The Housing and Economic Recovery Act of 2008 is Signed into Law

 

Key Highlights of the Housing and Economic Recovery Act

·         Effective Jan. 1, 2009, higher permanent loan limits for conventional conforming and FHA; limits to increase to a maximum amount or ceiling of $625,500, depending on the formula for each metropolitan area.  Note: The temporary limits established in March will expire on Dec. 31, 2008.

·         FHA floor limits will remain the same at $271,050 or 115% of local area median home price, capped at $625,500.

·         VA loan limits - temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

·         Minimum cash investment for FHA loans will increase to 3.5%.

·         A moratorium on risk-based pricing for FHA loans, effective Oct. 1, 2008, as indicated in the Act.

·         Seller-funded downpayment assistance programs - codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.

·         Condo processing for FHA loans will be streamlined (timeline TBD).

·         FHA reverse mortgages (HECM): changes, among others, include higher loan limits, availability with purchase transactions and a modification to the origination fee.

·         Homebuyer Tax Credit - a $7500 tax credit that would be would be available for any qualified purchase between April 8, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).

·         FHA foreclosure rescue - development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

 

The FHA Modernization Bill was touted as way to help more borrowers and increase loan limits in areas that larger loan sizes are needed.  The Law does much more than that.  This law now allows HUD the ability to risk base price and adjust the MIP (mortgage insurance premium) to accommodate that risk.  It encompasses credit scores and down payment assistance (DPA) and ties the eligibility of such to the credit score.

 

Modernization? Mainstream? Going with the flow?  Following the leader?  FHA claims that with this action, they will be extending mortgages providing mortgages to 200,000 individuals that wouldn't have been able to get mortgages from FHA in the past.  I am not sure that this is a net number of new borrowers.  Another agency competing for the same business: FNMA, FHLMC and FHA.  HUD is abandoning the borrower that they have always intended on saving, the customer that has little or no credit and only a small amount of money for a down payment. A borrower that doesn't have a credit score, at a minimum, will have to put down 5%.  In addition to the increased down payment, the UFMIP (up front mortgage insurance premium) will be increased to 2.25%. These additional funds must be the borrower's or a gift from a family member.  Unaffected borrowers are customers with 640 credit scores and 3% of their own money. 

 

FHA Single Family Mortgage Insurance Upfront Mortgage Insurance Premiums Effective as of January 1, 2008
All premiums are specified in basis points (0.01%)
Minimum Downpaymenta (%)		Decision Credit Score
		850-680	679-640	639-600	599-560	559-500	499-300	None
Funds from Borrower or a Relative	10	75	100	125	150	175	175	200
	5	100	125	150	175	200	--	225
	3	125	150	175	200	225	--	--
Other Sources of  Funds	3	175	200	225b	--	--	--	--
Premiums are based on two categories of sources of funds:  (1) the borrower's own funds or gifts from relatives and (2) any other acceptable source.  See HUD Handbook 4155.1 for guidance on acceptable sources of funds. A minimum decision credit score of 620 is required when downpayment funds come from a source other than the borrower or a relative of the borrower.

 

 

 

FHA will use the above chart as a method to price for now but their intention is to program Total Mortgage Scorecard.  This will require each deal to be risk priced in the system and the basis points will be adjusted accordingly.  This will be very cumbersome for the originator to effectively price loans unless ran through the system ahead of time. 

 

 

Am I a Fireman Yet??

In Phoenix , Arizona , a 26-year-old mother stared  down at her 6 year old son, who was dying of terminal leukemia. 

 Although her heart was filled with sadness, she also had a strong  feeling of determination. Like any parent, she wanted her son to  grow up & Fulfill all his dreams.

Now that was no longer  possible. The leukemia would see to that. But she still wanted her  son's dream to come true.

She took her son's hand and asked,  "Billy, did you ever think about what you wanted to be once you grew  up?

Did you ever dream and wish what you would do with
Your  life?"

Mommy, "I always wanted to be a fireman when I grew up."  

Mom smiled back and said, "Let's see if we can make your wish  come true."

Later that day she went to her local fire Department  in Phoenix , Arizona , where she met Fireman Bob, who had a  heart as big As Phoenix   

She  explained her son's final wish and Asked if it might be possible to  give her 6  year Old son a ride around the block on a fire engine.   

