Well the results of the FHA audit are in and they’re NOT good.
A while back I wrote a blog regarding the dire matter at hand explaining how FHA works and what to expect in the near future.
Well, after the audit, FHA’s current Capital Reserve came back at 0.53% when in fact they are SUPPOSED to be at 2% as mandated by Congress. This money (kind of like an emergency fund if you will) is used to cover “anticipated losses” for the near future.
The Federal House of Administration also holds what is called a Financing Account. Now THIS is used to cover “Actual Losses”.
At the moment, both of these accounts hold about $31 billion, or about 4.5% of the Congressionally mandated 2%.
So what does all this jargon mean and is it good or bad?
Well, both.
Its bad because if Congress MANDATES you to hold a minimum amount in your “savings account”, and you don’t, it is jeopardizing the integrity of the actual program itself. What makes you think that you don’t have to follow the order from above and what kind of image does this portray to the general public? If a government agency isn’t following the rules, why should YOU?
The rule is put into place for a reason. A Senator didn’t just finish his brisk run in the park, go to his morning “secret handshake tutorial”, then walk into HUD and say, “Ya, Peter, let’s go ahead and make the reserve requirement 2% today. I’m feeling FRIS-KAY!”
There’s a REASON the Mafia fell apart folks- because they didn’t follow the rules!
What’s next? TPS reports?
On the other hand (and it’s not that big of a hand), between FHA’s Reserve AND Financing Account, they do have enough money to meet the 2% requirement. I guess somehow this is OK and puts everyone’s mind to rest.
Now, what happens when THAT fund diminishes? Is another “Account” going to pop-up when “FHA hits the fan” to smooth over Congress’s approval?
Yes, its good that they HAVE money, but I don’t believe it should be used as an excuse. It’s exactly like maxing out a credit card. “Oh Bruce, don’t worry, we have ANOTHER ONE!”
Tommy’s 2 Cents:
The point of all this to demonstrate that measures need to be taken NOW to ensure that FHA’s Reserve requirement is met. I understand that this account is for “anticipated losses” and there is money somewhere for actual losses, however the rule needs to be followed or else we are all putting in danger a program that has saved EVERYONE’S butts, as it was originally intended to do so. I certainly do not want to be part of the crowd that overlooked this and said, “Oh, it’ll be fine. They have money.” We have overlooked A LOT of things in the past 5 years, and I for one do not want to see another bust.
They’re the damn guys that took all of our money and bought out troubled Countrywide and Merrill Lynch! I mean honestly folks- HOW IN THE HELL DO YOU GET BILLIONS OF DOLLARS FROM THE GOVERNMENT and STILL lose money????
Since the Countrywide acquisition, I personally withdrew all my money from B of A and put it elsewhere. If someone’s gonna screw me, at least pay me for it!
Oh what's that? You say you're the "Bank of Opportunity"? Who's benefiting? Ken Lewis or my old .0000345% savings account?
Read the article below for more info.
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By IEVA M. AUGSTUMS, AP Business Writer
CHARLOTTE, N.C. – Bank of America Corp. said Friday it lost more than $2.2 billion in the third quarter as loan losses kept rising, providing further evidence that consumers are still struggling to pay their bills.
The nation’s second-largest bank said it wrote down loans on its books by almost $10 billion during the July-September period, up almost $1 billion from the second quarter. The bank also added $2.1 billion to its reserves to cover bad loans, bringing its provision for credit losses to $11.7 billion. The bank’s total allowance for loan and lease losses now totals $35.83 billion.
Bank of America’s results were aided by profit from investment bankMerrill Lynch, including income from bond, stock and currency trading.
Its earnings follow the pattern set earlier this week by Citigroup Inc. and JPMorgan Chase & Co., which also reported more loan losses during the third quarter as consumers struggled to keep up with their credit card and mortgage payments. And on Friday, General Electric Co. reported that its GE Capital business, which includes credit cards, saw an 87 percent drop in profits, although it was also weighed down by commercial real estate losses. Together, the reports depict a financial industry that is still deeply troubled.
