In today's real estate market we see many purchases that are properties which were recently foreclosed on and now being sold by the bank. This has been a reality of a market that has at times and in certain areas seen more bank owned properties as conventional home sales. As a result of the decline in prices we have also seen an increase in properties being bought by investors, often on a cash basis, cleaned up and then put back on the market for resale, very quickly. For these particular cases, what you may have heard as, as the 90 day flip rule, comes into play.
The Federal Housing Administration has for many years had a 90 day flip rule in place, to prevent the buy and quick resale of a home within 90 days. This past year, this rule was lifted and allowed for ownership change and immediate resale of a property in the case of a property being foreclosed on and resold by a bank. So although you may have heard that the 90 day flip rule had been lifted on FHA loans, it really does not affect any homes, except for those being foreclosed and resold by the bank.
On the other hand, you have conventional Fannie Mae and Freddie Mac backed loans. And although no 90 day rule exists for conventional loans, most, if not all lenders will have restrictions on properties that have been bought and sold within 90 days. In general, lenders will allow for the immediate purchase and resale of all foreclosure homes being resold by banks, just as in FHA. However, in the case of an investor acquiring a property and then trying to resale the property within 90 days for a price higher then it was purchased for (which is often the case in a "flip" transaction), this will not be allowed, as it will be considered a flip transaction.
What this basically means for purchasers of new homes at the end of the day, is that if the home has recently changed ownership, it is important to know why and how. If the property was foreclosed on and being sold by the bank you are fine. However, if the property was bought by a third party investor and resold right away, for a higher price, then you may not be able to obtain conventional or FHA financing on the home.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
This past week, there was news that perhaps the government's Fannie Mae and Freddie Mac refinancing program may begin refinancing mortgages with loan-to-value ratios above 105 percent as the Obama administration seeks to boost participation in its anti-foreclosure programs.
"We're actively considering how to structure a program that makes sense over 105 percent," Federal Housing Finance Agency Director James Lockhart said. He said a ratio of 125 percent "is a number" that's on the table, though "not necessarily the number we're going to end up with."
This would be an expansion of President Barack Obama's Home Affordable program announced Feb. 18, sought to help homeowners who may owe more on their mortgages than their homes are worth. No word was given at to when the loan-to-value ratio could be raised.
Home Affordable has been "seeing a slowdown" as mortgage rates increase, Lockhart said. The average rate on a typical 30- year fixed loan was 5.38 percent last week, according to Freddie Mac. The rate is up from a record low of 4.78 percent at the end of April.
The program applies to mortgages that meet Fannie Mae and McLean and Freddie Mac's conforming loan limits. That cap is $417,000 for some areas and as high as $729,750 for the 250 most expensive real estate markets.
Under the program, borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac who have loan-to-value ratios of 80 percent to 105 percent and aren't delinquent can refinance without buying mortgage insurance, or paying for more insurance than they already have.
Expanding the program to a 125 percent loan-to-value level may benefit additional borrowers that have loans backed by Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac own or guarantee more than half of the single-family mortgages in the U.S.
Lockhart also said yesterday that his agency, the companies' regulator, is looking at ways for Fannie Mae and Freddie Mac to help the so-called warehouse lending market, which provides financing to smaller, independent mortgage companies, amid a credit crunch.
While Fannie Mae and Freddie Mac are prohibited by law from lending directly to other firms, Lockhart said they may be able to provide the market some liquidity by committing to purchase multifamily and other loans.
As more information is released on this initiative and others we will continue to provide updated information as always.
For more information on consumer initiatives, home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Obama's Plan for a Consumer Financial Protection Agency
This past week saw the release of information for a potential Consumer Financial Protection Agency proposed by President Obama. Nothing is set in stone yet and it is uncertain if this agency will come to pass. However, it cold lead to additional oversight and changes aimed at protecting consumers with financial instruments including mortgages. However, as with many government proposals and initiatives that we have seen with the end claimed results being helping consumers, we will reserve judgment until we see results. The plan perhaps looks good on paper in Washington, but what effect will this have on Main Street if it comes to pass? Here is what we know so far.
