Have you ever had a borrower with only one or two FICO scores or a borrower who has yet to establish a credit profile? Well, if you have then you know how challenging this can be when attempting to secure a loan through conventional means. When using FHA financing you can build alternate forms of credit to build a credit profile.
The minimum FHA requirements with regard to credit are:
3 open/active credit accounts for 12 months.
For a borrower with 1 or more FICO scores, only the above needs to be met.
For a borrower with no scores at all the following applies.
In the above instances there are really only two types of borrowers.
Types:
Non-Traditional Credit Borrower
Insufficient Credit borrower
How do you determine which type fits your borrower?
It will depend on the sources of their alternate credit. Listed below are 2 groups of acceptable credit sources. If you can provide atleast 1 alternate credit from group 1 then your borrower is considered a Non-traditional Credit Borrower. If you can supply alternate credit from group 2 your borrower is considered an Insufficient Credit Borrower.
Group 1 Group 2
a. Rental/Housing payment a. Auto Insurance
b. Utilities (gas,electric, water) b. Child Care
c. Land line telephone c. Cell phone
d. Cable d. Personal loans
e. Internet ISP carrier
f. Retail Store (eg. Rent-to-Own)
g. History of savings
Once you've determined the type of borrower you have, the following requirements apply:
Non-Traditional Credit Borrowers:
a. 0x30 rental history.
b. No more than 1x30 in the last 12 months for the other alternate credit accounts.
c. No collection accounts or public records in the last 12 months
Insufficient Credit Borrowers:
a. No more than 1x30 on any accounts.
b. No collection accounts or public records in the last 12 months.
c. Qualifying ratio's are based solely on the occupant borrower(s).
d. The standard FHA ratios apply (31/43) and cannot be exceeded.
On September 6 The federal Housing Finance Agency (FHFA) took control of both Fannie and Freddie, which forced out management after finding that their capital reserves were too low. This then prompted them to redetermine the value of the company's assets, which in turn slashed the company's net worth by 79% - The difference between the company's assets to liabilities.. Some analyst predict Fannie could very well move into negative territory by Q1 2009. This would mean that Fannie would need to tap federal funds to stay in the black, which it has not done up to this date. The good or bad news is that Treasury Secretary Henry Paulson has pledged to invest as much as $100 Billion each in both Fannie and Freddie. The good news in this is that a staple in American home financing will live another day and the bad news is that this will become yet another tax burden that our children will ultimately have to face.
According Fannie's Security and Exchange (SEC) filing from earlier this week. The company increased reserves for future credit losses to $15.6 Billion from $8.9 Billion in the Q2. They also reported that nonperforming assets such as foreclosures increased by 37% to a staggering $71 billion.
For the same period last year, Fannie had reported a net loss of $1.4 Billion and a negative assets loss of $46.4 billion. Fannie also slashed its net worth to $9.4 billion from $44.1 which it had anticipated having as of December 31, 2008.
These are dark days for the two former GSE's, now government-run companies and they have gone from maximizing shareholder profitability to supporting the US housing market.
According to the weekly Mortgage Bankers Association data, mortgage applications were down more than 20% for the week ending November 5, 2008. Refinance business was down more than 25% from a week earlier and purchase business down nearly 14%. Below is a recap of the numbers.
Seasonally Adjusted Total Mortgage Activity: Down 20.3% MBA Market Index Now: 379.9 Index One Week Earlier: 476.7
Unadjusted Basis Total Mortgage Activity: Down 21.1% One Year Ago: Down 43.4%
Seasonally Adjusted Refinance Activity: Down 27.8% Index Now: 1075.4 One Week Earlier: 1489.4
Purchase Activity: Down 13.9% Index Now: 260.9 One Week Earlier: 303.1
Percentage of Total Activity
Refinance Share: 42.9 % One Week Earlier: 46.9%
Adjustable-Rate Mortgage (ARM) Share: 2.5% One Week Earlier: 1.9%
With more than $300 Billion in its coffers to lend via the FHA, the Hope for homeowner program has resulted in a total disatser. In july of this year the H4H program was thought by many to be the key to the stabalizing home prices and curbing foreclosures, but has yet to produce any results at all. With 50 loans in queue since it's inception on Oct. 1, the program has been shunned by the lending community. Saving 50 homeowners per month will in no way cure the ailing housing market... The program is effective from October 1, 2008 to September 30, 2011.
The H4H program was created by congress to help homeowners stay in their homes and avoid foreclosure by refinancing into more affordable FHA loans. Many thought that as many as 400,000 homeowners could be helped under this program over the next three years, but the program has started off slow to say the least.