Banks have predicted for some time that their loan losses would keep rising. And Bank of America’s CEO Ken Lewis confirmed that this trend continues.
“Based on (the) economic scenario, results in the fourth quarter are expected to continue to be challenging as we close the year,” Lewis said on a conference call with analysts.
Bank of America said it lost $2.24 billion, or 26 cents per share, after accounting for the preferred dividends of $1.24 billion. That compared with earnings of $704 million, or 15 cents per share, a year earlier.
Revenue in the quarter increased 33 percent to $26.04 billion.
The loss was 5 cents more per share than the 21 cents forecast by analysts surveyed by Thomson Reuters Inc. Investors sent Bank of America shares down 90 cents, or 5 percent, to $17.20 in morning trading.
“Obviously, credit costs remain high, and that is our major financial challenge going forward,” Lewis said in a statement accompanying the earnings report. “However, we are heartened by early positive signs, such as the leveling of delinquencies among our credit card numbers.”
During the analyst call, Lewis said the bank believes it may have peaked in total credit losses this quarter, “although the levels going forward will continue to be elevated and certain businesses will still experience higher losses.”
Bank of America is considered particularly vulnerable to unemployment, which climbed last month to 9.8 percent in the U.S. Economists predict the jobless rate will pass 10 percent in the coming months.
The bank’s massive portfolio of credit-card loans could help investors determine where the economy is headed and how well the industry at large will fare, said Doug Dannemiller, senior analyst at Boston-based research firm Aite Group.
“As unemployment rates are in the 10 percent range, the results on consumer lending aren’t going to improve until that number gets lower,” Dannemiller said.
The bank has about 53 million consumer and small business customers, making it vulnerable to delinquencies and defaults, yet also ready to thrive when the economy recovers.
Bank of America’s global card services unit loss widened significantly to $1.04 billion from $167 million a year ago.
The loss in the bank’s home loans and insurance division grew to $1.6 billion from $54 million a year ago, as credit costs continued to rise.
The bank, which being investigated by federal authorities for its Merrill acquisition, has received $45 billion in bailout funds as part of the Treasury Departments $700 billion financial rescue package. It’s not known when it will repay the government.
Lewis, who is retiring at year’s end, has agreed to give up his salary and other compensation for 2009.
In a previous post of mine, I outlined a problem that FHA has been currently dealing with, and yesterday, on the front page of Yahoo, I found an article from the New York Times that gives a nice little update.
I wanted to repost it so please take a moment to read this (kinda lengthy), as its VERY important.
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U.S. Mortgage Backer May Need Bailout by David Streitfeld and Louise Story Friday, October 9, 2009
A year after Fannie Mae and Freddie Mac teetered, industry executives and Washington policy makers are worrying that another government mortgage giant could be the next housing domino.
Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout.
Running questions about the F.H.A.’s future — underscored by interviews with policy makers, analysts and home buyers — came to the fore on Thursday on Capitol Hill. In testimony before a House subcommittee, the F.H.A. commissioner, David H. Stevens, assured lawmakers that his agency would not need a bailout and that it was managing its risks.
But he acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.
“Let me simply state at the outset that based on current projections, absent any catastrophic home price decline, F.H.A. will not need to ask Congress and the American taxpayer for extraordinary assistance — we will not need a bailout,” Mr. Stevens said in his testimony.
But to its critics, the F.H.A. looks like another Fannie Mae. The hearings on Thursday came on the same day that the federal agency charged with overseeing Fannie Mae and Freddie Mac provided a somber assessment of those giants’ health. In the year since the government stepped in to rescue them, the companies have taken $96 billion from the Treasury, and may need more.
Since the bottom fell out of the mortgage market, the F.H.A. has assumed a crucial role in the nation’s housing market. Created in 1934 to help lower-income and first-time buyers purchase homes, the agency now insures roughly 5.4 million single-family home mortgages, with a combined value of $675 billion.
In addition, these loans are bundled into mortgage-backed securities and guaranteed through the Government National Mortgage Association, known as Ginnie Mae. That means the taxpayer is responsible for paying investors who own Ginnie Mae bonds when F.H.A.-backed mortgages hit trouble.
