In the ongoing quest to unearth the few remaining 100% home loan options, I wrote a recent article about VA loans called 100% Financing: Focusing on VA.  Since then, I have been asked numerous times whether or not a veteran can have two VA loans.

The answer is yes and yes.  Now I know that the question above refers to two VA loans and not two questions, so let me explain the two yes answers.   As most lenders and veterans already know, a veteran can have two VA loans in succession.  Once a VA loan has been paid off and the property sold, VA eligibility is reinstated and reusable.  On a one time basis, a veteran can even pay off the VA loan while retaining the property.

But the second part of that question is much more interesting.

Can a Veteran Have Two Concurrent VA Loans?

In this down market, it is not unusual for a homeowner to want to buy a new home while waiting until the market improves before selling the current home.  So can the veteran purchase a second using her VA entitlement while retaining the first?

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In my last post New FHA & Conforming Loan Limits Announced, frequent Lending Clarity commenter and knowledgeable industry professional Catherine Coy provides a link to Fannie Mae’s guidelines and pricing policies.

A quick read of Fannie’s guidelines revealed some key points about the new conforming loans, or what Fannie calls Jumbo Conforming loans. This list is by no means comprehensive, so you’ll have to read it yourself to get all the details. These are just the ones that seemed particularly noteworthy to me:

Fannie Mae Jumbo Conforming Highlights

• Fannie will start accepting delivery of 15 & 30 yr fixed-rate mortgage on April 1 and 5/1 ARMs on May 1. (Lenders will probably begin originating these immediately)
• All new jumbo conforming loans must be manually underwritten.
• No “Cash Out” refinances allowed

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Despite the bumpy ride, rates didn’t change much this week. According to Freddie Mac’s weekly survey, the 30 year conforming fixed rate ended the week at 5.65% with half a point. This of course is the owner occupied rate with the highest credit scores. Investors, or those with lower scores pay more.

The big news of course was the Senate passing the economic stimulus package containing the increased conforming loan limits, which now moves on to the President’s desk for signature next week. I contacted a number of banks to ask how quickly they would act on the new law, but of course they’re still figuring that out.

Further Thoughts on the Conforming Loan Increase

One of my associates pointed out that language in the conforming loan limits provision suggests that the increase would apply only to “high cost” areas. Although FHA loan limits vary by county, conforming loans limits have been pretty consistent across the country. I couldn’t find any further detail, so I emailed Barbara Boxer yesterday in hopes of clarification. Seems to me that the benefit would be minimal unless the new limit is broadly applied.

I was also curious about whether we would see a rate “adjustment” for what the larger conforming loans. Again, no clear response from the banks. But interestingly, Freddie Mac intends to keep that part of the portfolio separate from the sub $417k part.

This from Reuters…

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With the rapid demise of 100% financing, first-time home buyers are finding it increasingly difficult to purchase homes, even as prices become more tempting. Yet there is one solution often overlooked by borrowers and lenders alike. It is the Nehemiah program, and when used in conjunction with a normal FHA loan, magical things happen.

What is Nehemiah?

The Nehemiah Corporation is “a community development corporation specializing in homeownership, affordable housing and community development.” The Nehemiah Program, founded in 1997, is the largest privately funded down payment assistance program (DPA) in the country and has helped a quarter of a million families buy homes.

How Does the Nehemiah Program Work?

Nehemiah provides gift funds for the down payment and closing costs to qualified home buyers who use an eligible loan program. Here’s the key: the seller must contribute an amount equal to the gift (up to 6% of the sales price) plus a small processing fee to Nehemiah. Nehemiah in turn provides a gift to the buyer. The funds are not a loan, there are no payments due, there is no “recapture”, and they never have to be repaid.

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After what can only be described as a two-week roller coaster ride, we are back at the platform we left two Mondays ago. Freddie Mac reports a weekly average 30 year fixed rate of 5.65% at .5 pts and a 15-year rate of 5.16% at .5 pt.

The chart above shows the price movement of the Fannie Mae MBS 5.5% coupon over the past 10 days. Remember that bond prices move inversely to rates. Thus the spike on the 22nd shows the steep price increase (drop in rates), followed by the immediate and violent drop in price (rise in rates).

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There have been many consequences of the subprime mortgage meltdown. But one which has received very little attention so far is the repricing of risk by investors who buy mortgages. That is about to change. What’s important to understand about this fuzzy term is that mortgage rates will now rise even for consumers with decent credit scores. Meet risk-based pricing.