Under the current plan, lenders must agree to take a 13% writedown to 13% below a homes market value to be eligible. This inturn lets borrowers refinance loans worth less than their home's value. Currently, there are few lenders that are willing to take the necessary writedown and securitized loans that are difficult to refinance, with good cause. This was a bad plan to begin with and what lender in their right mind is going to be willing to take a 13% write down on loans that will most likely not perform?
Today regulators suggested that they may reduce the required writedown to between 3% to 5% below market value to make the program more attractive lenders. By changing the eligibilty requirements regulators hope to bring more lenders into its pool, but is this the answer? Any type of pricipal writedown is not going to be attractive, especially for loans that are currently not performing. Maybe the answer is for the FHA secure program to include fixed rate loans. H4H was a very bad idea and should be canned. I would love to hear your feedback.
Graph: In Thousands, Mortgage Employment since Jan. 2002
Although the rate of job losses in the mortgage industry has leveled since it began dropping precipitously last fall, industry employment has declined for more than 13 consecutive months.
The Bureau of Labor Statistics (BLS) reported 360,100 full-time mortgage positions in the month of March, down from 364,700 in February and 465,800 one year ago.
Employment reporting at the Bureau generally lags one month for the mortgage industry.
The mortgage industry has lost 144,600 jobs since employment peaked at 504,700 in October 2006.
The BLS breaks down mortgage employment into two categories.
Under "real estate credit," the BLS reported 249,100 million jobs, compared to 251,400 a month earlier.
For the "mortgage and nonmortgage loan brokers" sector, there were reportedly 111,000 positions, compared to 112,700 one month ago.
The national unemployment rate remained at 5.0% for April.
Representing the fourth consecutive monthly loss, the number of non-farm payroll jobs declined another 20,000 for the month as the number of unemployed people stood at 7.6 million.
Freddie Mac announced today that it will purchase $20 billion in fixed-rate and hybrid ARM products that will provide lenders with more choices to offer subprime borrowers. The products, currently under development by the company and slated to be introduced by mid-summer, will limit payment shock by offering reduced adjustable rate margins; longer fixed-rate terms; and longer reset periods.
The commitment follows Freddie Mac's recent announcement that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. Among other things, the company will require that subprime adjustable-rate mortgages (ARMs) - and mortgage-related securities backed by these subprime loans - qualify borrowers at the fully-indexed and fully-amortizing rate. The company also will limit the use of low-documentation products in combination with these loans; require that loans be underwritten to include taxes and insurance; and strongly recommend that the subprime industry collect escrows for taxes and insurance, as is the norm in the prime sector.
As a secondary mortgage market investor, Freddie Mac works closely with its customers in the primary market to combat predatory lending and promote foreclosure prevention. The new $20 billion purchase commitment for model products using stronger underwriting standards builds on Freddie Mac's long-term leadership in this arena. The company's previously implemented anti-predatory lending practices include:
refusing to do business with institutions that engage in predatory lending practices;
not investing in mortgages that require mandatory arbitration;
refusing to invest in high-rate or high-fee mortgages as defined by the Home Ownership and Equity Protection Act of 1994 (HOEPA), as well as mortgages with single-premium credit insurance or subprime mortgages with prepayment penalty terms of more than three years; and,
requiring that lenders provide complete credit information about borrowers to all the credit bureaus and reporting agencies.
Freddie Mac also promotes consumer education through programs such as CreditSmart®, its award-winning financial education curriculum, Don't Borrow Trouble, an anti-predatory lending campaign, as well as its many foreclosure prevention initiatives. These programs help borrowers understand the mortgage origination process, their housing finance options, and how to avoid abusive lending practices.
Freddie Mac is a stockholder-owned company established by Congress in 1970 to support homeownership and rental housing. Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible for more than 50 million families.
The number of foreclosure filings was up 7% in March as Nevada reported the highest state foreclosure rate for the third month in a row with a 29% monthly increase from February, according to RealtyTrac.
A total of 149,150 foreclosure filings were reported during the month, up 7% from February's revised total and up 47% from March 2006.
The national foreclosure rate stood at one foreclosure filing for every 775 U.S. households in February, according to RealtyTrac the foreclosure tracking company.
RealtyTrac considers default notices, auction sale notices and bank repossessions as foreclosure filings.
A 29% increase in monthly foreclosure activity kept Nevada in place as the nation's highest state foreclosure rate with for the third month in a row with foreclosure rate of one foreclosure filing for every 183 households
In March, Nevada reported 4,738 foreclosure filings, up 16% from February 2006.
Colorado followed with one foreclosure filing for every 292 households in February, a 18% month-to-month increase with 6,267 total foreclosure filings.
California foreclosures jumped 36% with 31,434 foreclosure filings - the most of any state - reporting one foreclosure filing for every 389 households.
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