“It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward Pinto, a former Fannie Mae executive, said in testimony prepared for the hearing. Mr. Pinto, who was the chief credit officer from 1987 to 1989 for Fannie Mae, went further than most housing analysts and predicted that F.H.A. losses would more than wipe out the agency’s $30 billion of cash reserves.
The issue has polarized Congress. Republicans, who led efforts to rein in Fannie Mae and Freddie Mac before those companies ran into trouble, are now seeking to bridle the F.H.A. Many Democrats insist the F.H.A. is playing a vital role in the housing market, which is only just starting to stabilize.
“F.H.A. has stepped into the void left by the private market,” Representative Maxine Waters, Democrat from California, said at the hearing. “Let’s be clear; without F.H.A., there would be no mortgage market right now.”
That was the case for Bernadine Shimon. Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.
She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.
“The government gave me another chance,” she said.
The government is giving as many people as it possibly can the chance to buy a house or, if they are in financial difficulty, refinance it. The F.H.A. is insuring about 6,000 loans a day, four times the amount in 2006. Its portfolio is growing so fast that even F.H.A. backers express amazement.
For decades it was an article of faith that helping people of limited means like Ms. Shimon get a house was good for the new owner, good for the neighborhood and good for American capitalism. Then came the housing bust, which demonstrated that when lenders allowed people to buy houses they ultimately could not afford, it hurt the parties — while putting the economy itself in a tailspin.
In the aftermath of the crash, there is wide divergence on how easy, or how hard, it should be to become a homeowner. Skittish lenders are asking for 20 percent down, which few prospective borrowers have to spare. As a result, private lending has dwindled.
The government has stepped into the breach, facilitating loans with down payments as low as 3.5 percent and offering other incentives to stabilize the market. Real estate agents in some hard-hit areas say every single one of their clients is using the F.H.A.
“They’re counting their pennies, scraping up that 3.5 percent,” Bonni Malone of Prudential Americana in Las Vegas said. “Mostly they’re buying foreclosed homes from banks, although I had one client who bought from a guy that was dying. It’s turning around the market.”
While the government’s actions have helped avert full-scale economic disaster, there is growing concern that it might have doled out its favors with too generous a hand.
Many of the loans the F.H.A. insured in 2007 and last year are now turning delinquent, agency officials acknowledge. The loans made in those two years are performing “far worse” than newer loans, dragging down the whole portfolio, Mr. Stevens of the F.H.A. said in an interview.
The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.
Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans to such borrowers as Ms. Shimon — the current rate is over a billion dollars a day — 7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.
Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.
“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”
The troubled loans are nevertheless weighing on the agency’s capital reserve fund, which has fallen to below its Congressionally mandated minimum of 2 percent, from over 6 percent two years ago.
The optimism expressed by Mr. Stevens, the F.H.A. commissioner, places him at odds not only with some outside experts but with Kenneth Donohue, the inspector general of the Housing and Urban Development Department, who is also F.H.A.’s watchdog. Mr. Donohue said the drop in reserves was “a flashing red light” that the agency was not taking seriously enough.
“It might be we’ll get ourselves out of this and that everything will be fine, but I don’t paint that rosy a picture,” Mr. Donohue said. “They’re banking on the fact that the economy will continue to improve, that the housing market will begin to sustain itself.”
He noted that if private lenders had raised their down payment requirements in the last two years, it raised the question, “what does the F.H.A. think it is doing by asking only 3.5 percent?”
Any more than that and Ms. Shimon, 45, would still be a renter. As it was, she cashed in her retirement savings account to come up with the necessary funds. She did not have enough to spare for closing costs, so her mortgage broker arranged a deal where the charges were wrapped into the loan at the cost of a higher interest rate. She cried when the deal was done.
The house was empty and trashed. Slowly, she is trying to bring it back to life. She spent the first few weeks picking up garbage in the backyard.
Is Ms. Shimon a good bet? Even she has no easy answer. Her mortgage payment, $1,100, is half of what she takes home every month. It is not easy to make ends meet. Teachers can get laid off like everyone else.
“The government,” she said, “is doing what it needed to do — taking a risk on people.”