The agency would:
* be accountable as primary federal financial consumer protection supervisor.
* have broad authority to protect consumers of credit, savings, payment, and other financial services and regulate such products and services.
* have "full authority" to enforce protections through orders, fines and penalties.
* define standards for plain products and subject alternative products to greater scrutiny.
* ban unfair terms and practices or restrict terms and practices for products that may have benefits.
* help ensure executive pay does not create conflicts of interest between consumers and financial firms.
* enforce fair lending laws and the Community Reinvestment Act, which requires financial institutions to serve sparsely populated or low-income areas.
* overhaul mortgage laws to make them clearer and fairer to consumers.
* require firms to offer a simple mortgage with straightforward terms and uniform disclosure. Consumers could opt for alternative loans but these would be subject to restrictions.
* ban unfair practices such as "yield spread premiums," which entitle mortgage brokers to higher fees if they steer consumers to mortgages with higher costs.
* require mortgage brokers to be paid over time based on loan performance rather than in a lump sum at closing.
* restrict or ban prepayment penalties.
* require loan originators or loan bundlers to retain 5 percent of credit risk.
When we receive additional information and details on the new proposed agency, we will as always pass them along.
For more information on consumer initiatives, home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Recently we have seen an increased demand for clients looking to purchase condos. The important thing to remember however that financing for condos is different than that of single family residence homes. In today's market, in order to finance or refinance a condo, the property needs to fall into one of two categories: it either needs to be FHA approved or a warrantable condo. We will go over basics of these two types of financing options for condos and how to determine if the condo you are looking at falls into either of the two categories.
FHA Approved Condos
Federal Housing Administration financing is available with no restrictions different then loans for single family residences, except that the property must be inside a condo complex that is FHA approved. Well how do you know if a condo is FHA approved? It is quite simply actually, as the FHA provides a link to check this directly at: https://entp.hud.gov/idapp/html/condlook.cfm. Simply put in the condo project name or other details and you will be able to determine if the condo is approved or not.
Warrantable Condos
On the other hand if you are looking to obtain a conventional loan that is backed by Fannie Mae or Freddie Mac, you must determine if a condo is considered warrantable. Unfortunately, there is not a handy tool like the FHA provides to look up individual complexes. Instead, you must determine if the condo project fits into one of three classes that follow. If it does then it warrantable, if not then you cannot obtain a conventional loan on the condo.
CLASS I
1. Developer's control of the homeowners association has been turned over to the condo owners 2. Project is not subject to additional phasing or add-ons which have not yet been completed 3. All common elements and amenities must be fully installed, completed and in operation 4. 70% of all units in the entire development must have been sold and or legally obligated to close 5. 70% of all units in the entire development must have been sold to owner occupants
CLASS II
1. Recent or current condominium conversions (from apartments) 2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years 3. Project is not subject to phasing or add-ons which have not yet been completed 4. All common elements and amenities are fully installed, completed and in operation 5. 70% of the units in the entire development must have been sold and/or legally obligated to close 6. 70% of the units in the entire development must have been sold to owner occupants 7. No more than 15% of the current unit owners are more than one month delinquent in payment of homeowner's dues or assessments
CLASS III
1. Homeowners Association has been controlled by unit owners (other than developer) for at least one year 2. Project is not subject to phasing or add-ons 3. All common amenities are fully installed, completed, and in operation 4. 90% of the units have been sold (owner-occupancy of at least 60%)
In order to determine if a condo falls into one of these classes a condo questionnaire must be completed to determine eligibility. In addition, depending on the type of down payment, loan purpose, etc, there may be additional restrictions for conventional mortgages for condos.
Always consult a lender for final determination on any type of financing, but now you have a guide to begin to determine what type of financing is available if you are looking at financing or refinancing a condo.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
FHA Approves $8,000 Tax Credit at Closing - With a Caveat
Following up on the initial announcement that we presented a few weeks ago, HUD has now finalized a plan to allow home buyers to use the $8,000 tax credit for first time buyers, at the closing of their home purchase.
