achieve sustainable payments” at 31% to 40% housing debt-to-income ratio

IndyMac (FDIC)

• Primary residence only
• Adjustable-rate loans, including subprime and neg-am
• Borrower must already be ‘seriously delinquent’, or at risk of default due to payment resets
• Loan modification based on 38% housing debt-to-income ratio

FHFA (Fannie/Freddie, FHA, WFB)

• Primary residence only
• Starts Dec 15th
• Must have missed three payments, and not declared bankruptcy
• Modified to 38% housing debt-to-income ratio

The lower the DTI, the better for the borrower when calculating the new loan amount. 

Here are some examples, based on 6.25% fixed-rate on new loan, and 34% DTI:

$400,000 old loan

$80,000 gross annual income

$1,500 consumer debt monthly (car pmts., credit cards, etc.)

$295,000 new mortgage

$1,816 PITI + $1,500 = 50% DTI ratio

********************************************************

$500,000 old loan

$100,000 gross annual income ($8,333/mo.)

$2,000/month in consumer debt

$365,000 new mortgage

$2,247 + $2,000 = 51% DTI ratio

********************************************************

$600,000 old loan

$150,000 gross annual income ($12,500/mo.)

$3,000/month in consumer debt

$575,000 new mortgage

$3,540 + $3,000 = 52% DTI ratio

I just changed the data above (12:41pm Monday) to correct the loan amounts – the lenders are going to re-calculate the new loans based on housing debt-to-income only.  If they are going to disregard the consumer debts of the borrower, I’m not sure how much good it will do in the long run.  Still no mention about what happens to the second mortgages, I guess they have to be willing to go away too.

Having ‘back-end’ ratios that exceed 50% is dangerous territory in a state where the combined fed and state income taxes are 25% to 40% – what money is left to eat with, let alone put in savings?