Chaz Fullenkamp, an automotive technician in Columbus, Ohio, got an F.H.A. loan even though he was living on the financial edge. “If I got unemployed, I’d be wiped out in a month or two,” he says. Thanks to the F.H.A., however, he is better off than he used to be.
Mr. Fullenkamp used F.H.A. insurance to buy a house this spring for $179,000. The eager seller paid the closing costs and also gave Mr. Fullenkamp $2,500 in cash. He immediately applied for the $8,000 tax rebate. Even taking his down payment into account, he came out ahead.
“I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22. “I thought, ‘Wow, I’m surprised I pulled that off.’ ”
As the number of loans has soared, random quality control checks have decreased sharply, F.H.A. staff members say. Mr. Donohue, the inspector general, cited numerous examples of organized fraud in testimony to Congress earlier this year.
“They need to stop taking bad loans in the door,” he said in an interview. “They’re taking on all this volume, they have to have very active underwriting standards.”
Just this morning, I was reading an article that I came across regarding a couple things that are going on with the Federal Housing Administration (FHA)….and it wasn’t pretty.
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.
In a recent email conversation with my Realtor this morning, we were discussing a mortgage lender that was advertising using a local county program that would front the buyer the $8k tax credit so they could use as a down payment.
He asked me to post my reply on AR, and would like some feedback and your opinions.
Here is my response:
I wouldn’t really say it’s a moral issue per say- just more of being conservative to avoid any disruptions in future mortgage availability. This was one of the main reasons DPA’s got outlawed, but this is a little different because the individual is using HIS/HER money back from the IRS to use as a down payment. Even though the TDHCA is fronting it to them, it just adds a reason to discontinue something good like FHA, and if FHA goes away, the market will crumble almost immediately.
There are already rumors that minimum credit scores for FHA may be increased to 660-680, which would limit even MORE potential buyers, and it’s things like this that propel these guidelines changes because there are more defaults. Like I said, I’m COMPLETELY on board for closing more deals, but I also believe in “you have to taste the sour to appreciate the sweet.”
I can kind of see why our company has been in business for so long and is in a great financial position, as opposed to other lenders out there that are struggling. They limit their risk and have a little more conservative approach when it comes to lending.
What essentially happens in the market depends on the status of the mortgage company (if they are a BROKER or a BANKER). If they are a broker, and do things like this, the LENDER that they send (broker) the loan to then assumes responsibility/risk for the loan that funds. If that loan defaults, Fannie/Freddie/FHA/VA calls that lender and requests a buyback, which makes the lender lose TONS of money. When that lender loses money, they risk going out of business, which means "less options" to a consumer.
The loan officer makes their commission and moves onto the next. They don’t really care.
A banker that funds a loan with DPA’s goes through the same thing for the most part- if loan goes bad and has to be bought back, they lose money as well. If it happens too much, warehouse lines get cut off, which essentially limits the options to the average home buyer as well.
What is the effect? Where’s the cost get passed on and to who?
Higher rates for consumer, higher lender fees, less product availability.
Less product supply = more consumer demand = a monopoly (of some sorts) on this type of program
Ex. Out of 4,000 lenders, 15 mortgage companies offer this. Those 15 can charge up-the-butt fees, higher rates, etc to the consumer because of less/no competition. Consumer may THINK he’s getting a deal, but they may be getting hurt more than helped, and the probability of default is higher due to higher mortgage payments/higher rate. It's just something that I believe can do more harm than good.
I’m going out on a limb here because I don’t know the full story, but I’m assuming this is why this specific relationship got temporarily discontinued with our company.
As for you closing more deals, I would not be offended if you wanted to send those people w/ no down payment to this girl so that they could utilize this program, but also know that they buyer can amend their previous returns themselves, get the money, and put the money down themselves.
The psychology behind the latter is better in my opinion.
By having bills on auto-pay, you don’t really “FEEL” that $500 credit card payment, but when you go to bank, pull it out, and send it in the mail, you feel it a little bit more. I believe that someone who FEELS they are buying a home, as opposed to “breezing on in” would take their payments more seriously.