This new plan will allow buyers who qualify for the current first time home buyer tax credit to utilize these funds at closing, as opposed to waiting for the refund, until after closing. Previously buyers had to close on their home and then file an amendment to their 2008 taxes or wait to file their 2009 taxes next year, to take advantage of the credit.
However, there is one caveat that is included in this new final plan, and that is that the $8,000 can be used for closing costs or down payments, but can not be used for the 3.5% minimum down payment currently required on all FHA loans.
What that means is that this new plan will do nothing to help those buyers who lack the 3.5% down payment required for the purchase of a new home, using FHA financing. Instead, this plan will be aimed at allowing buyers to borrow the tax credit, at closing, for additional down payment above and beyond 3.5%. As well, as allowing home buyers to use the tax credit funds to be used to pay for closing costs.
Borrowers can still receive the required 3.5% down payment in the form of a gift from family members, as has always been the case with FHA financing.
In addition, this new initiative to receive the tax credit at closing will be more of a short term bridge loan for the borrowers to receive the $8,000 tax credit, as a silent second mortgage from an FHA mortgagee lender or a government agency and then having the funds repaid when the actual tax credit from the government is processed.
This new plan will certainly provide an incentive for some borrowers who are already looking to purchase a home, but will it create an initiative or opportunity for more buyers to purchase? We will have to wait and see.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
This past week has seen a rapid spike in interest rates moving the average 30 year fixed rate from a national average of near 4.8% to now significantly above 5% with rates still on the move. When and if rates will move back down below 5% is now the question many consumers have on their mind. However, like many other issues surrounding the mortgage market, the answer may just be an issue of waiting and seeing what happens.
Both treasury yields and mortgage rates rose last Wednesday to their highest levels since November, in turn dealing a blow to the Federal Reserve's efforts to stimulate the economy by keeping borrowing costs low.
The Fed has made low mortgage rates a priority in its strategy to help the U.S. recession. In order to achieve that, the central bank has been buying mortgage backed securities and Treasurys. Since this past fall, it has bought more than $460 billion of mortgage-backed securities and more than $125 billion of Treasury bonds.
However, in recent days the tables have been turned against the Fed, as investors worry the government's approach could lead to inflation. The government will sell nearly $2 trillion in U.S. Treasury bonds this year to fund its stimulus programs, and investors worry there won't be enough demand for it. Therefore, excess demand would send bond prices down and push up the government's cost of raising money.
In addition, recent signs of a recovery in the U.S. and across the globe have attracted investors to move out of the relative safety of the Treasury market and into securities that may yield more, such as corporate bonds, stocks and other debt. While that's generally good news for the U.S., it also makes it harder for the Fed to help reinvigorate the battered housing market and keep mortgage rates low.
As such, with higher interest rates on the horizon, investors have been moving out of longer-term Treasury bonds and into shorter-term debt to avoid the risk of rising rates. Treasury traders have expected the U.S. central bank to step in to keep the 10 year Treasury bond yield at 3.5%. However, the Fed has not been so exact in its purchases.
Higher interest rates, in turn, make existing mortgage-backed securities less attractive, because newer securities would be filled with loans that pay more interest. Once Treasury yields solidly surpassed 3.5%, investors sold nearly $10 billion worth of bonds backed by mortgage loans, analysts estimate.
With Wednesday's rise in rates, additional pressure may now be put on the Fed to increase its planned purchases of Treasurys beyond the $300 billion already earmarked. This is after the late April meeting in which the Fed considered raising the amount but held off. Now the speculation is that the Fed may need to address the market's reactions before its next June 24 FOMC meeting.
When and if the Fed steps in again with a new or revised plan to help keep mortgage rates low is still to be seen. In the mean time we will have to play a waiting game as we see where mortgage rates head next.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Government Adds Cash Incentive To Home Owners Who Can't Save Homes
The Treasury Department recently announced a new plan that includes a cash incentive to assist homeowners to move on and to get loan servicers to forgive mortgage debt for mortgages that can not be modified, for which foreclosure will be the best option.