Fireman Bob said, "Look, we can do better than That. If  you'll have your son ready at seven o'clock Wednesday morning, we'll  make him an honorary  Fireman  for the whole day.

He can come down to the fire station, eat  with us,
Go out on all the fire calls, the whole nine yards!  
And if you'll give us his sizes, we'll get a real fire uniform  For him,  with a real fire hat - not a toy --
One-with the emblem of the  Phoenix Fire Department
On it, a yellow slicker like we wear and rubber  boots.

They're all manufactured right here in Phoenix , so We  can get them fast."   

Three  days later Fireman Bob picked up Billy,
Dressed him in his uniform  and escorted him from  
His hospital bed to the waiting Hook  and ladder truck.

Billy got to sit on the back of the truck and  help
Steer it back to the fire station.

He was in heaven.  

There were three fire calls in Phoenix that day And Billy  got to go out on all three calls He rode in the different fire  engines, the Paramedic's' van, and even the fire chief's car.  

He was also videotaped for the local news program.  

Having his dream come true, With all the Love and attention  that was lavished Upon him, so deeply touched Billy, That he  lived three months longer than any doctor thought possible.  

One night all of his vital signs began to drop Dramatically and the head nurse, who believed   In  the  hospice concept - that no one Should die alone, began to call the  family Members to the hospital.

Then she remembered the day  Billy had spent as a
Fireman, so she called the Fire Chief and asked  if it would Be possible to send a fireman in uniform to the hospital To  be  with Billy as he made his transition.

The chief replied, "We can do  better than that.
We'll be there in five minutes. Will you  please do me a favor? When you hear the sirens screaming and see the Lights flashing, will you announce over the PA system, That  there  is not a fire?

It's the department coming to see one of its finest  
Members one more time. And will you open the window to his room?  

About five minutes later a hook and ladder truck
Arrived at  the hospital and extended its ladder up to  
Billy's third floor  open window-------- 16 fire-fighters climbed up the ladder into  Billy's room.
With his mother's permission, they hugged him and held  him  And told him how much they LOVED him.

With his  dying breath, Billy looked up at the fire chief and said,   "Chief, am I really a fireman now?"

"Billy, you are, and the  Head Chief, Jesus, is holding your hand," the chief said  With those words, Billy smiled and said, "I know, He's been  holding my hand all day, and The angels have been singing.."   

He closed his eyes one last time.  

The price of credit scores just went up.  Last week, Fannie Mae implemented risk based pricing.  The FHA Modernization Bill has components of risk based pricing.  What is "risk based pricing?" In a nut shell it's another tightening of mortgage products.  It makes mortgage rates for people with lower credit scores more costly.   Higher payments for people with lower credit scores, makes sense to the investment bankers that own the securitizations. Higher risk should yield a higher return. 

To the consumer that has a 650 credit score with 10% down payment could cost as much as .375%-.500% in rate on a standard 30 year fixed mortgage, up to .75% for lower than a 620 credit score.  These adjustments may be needed but reality is less people will swallow the higher payment. 

In order to understand the magnitude of the changes, one should be familiar with how it worked before.  Fannie Mae uses an automated underwriting system called Desktop Underwriter/Desktop Originator (DU/DO) to determine risk for potential mortgages.  This system uses historical data of millions and millions of prior mortgage borrowers and compares the characteristics with performance of similar files.  After analyzing credit, income, assets and collateral it would return the results.  Fannie would break the risk levels into 5 categories if closable: Approved, EA-I, EA-II, EA-III, Refer with Caution (EA=expanded approval).  These risk levels have tiered pricing adjustments that affect the yield spread premium paid by the lender. 

What's the change?  DU/DO supposedly has never used credit scores to determine eligibility but analyzes the tradelines that make up the credit report.  If the system determined that the loan should be approved, the borrower with the 620 score received the same rate as a 720 score.  Conversely a 720 score borrower could receive an EA-I approval witch would require a higher rate than a 620 credit score borrower with an Approved.  I'm sure I could write an entire blog on how and why the system works the way it does.  Without getting too in depth, assets have always made a big difference.  If the 620 credit score example has $100,000 in the bank after closing DU/DO may consider that less risky than the 720 score with no assets.

Now lower credit scores will pay higher rates regardless of the approved findings.