Anyways, sorry to for writing a book, but once I start, it’s hard to stop.
When the unemployment rate is near 10%, it’s really not hard to see why people may have a hard time paying their mortgage on time.
What do you do if YOU are one of those people? Where do you turn? Who do you call?
The point of this brief article is to direct you to a LEGITIMATE source that may be able to help you if currently in a financial bind.
First and foremost, do NOT pay attention to the majority of all these scam-atic loan mod companies. Over 178 Loan Mod companies are having the hammer brought down on them pretty frikkin’ hard, and it’s not going to be pretty when the dust will settle.
TBWS said it best - “…most loan mod specialists out there are a little more than failed loan officers… bottom feeders, sub-prime refi guys that went looking for the next quick buck when their market dried out.”
Jerry Brown, the current CA state AG, along with the FTC and 18 other various government agencies are going to rip these guys to shreds, and I’m going to enjoy every second of it.
I’ve come across several individuals (even one of my Realtors), that were facing foreclosure, and were almost duped by some “part-time” telemarketer promising them the “solution” to keeping their home…and world hunger…and the cure for AIDS…and (get my point?).
This, in my opinion, is one of the best solutions if you are looking into your options. Chances are if you contact your current lender, they will most likely refer you to Making Home Affordable themselves. I’ve heard a hell of a lot more success stories on with this program than any other one, and personally give them my stamp of approval.
Please take a moment to look around the site. You can even find a counselor in your area and see what advice/direction they can give you as well.
Tommy’s 2 Cents:
If you’re having trouble paying your mortgage and looking for an answer, be SKEPTICAL!
To MOST of these loan mod companies, you facing foreclosure is an IDEAL chance for them to capitalize. Best bet is to get in touch with your current lender and see what options are available to you…write them down… then sleep on it… then make a decision.
Here’s an excerpt from one of my favorite movies, A Bronx Tale. Please follow closely:
Sonny:Get this over with, Mush.
Mush: Come on, dice. Baby needs a new pair of shoes. Come on, seven!
Mush: Come on! Come on, dice!
Sonny: I don’t even have to look.
(Spectator) And seven!
Mush: Craps! I’m out!
Sonny: Get him out of here! Man never hit a number in his life!
As we all have been following lately, rates have been pretty damn good. I mean REALLY DAMN GOOD. That was…until a week or so ago.
I was working with one of my clients and HIGHLY advised him to lock in his rate at 4.875% on a 30 Year Fixed (yes, ridiculous), however he decided not to because he wanted to "gamble" and see if they would get even lower. I mean ARE YOU KIDDING ME????
He is NOW at a 5.75%. (crickets chirping)
Ladies and Gentlemen- DO NOT END UP LIKE EDDIE MUSH (featured above) and crap out in this market!!! I cannot stress to you enough how important it is to secure a good rate in when you see it. I am coming across several people daily that REALISTICALLY expected rates to go down to the high 3’s because the media puts their dirty little paws on it, and in the end, they lose out on something great.
Would you listen to Al Roker talking to you about mortgage rates or me about weather? I really hope not.
The loan officers that are still here (you can tell who the seasoned ones are) are here for a reason. We have overcome the bad, study the market, and have a pretty good grasp on what’s going on.
Many feel that when the loan officer says “Mrs. Jones, you need to lock in,” it is mostly viewed as a sales pitch to get your commitment rather than advice, and many clients back off.
I mean this is normal. I can understand it and would probably do the same if I was on the othe rend.
Do this. Next time your loan officer does this, ask them “Why should I secure this rate Mr. Mortgage? And don’t tell me rates are going to go up. Explain WHY” and see what they say. If studdering occurs, move on to the next mortgage guy/gal. If they CAN advise you with detailed information, they’re a keeper!
GREAT DECISION, especially now since rates are super low and you can walk into plenty properties with some decent equity.
Ok, step 1 complete.
Next step, picking the right lender.
I’ve written several articles on this previously, but I will summarize countless hours of explanation into ONE sentence:
YOU WILL CHOOSE WHOEVER YOU FEEL MOST COMFORTABLE WITH.
