Interest Rates Hover at Record Lows

Concerns about the strength of the economy have recently taken Treasury yields to new lows. This, in turn, is causing fixed-rate mortgages to remain low.

Homeowners are taking advantage of the low interest rates. The refinance index recently reached a three-year high. Also, the Federal Housing Administration (FHA) projects to receive 630,000 refinance applications for fiscal year 2012, a 23% increase from the previous 12 months.

The vast majority of refinancing is going into fixed-rate mortgages. The adjustable-rate share of mortgage activity recently fell to 4.1% of all mortgage applications.

At the same time, home prices are increasing. Zillow reported a second-quarter increase nationwide for the first time since 2007. Standard & Poor’s/Case-Shiller housing price index is also reporting monthly price increases.

When thinking about refinancing, there are some important things to consider. For instance, if refinancing to a lower rate will save $125 a month, you, or your client, should then factor in the tax rate. If the Federal tax rate is in the 25% tax bracket, the actual savings will be $94 a month.*

Another consideration is how long it will take to recover the refinancing costs. If the costs are $4,000, it will take 43 months ($4,000 divided by $94) to recoup those costs. Then, refinancing is a good option even for those who might move in five years. If, however, the refinancing costs are $6,000, it will take 64 months ($6,000 divided by $94) to recover the costs, which, if planning to move in five years, would not be a good option.

* For example, a typical FHA loan of $300,000 has 360 monthly payments of $1,432.25; 4.000% interest rate, 4.117% APR. The monthly payment does not include taxes and insurance premiums.

from Prospect Mortgage Industry Insider

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FHA Streamline Refinancing Fees Reduced

The White House recently announced significant changes that will reduce the fees charged for the Federal Housing Administration‘s (FHA) Streamline Refinance Program.

Beginning June 11, 2012, the Streamline Refinance upfront fee of 1% will be reduced to 0.01% of the total loan amount. And the annual fee will be lowered from 1.15% to 0.55% of the total loan amount.

By refinancing through this streamlined process, the average qualified FHA-insured borrower will save approximately $3,000 a year or $250 per month, on top of any savings from refinancing to a lower mortgage rate.

The “streamline” refers to the minimal amount of documentation and underwriting that needs to be performed. Streamline refinancing can be done without an appraisal or income verification, providing the person(s) on the loan hasn’t changed.

There are no loan-to-value (LTV) restrictions on streamline refinancing. This is significant for underwater borrowers whose loan amount may exceed the current value of their home. However, second liens must subordinate with a maximum combined LTV ratio of 115% based on the original appraised value of the property.

The basic requirements of a streamline refinance are:

  • The loan must already be FHA insured and endorsed on or before May 31, 2009.
  • Borrowers must be current on their mortgage payments with no late payment in the previous 12 months.
  • The refinance must result in a lowering of the borrower’s monthly principal and interest payments.

Currently, 3.4 million households with loans endorsed on or before May 31, 2009, pay more than a 5% annual interest rate on their FHA-insured mortgages.

from Prospect Mortgage Industry Insider

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FHA Insurance Premiums Will Increase Soon

If your clients are considering buying or refinancing a home, you should let them know that the Federal Housing Administration (FHA) will soon increase mortgage insurance premiums on FHA home loans.

The Department of Housing and Urban Development (HUD) announced it would increase the annual mortgage insurance premium (MIP) by 0.10% for FHA loans under $625,500. This would raise the fee from 1.15% to 1.25% of the total loan amount. This annual premium increase — which is broken down into monthly payments — takes effect April 1, 2012.

In addition, HUD announced it would raise the FHA’s upfront annual mortgage insurance premium (UFMIP) from 1% to 1.75% effective April 1, 2012.

Starting June 1, 2012, the MIP for FHA loans over $625,500 will increase 0.35%, raising that fee to 1.50% of the total loan amount.

The primary reason for the changes is to bolster capital reserves for FHA’s Mutual Mortgage Insurance Fund. Congress has mandated the fund keep 2% in reserves. Last year, that reserve had slipped to 0.2%. The changes are expected to generate about $1 billion annually for the fund.

The increase in mortgage insurance costs applies to the purchase or refinancing of all FHA loans regardless of the amortization term or loan-to-value (LTV) ratio. The increases will not apply to borrowers already in an FHA-insured mortgage, a Home Equity Conversion Mortgage (HECM), and other special loan programs to be outlined in a forthcoming FHA Mortgagee Letter.

For your customers considering refinancing or making a purchase, they might want to act before the new mortgage insurance premiums take effect.

from Prospect Mortgage Industry Insider

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FHA will keep funding flips

For the second year in a row, the Federal Housing Administration is extending a temporary waiver of its “anti-flipping” rule, meaning homebuyers relying on FHA-insured financing will continue to be able to buy homes that have changed hands in the last 90 days.

The waiver is a boon for investors seeking to rehab and flip properties, because it expands the pool of eligible borrowers to include those relying on FHA-backed loans, popular with first-time homebuyers and others who lack the cash to make large down payments.

In extending the waiver through 2012, FHA said all transactions must continue to be arms-length. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender can document the justification for the increase in value, FHA said.

FHA instituted the anti-flipping rule in 2003 to protect its mutual mortgage insurance program from losses on homes that were merely flipped, rather than rehabbed. Homes repossessed by Fannie Mae, Freddie Mac, and state- and federally chartered financial institutions were exempt from the rule.