This newest initiative is the latest portion of the government's Making Home Affordable program to be announced. (See: http://www.treasury.gov/press/releases/tg131.htm).
As mentioned in previous articles, the original program was designed to help, homeowners to be eligible for loan adjustments or refinancing if they meet a slew of criteria including being a loan owned by Fannie Mae or Freddie Mac, being a conforming loan limit and being a primary residence, among other things.
However, even if you meet all those qualifications, mortgage help is not assured. The homeowners may still not be able to afford reduced monthly mortgage payments of 31% of income. And to protect the investors who own the mortgage, the value of a modified loan still has to be greater than the value of what would be recovered in foreclosure.
In these cases, lenders first consider a short sale, a deal in which the home is sold for less than the mortgage balance, and loan servicers may forgive the difference.
If that is unsuccessful, the final step is a "deed in lieu of foreclosure," when borrowers voluntarily forfeit the deed and the debt may be erased.
Under the new initiatives, for short sales and deeds in lieu, borrowers will get up to $1,500 to assist with relocation expenses. Treasury will also pay the servicers $1,000 to complete a short sale or deed in lieu.
A deed in lieu might also be better for the banks. Banks acquire the properties back from delinquent borrowers faster and more easily, saving them legal, financial and other costs associated with going through the entire foreclosure process.
Not every deed in lieu involves "cash for keys," but motivated lenders will often pay borrowers something, typically about $1,000, to vacate by a fixed date and to not vandalize the homes or strip it of fixtures.
The borrowers who may benefit most from this program are the ones who would still not be able to repay their mortgages under any reasonable workouts.
These would include delinquent borrowers who are way underwater, owing much more on their mortgages than their homes are worth, people who have lost their jobs with little hope of finding another and ones who have gone through a divorce or another life-changing event.
In those cases, they may be better off cutting their housing expenses by switching to a rental and the cash-for-keys is one more good reason to do so.
However, the deed in lieu may not be simple. If there's a second mortgage, the lender will not allow a deed in lieu unless they get the full cooperation of the holder of the second mortgage.
To help solve that issue, Treasury will also make incentive payments to second mortgage holders, up to $1,000, if they give up all claims.
We will continue to monitor and provide updates on the making homes affordable program as they become available. However, the introduction of this new program perhaps signals that the government is now seeing that not as many borrowers as they once thought will be helped by the making homes affordable program. Or perhaps this is just another initiative to help clarify and enhance the original program.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
FHA Borrowers May Soon Be Able To Use $8,000 Tax Credit at Closing
The details are still a bit unclear as to how the program will be implemented. However, HUD Secretary Shaun Donovan announced this past week that first-time buyers using FHA loans would soon be allowed to "monetize" the $8,000 federal first-time buyer tax credit and use the funds for their down payment.
"We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time home buyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. ... We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit," Donovan told attendees at the National Association of Realtors, Real Estate Summit in Washington.
As mentioned, the details of the program still haven't been announced, but the revised policy seems to offer a benefit to potential first time home buyers without the full down payment for the purchase of a home.
The policy should help boost the housing market by allowing first-time buyers using FHA loans to stretch their dollar by using the federal credit at settlement as part of their closing funds, rather than waiting months for a refund on a tax return. "This allows them to solve the ‘chicken or the egg' question: the promised tax credit or the closing" that allows them to get the money, said Rob Dietz, director of tax issues of the National Association of Home Builders, adding: "They have a right to this credit amount as a first-time buyer. It makes sense to turn this credit into their home equity."
Still two questions remain unanswered: Will first-time home buyers be able to monetize the tax credit using any FHA-approved lender? Or will they need to be working with a state housing finance agency, which usually requires additional documentation and provides financial and homeownership counseling to those who qualify for their help?