The price of credit scores just went up.  Last week, Fannie Mae implemented risk based pricing.  The FHA Modernization Bill has components of risk based pricing.  What is "risk based pricing?" In a nut shell it's another tightening of mortgage products.  It makes mortgage rates for people with lower credit scores more costly.   Higher payments for people with lower credit scores, makes sense to the investment bankers that own the securitizations. Higher risk should yield a higher return. 

To the consumer that has a 650 credit score with 10% down payment could cost as much as .375%-.500% in rate on a standard 30 year fixed mortgage, up to .75% for lower than a 620 credit score.  These adjustments may be needed but reality is less people will swallow the higher payment. 

In order to understand the magnitude of the changes, one should be familiar with how it worked before.  Fannie Mae uses an automated underwriting system called Desktop Underwriter/Desktop Originator (DU/DO) to determine risk for potential mortgages.  This system uses historical data of millions and millions of prior mortgage borrowers and compares the characteristics with performance of similar files.  After analyzing credit, income, assets and collateral it would return the results.  Fannie would break the risk levels into 5 categories if closable: Approved, EA-I, EA-II, EA-III, Refer with Caution (EA=expanded approval).  These risk levels have tiered pricing adjustments that affect the yield spread premium paid by the lender. 

What's the change?  DU/DO supposedly has never used credit scores to determine eligibility but analyzes the tradelines that make up the credit report.  If the system determined that the loan should be approved, the borrower with the 620 score received the same rate as a 720 score.  Conversely a 720 score borrower could receive an EA-I approval witch would require a higher rate than a 620 credit score borrower with an Approved.  I'm sure I could write an entire blog on how and why the system works the way it does.  Without getting too in depth, assets have always made a big difference.  If the 620 credit score example has $100,000 in the bank after closing DU/DO may consider that less risky than the 720 score with no assets.

Now lower credit scores will pay higher rates regardless of the approved findings.

I walked in to Starbucks today to grab my morning Joe, holiday decorations are going up.  Strangely, it was snowing, the big flakes but not sticking to the ground.  Wait a minute, last week was Halloween.  Walmart is already having toy sales that are lower than the day after Thanksgiving.   What is going on? 

What is going on... retail sales for 2 straight months have been declining, September and October.  Isn't that strange? Since the Mortgage Meltdown in August people aren't spending as much.  Gas prices are climbing to over $3.00/gallon.  The dollar is losing value.  And income isn't rising.  Hell, Gisele Bundchen won't accept US currency for payment for her modeling jobs.  Bernanke says the credit crunch is going to last longer then they had hoped.  Greenspan reports that reducing Real Estate inventories are going to be detrimental in future US economic growth. 

Fewer borrowers qualify for mortgages then they did 6 months ago.  Where are we going to find all these new buyers?  Lowering the rates will make housing more affordable for some but that would be a small percentage.  First time homebuyers could pick up some slack but not if consumer confidence is lacking.  Real estate investors will swoop in and buy some bargains. Immigrants could help as well.  All of these groups combined are not going to reduce the ballooning real estate inventories. 

Based on these trends, I am guessing we will see Christmas in July all the way through December next year.  Buckle up its going to be a bumpy ride.

HR 3915

Congressman Miller, Congressman Watt, and Chairman Frank introduced the "Mortgage Reform and Anti-Predatory Lending Act of 2007" on October 22, 2007.  This act among other things is proposing to prohibit yield spread premiums.  Yield spread premium (YSP), service release premiums, back-end points are monies paid from the lender to the broker for delivering a higher rate then what is required by the lender to cover the risk. 

A simple example on an Agency (Fannie Mae/Freddie Mac) loan where the market rate on a 30 year fixed mortgage is 6.25%. In order for a mortgage broker/loan officer to make money closing a mortgage at 6.25% would be to charge the customer money (i.e. origination fee, discount fees, broker fees, processing fees, administration fees, etc.)  If the loan is closed at 6.75% an increase in rate by .5% over the life of the loan, the lender will pay a fee for that increased revenue.  Let's say the fee in this case is 1% of the loan amount or $1,000 per $100,000 loan.

The ability to negotiate a loan and compete with other mortgage brokers, lenders, loan officer and especially banks is paramount to the flexibility of the pricing.  Prohibiting YSP completely diminishes the competitive edge of the mortgage broker.  Granted all mortgage brokers will be on the same playing field together but not on the same field and Banks.  Mortgage Brokers won't be able to pay for appraisals or close loans with no fees all together. 