In the 2007 mortgage meltdown, investors realized that the low interest rates previously offered didn’t adequately cover the risk of default. Past projections floated on a rising tide of appreciation that kept every one off the reef. Now that the tide has rolled out and shipwrecked many lenders, those left afloat are raising rates to compensate for the soaring level of defaults.

Are You an “A Paper” Borrower?

Long before subprime came along, there were two general categories of mortgages; “A Paper”, and everything else. Those of us involved in “A Paper” lending rarely visited the dark underworld of B, C, & D paper. But the advent of subprime brought light to that world and introduced us to risk-based pricing as the industry opened wider the gates of home ownership. So think of the current repricing of risk as a further striation of the A paper segment. This will mean that higher risk borrowers will now pay higher rates.

Pricing Adjustments

The long and short of this is that A Paper borrowers will no longer be treated equally. For instance, if Fannie Mae’s Desktop Underwriter (DU) approves your loan and your Fico score is below 620, expect to pay a rate 1/2 point higher than your friend whose score is 720, unless you’re putting 30% down. If you want an interest-only loan, a hybrid ARM, an owner occupied duplex, or a manufactured home, expect further adjustments to your rate, depending upon your loan-to-value (LTV) ratio.

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The Senate’s FHA Modernization Bill, S 2338 flew through with a 93 to 1 vote yesterday. The House previously passed its own slightly different FHA reform bill in September. The measure will now go to a committee to work out compromises between the two competing version before the final draft is forwarded to the Oval Office for signature.

Two of the key issues are:

1. Raises the maximum FHA loan amount to $417,000, putting it in parity with conventional loan limits.
2. Lowers the required down payment to 1.5% from 3% (the House version eliminates the down payment requirement altogether)

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As real estate values continue to sag, pushing many home owners toward foreclosure, one question surfaces more than any other. Will a short-sale damage your credit less than a foreclosure?

REWIND

I wrote a couple of articles awhile back entitled, Short Sales vs. Foreclosures…Your Credit Will Suck Either Way and Short Sales and Loan Prospector: A Response From Freddie Mac. At the time–nearly a year ago–my preliminary investigation suggested that short sales and foreclosures would have exactly the same effect on credit. But back then, this issue was just reclaiming the spotlight, and no one had really given it much thought. You see, it has been 10 years since we’ve really seen this problem.
Those articles are still garnering comments, and I’ve been getting daily phone calls and emails from all over the country from people facing foreclosure. So recently I reopened the investigation. And although the issue is far from clear, my conviction is the same. A short sale won’t leave your credit in better shape than a foreclosure. And it could hurt you from a tax standpoint.

NOT EVERYONE AGREES

Now I need to acknowledge the disagreement out there. Speculation is rampant, but a lot of it is groundless. There are people predicting the number of points each type of foreclosure will move your scores, a claim my credit reporting agency called “asinine.” Real estate agents seem more prone to recommending short sales, though most of the agents I know are very cautious about this. One Realtor/lender wrote,

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Last June I wrote an article entitled Is This The End of Credit Score Piggybacking? That article discussed the renting or selling of credit scores by good borrowers to fake good credit scores for bad ones. The practice of piggybacking credit has been used by parents to help their kids develop good credit scores. When accompanied by some education in the matter of building and maintaining good credit habits, this promotes the responsible use of credit.

However, the bad guys have been using credit renting to cheat the system and the credit bureaus are about to slam the door shut. Here is a brief summary from of how it works and the changes in scores you can expect to see shortly. This came from someone at the credit reporting agency I use.

Authorized users are individuals that are added to an account without having any responsibility for the account. The most popular use is when an individual with a credit card, makes other members of the family “authorized users” on the card. The authorized users get their own cards (with their names on them) and the accounts show up on their credit reports as authorized user accounts. However, the authorized user has no actual liability for the account; if the account goes into default the creditor can only pursue the main account holder for the funds, not the authorized users. (This is how authorized user accounts differ from joint to co-signer accounts where the additional users also are liable for the account).

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As if on cue for Thanksgiving, the Sacramento Bee today announced that governor Arnold Schwarzenegger had obtained agreement from four lenders to freeze rates on California subprime loans that are about to reset.  Hey, one more reason to celebrate!

The initial list of lenders include Countrywide, GMAC, Litton, and HomeEq—hopefully more will follow their lead—and the agreement applies to borrowers who  a) have not yet defaulted on their payments,  b) live in the home, and  c) can prove that they will be unable to make their new payments.  Rates could be frozen for 5 years or more, depending on the borrower’s situation. 

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