"We will attempt to answer those questions once we've published our mortagee letter," HUD spokesman Brian E. Sullivan said.
If buyers could monetize the tax credit, they would essentially receive a short-term bridge loan for the amount of the credit (which could vary based on their income and the home's sales price). They could apply that money to their down payment or as additional equity in their home. For buyers working with a state housing finance agency, the monetized tax credit often becomes a "soft" second mortgage, which they must pay back once they receive their tax refund.
Dietz added that," There's no doubt that the purpose of the tax credit is to stimulate housing demand. We estimate new and existing home sales will increase by 160,000. But it's not a tax credit that is in anyway large enough to reinflate the market-it's just a useful and limited tool to smooth out the market," he said. "As for causing sales to return to 2005 levels or push prices up, this tax credit is not capable of doing that."
As the details of the new program and the mortgage letter from FHA are published we will provide additional information and details. The final version of this program will tell the story of whether or not this will be a program that enables first time buyers an option to purchase a home and truly take advantage of the $8,000 home buyer tax credit at closing.
For more information on home purchase loan or refinace programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Last week, in regard to the real estate market, Federal Reserve Chairman Ben Bernanke said housing "has shown some signs of bottoming" after three years of decline.
"Although some of the boost to sales in the market for existing homes is likely coming from foreclosure-related transactions, the increased affordability of homes appears to be contributing more broadly to the steadying in the demand for housing," he said. This was welcome news to the real estate markets, as new home sales show a large up tick as well.
Chairman Bernanke noted the average rate for a 30-year fixed-rate mortgages has fallen nearly one and three quarters percentage points since August, and falling inventories is setting up for a recovery in housing starts.
In addition, the Fed chairman said the economy should bottom out and "turn up later this year," assuming that gradual repair of the financial system continues.
Chairman Bernanke noted that the U.S. economy has "contracted sharply" over the past half year, and that he sees "further sizable job losses" and a rising unemployment rate in the coming months.
However, he also stated that the U.S. economy could return to growth later this year, provided that improvements in the financial markets continue.
He noted that, "In coming months, households' spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment."
"Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further," he said. "We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly."
This was certainly an encouraging statement from one of the most powerful monetary policy figures in the world. Whether we are seeing a bottom or not is still a question to be answered. However, anecdotal and economic evidence we are certainly seeing an increase in home sales, coupled with low interest rates, which has only helped the housing market. We will see in the coming months if we can continue to sustain momentum and finally gain traction in the real estate market.
For more information on home purchase loan or refinace programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
The President said this past week that government is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program. Much like the rest of the program recently announced however, we will withhold judgment until results start being achieved.
The president's current $75 billion program has gotten off to a slow start. Loan servicers only recently started taking applications and many delinquent borrowers have complained about not being able to qualify for the program.
The administration is now seeking to address some of the concerns by changing the original modification plan, which calls for adjusting eligible borrowers' loans so monthly payments are no more than 31% of pre-tax income.
The main issue with the current program for many borrowers is that up to half of at-risk borrowers have second liens, according to recent government reports.
Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor.
The servicers will be paid $500 for each modification and an additional $250 annually for three years if the borrower stays current. Borrowers can receive up to $250 per year for five years to pay down their first mortgage.
In addition, investors can also receive a payment in exchange for extinguishing the second lien. They would receive 3 cents on the dollar for loans more than 180 days delinquent and between 4 cents and 12 cents for less delinquent loans, depending on the borrowers' debt levels.
Servicers who join the new program must modify secondloans when a borrower's first mortgage is adjusted. It will likely take a month to implement is the information being presented.
In addition, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.
Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.
Servicers would now have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.
As an incentive to participate, servicers will be paid $2,500 for each refinancing, while lenders who originate the new loans will receive up to $1,000 a year for three years, as long as the loan remains current.
These plans are all steps in the right direction to try and help additional borrowers who have not had results with the current initiatives. How effective they will be is still yet to be determined.
For more information on government programs for refinancing, or home purchase programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
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.
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