It’s not rocket science. To some consumers, rates and fees are absolutely everything, and that is OK.
To others, discussing their loan parameters and figuring out WHY they should go on a 15 year mortgage vs. a 30 year makes more sense- a financial plan if you will. Ask most people why they went on the loan program that they did, and see what their response is.
Everyone is different. Remember, you are the one hiring the loan officer to do your loan. The questions that you need to ask yourself are:
1. “Why am I hiring this person?” 2. “What has he/she done for me so far?” 3. “What do you expect from him/her, and vice versa?” 4. "Has the loan officer asked what's important to ME during the loan?"
Tommy’s 2 Cents:
Would you pay a CPA double what another CPA would charge if they saved you an additional $5,000 off your taxes?
Would you have a fresh-out-of-med school perform heart surgery on you to save a few thousand on the costs?
Would you hire ME or Johnny Cochran to represent you in a criminal trial?
Get the point?
In any profession, what you ultimately pay more for is knowledge.
So there has been a lot of rumors regarding the $8000 first time home buyer tax credit and that it can be used as a down payment for a new home with an FHA loan.
At first, I thought it was just another “mortgage scam”. Trust you me, the real mortgage industry always leaves room for the next “million-dollar-idea”. If you pay close attention, you may even end up seeing your next door neighbor on the 6 o’clock news getting caught for selling “ARMS” from the back of his van in a dark alley.
After doing a little bit of research to see the legitimacy of this rumor, I ended up finding the official HUD Mortgagee Letter 2009-15.
Who Can Offer It
Let’s begin with who can offer this “loan” on a loan. (Is that a conundrum?)
According the letter, Federal, state, local governmental agencies, non-profit governmental subsidiaries, and FHA-Approved nonprofits will be able to offer this to home buyers.
How It Works?
Essentially, this is a bridge loan. You are borrowing this money for a short amount of time until you get your tax credit, and then it is paid back to these agencies.
What happens is you are taking out a second lien on your home, and that amount CANNOT be more than:
Down Payment + Closing Costs + Pre-Paid Expenses
Here is a list of some more facts on how this works:
1.) You cannot get any cash back at closing. 2.) You will have a deadline to pay this money back, and if you do not, principal and interest will begin automatically. (What a concept!) 3.) If payments are required, it will be calculated as a monthly liability when qualifying for the loan. 4.) If payments are deferred, it must be for at least 36 months and will not be used against you when qualifying.
I cannot stress to you enough -BE VERY CAUTIOUS with this type of transaction. It leaves so much room for deception, and if you end up in the wrong hands, you may kiss your $8k tax credit goodbye very fast!
While it may bring an influx of new potential buyers to Realtors and open a lot of doors to potential buyers, it is a double-edged sword and I do not particularly agree with it. In my opinion, it can do more bad than good and is basically bringing back “100% financing” and that is part of what has caused the “Mortgage Meltdown”.
I would suggest stopping and thinking as to why many down-payment assistance programs went bye-bye towards the end of 2008. It was simply because more buyers defaulted on those types of loans. The LAST THING we need is the Federal Housing Administration (FHA) getting into financial issues.
Tommy’s 2 Cents:
Use it IF you absolutely HAVE to. The $8,000 is yours one way or another.
An Identity-of-Interest transaction is where a sales transaction is made between parties with family/business relationships.
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!
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
What’s next? TPS reports?
I’ve come across several individuals (even one of my Realtors), that were facing foreclosure, and were almost duped by some “part-time” telemarketer promising them the “solution” to keeping their home…and world hunger…and the cure for AIDS…and (get my point?).
daily that REALISTICALLY expected rates to go down to the high 3’s because the media puts their dirty little paws on it, and in the end, they lose out on something great.
Would you pay a CPA double what another CPA would charge if they saved you an additional $5,000 off your taxes?
At first, I thought it was just another “mortgage scam”. Trust you me, the real mortgage industry always leaves room for the next “million-dollar-idea”. If you pay close attention, you may even end up seeing your next door neighbor on the 6 o’clock news getting caught for selling “ARMS” from the back of his van in a dark alley.
;)
;)