One of the areas of lending this wont effect is mortgage banking.  Mortgage banking is where the mortgage company loans their own money, usually by means of warehouse line, to fund the loan.  The loan is then sold individually or in a group to banks or lenders.  The YSP paid in these transactions aren't regulated because it's considered a secondary market transaction.  So the simple answer is most mortgage brokers will get warehouse lines and turn into mortgage bankers.  I'm sure if YSP is outlawed many will become bankers. 

The market has taken care of many of the large to mid size non-bank mortgage lenders.  Who is left?  Citi, Chase, Bank of America, Wells Fargo, Countrywide, Barclays, US Bank, Suntrust, National City.  Is it a coincidence that this bill hit the House floor on one week after Citi, Chase and Bank of America agreed to create a $100 billion fund that would buy these structured investment vehicles (SIV). Cut out the middle men, now cut out the broker leaving only banks to compete for your mortgages.

www.scaryideas.com/video/4496/

I was reading an article this morning that was providing the Census Bureau's data on new home sales.  September numbers came in at 770,000 units up from the revised August numbers of 735,000 units.  Discussing further that these numbers were still down from the 835,000 units projected in July and none of these numbers included the cancellations that builders saw in August and September.  All bad news.  I'm not sure that the rest of the country is dealt with the denial of what is going but I have and it continues to look dreary.  Foreclosures, excess inventory, and a slowing economy are all going to continue to take its toll. 

But in this article the author gave his opinion that the one piece of good news was that the median sales price was up 5% from year ago levels.  On the surface it could appear to be good news.  We could rationalize that I'm selling less units but each unit is selling for more money.  Let's go back to 5^th grade math, well I'm not sure that we learned this in 5^th grade but I liked the title.   Median is not the average value of homes sold, that is mean.  Median is, by Webster's definition, a value in an ordered set of values below and above which there is an equal number of values or which is the arithmetic mean of the two middle values if there is no one middle number.  Well when I say it like that we might think that we are dumber than a fifth grader.  Basically if 11 houses are sold, the value of the 6 house when listed in value order from lowest to highest is the median.  Here is an example (25,50,75,100,125,600,605,610,615,616)  the median is 600.  If we averaged (adding the list then dividing by the count, 11), the mean, would be 311.  So out of all the units of houses sold in September the number that was in the middle was $235,000 and last year it was $11,750 less. 

I'm not disputing the fact that the median is up 5% what I am disputing is the fact that it's good news. What I think is less units are selling at the lower values, borrowers with lower income, bruised credit and no down payment are being pushed out of the market.  There are less homes selling and more of them in the higher values but this doesn't compare the value of similar houses.  This type of reporting gives the common reader the idea that values are going up.  I'm sure most Realtors and appraisers could attest that isn't true.

Please pass this note on or repost to your own lists:

FIRE EVAC CTRS:Who do you know that can volunteer/donate?

PLEASE UNITE & PASS THE WORD! ACTIVE RAIN IS A GREAT MEDIUM FOR GETTING THE MESSAGE OUT!


EACH EVAC CTR CAN USE VOLUNTEERS & DONATIONS THAT MAY VARY FROM ONE ANOTHER. Here are some things needed at the Del Mar Racetrack/Fairgrounds: (check w/other evac ctrs for their needs)

One of my clients, an information officer at Del Mar Racetrack/Fairgrounds, which is currently an evacuation center, was interviewed on the news this morning. She mentions the following:

*Volunteers of all types are needed to help w/the animals taken in, including horses & large animals. (Vetrinarians, caregivers, help w/feeding, etc)

*They also are in need of personal hygiene & toiletry items, such as toothbrushes/toothpaste, misc items such as wet wipes, toiletry items, etc. They have plenty of cots, blankets, pillows.

*They're also asking for volunteer teachers who can assist w/entertaining children, as well as any type of toys or items that will also help keep children pre-occupied during this stressful time.

*Please call one of the numbers below first & please do not just show up as they are coordinating who & where!

ANIMAL VOLUNTEERS CALL: 858-792-5245
DONATIONS/AMERICAN MEDICAL RESPONSE: 858-492-3542


PLEASE UNITE & PASS THE WORD! ACTIVE RAIN IS A GREAT MEDIUM FOR GETTING THE MESSAGE OUT!