In February 2010, the Obama administration waived the waiting period for resales — including homes purchased and rehabbed by private investors — in the hopes of stabilizing home prices and revitalizing communities hit by foreclosures.

It often takes less than 90 days to acquire, rehabilitate and sell properties, the Department of Housing and Urban Development said at the time. Some sellers of rehabbed properties had been reluctant to enter into contracts with FHA buyers because of the cost of holding a property for 90 days, HUD said.

In extending the waiver through 2011, FHA said it insured 21,000 90-day property flip loans worth more than $3.6 billion in 2010 that would otherwise not have qualified for financing.

That number has since grown to nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.

By Inman News, Wednesday, December 28, 2011.

Inman News®

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Bring back FHA 203(k) loan for investors

Two years ago, the National Association of Realtors, the largest trade group in the nation with 1 million members, floated its idea of a housing solution to attendees at its annual convention.

NAR later presented Congress with a Four-Point Housing Stimulus Plan to help stabilize the housing and mortgage markets. The crux of the package suggested using $130 billion of the $700 federal billion bailout funds on housing, specifically earmarked for an interest-rate buydown and more tax credits.

That buydown idea did not happen. It would have been a one-percentage-point, interest-rate buydown on fixed-rate loans for all buyers. The reduction reportedly would have resulted in approximately 840,000 additional home sales and reduced the inventory of homes by as much as 20 percent.

What was adopted was an $8,000 first-time homebuyer tax credit and a new existing homeowner tax credit of $6,500. The first-time bonus was especially popular, even extended for an additional period.

This year, NAR crafted a five-point proposal, New Solutions for America’s Housing Crisis, that really does not contain any new ideas at all, rather a restoration of old guidelines and programs.

While each “point” contains about five subtitles that could easily stand alone, the proposal focuses on higher lending limits, no reductions in the mortgage interest deduction, reinstatement of the FHA 203(k) program for investors, and relaxed mortgage guidelines for second homes.

The investor message came through loud and clear, particularly because Florida credits its rebound to investors and international second-home buyers. According to Moe Veissi, NAR president-elect, a 10-year supply of condominiums has been reduced to seven months due to cash transactions by investors looking to hold the properties for long-term rentals.

“Investors are not healthy to the market during bubble years, but they can help speed up the recovery in a down market,” said Lawrence Yun, NAR’s chief economist.

Owner-occupants continue to use popular 203(k) loans, which allow the borrower to finance both the purchase of the property and upgrades into one mortgage guaranteed by the government.

However, for the past 15 years, FHA has maintained a moratorium on allowing investors to use the 203(k) program because of past abuses in how the refurbished properties were appraised.

Most mortgage loans provide only permanent financing. Typically, the lender will not close the loan and release the money unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, the lender usually requires improvements to be finished before a long-term mortgage is granted.

When a buyer wants to purchase a house that needs repair or updating, the buyer usually has to obtain interim financing to purchase the dwelling, then additional financing to do the work. When the rehab is completed, a permanent mortgage — which pays off the interim loans — is made.

(Interim financing often involves relatively high interest rates and relatively short payback periods.)

The FHA 203(k) program was designed to roll all financing into one package. The borrower can take out one mortgage loan, at a long-term fixed or adjustable rate, to finance both the acquisition and the rehabilitation of the property. The mortgage amount is based on the “as will be” (projected) value of the property and takes into account the cost of the work.

FHA 203(k) loans are available for purchase or refinance. The refinance component can combine all existing loans plus provide the funds for needed repairs.

To minimize risk to the mortgage lender, the loan is eligible for endorsement by FHA as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At that point, the lender has a fully insured mortgage.

The FHA 203(k) loan can come in handy in a foreclosure sale — and especially to investors around the country. In many cases, the previous owner has taken fixtures or the structure is in dire need of repair. Loan proceeds would provide for the updates and the permanent financing.

It’s time to let investors back under the FHA 203(k) umbrella. It’s past time to get vacant homes cleaned up and alive again with occupants.

By Tom Kelly, Wednesday, December 14, 2011.

Inman News®

Tom Kelly’s new e-book, “Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a Tearful Retirement,” is available online at Apple’s iBookstore,, Sony’s Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions. 

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As the Nation’s Second Largest 203K Lender, Prospect Sees Demand Growing for Renovation Loans

Currently, foreclosures account for about 30% of all home sales in the U.S. Many of these homes have been neglected and are in need of repair. These market conditions have made renovation loans a hot item.

Renovation loans are very attractive for a number of reasons. The Federal Housing Administration (FHA) 203K renovation loan provides the money to both purchase the home and finance the home’s renovation. The down payment required on a renovation loan can be as low as 3.5%. Renovation loans are also very convenient. With one loan, there’s only one application, one set of fees, one closing and one monthly payment. At closing, the repair money is put into a special account for disbursement as repairs are completed.

Prospect has seen a sharp rise in the demand for renovation loans. To better service these increasingly popular loans, Prospect has put an experienced Renovation Management Team in place; implemented training and certification programs for Loan Officers originating renovation loans; and developed a Fast Track Team to expedite the renovation loan process.

Consequently, Prospect has increased its renovation loan market share in the past couple of years by more than 80%. In fact, today Prospect is the second largest FHA 203K renovation lender in the nation.

Only a limited number of lenders offer 203K financing. With foreclosure sales running six times higher than normal — and many of these homes in need of repair — just knowing about renovation loans may make the vital difference to motivate your buyers to purchase.

from Prospect Mortgage Industry Insider

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