3%-Down Payment Loans Make Strong Debut

Freddie Mac’s new mortgage product that allows borrowers to put down just 3 percent is off to a strong start, says Freddie Mac’s Chief Executive Donald Layton.

Lawmakers had expressed concern about Freddie Mac’s 3 percent down payment option loans, which debuted in March, arguing that it could lead to losses at the government-backed company. The Federal Housing Administration also supports low down payment loans but requires more insurance from home owners than Freddie Mac’s.

By the end of June, Freddie Mac’s post-2008 business has increased to 63 percent of its single-family credit guarantee portfolio. Also, its single-family serious delinquency rate – loans that have payments late by 90 days or more — stood at 1.53 percent in the second quarter, the lowest since November 2008 and below the national rate of 4.24 percent.

Source: “New 3%-Down Mortgage Off to ‘Good Start,’ Freddie Mac Chief Says,” MarketWatch (Aug. 4, 2015)

Smaller Down Payments Lure More Buyers

Some home buyers are stepping off the sidelines as more lenders require less money up-front on a home purchase.

Recently, more borrowers are able to pay 3 percent or even less of a home’s purchase price to get a mortgage – a big change from when at least 20 percent down payments were practically the norm post-recession.

Additionally, some lenders are luring more home buyers back by waiving mortgage-related fees and even showing more acceptance of allowing down payments to be made by others, such as the borrower’s family members, The Wall Street Journal reports.

Still, borrowers must have good credit scores and a steady income to often qualify for these smaller down payment loans.

In two big moves in recent weeks, the Federal Housing Administration, which insures mortgages with down payments as low as 3.5 percent, announced it is lowering its annual mortgage-insurance premiums on new mortgages beginning Monday. The move is expected to save a typical first-time home buyer about $900 a year. What’s more, Freddie Mac and Fannie Mae recently lowered the minimum down payments they will accept on loans they back from 5 percent to 3 percent.

Source: “Down Payments Get Smaller,” The Wall Street Journal (Jan. 23, 2015) and “Loan Demand Posts Biggest Leap in 6 Years,” REALTOR® Magazine Daily News (Jan. 14, 2015)

FHA Ends Post-Payment Penalties

The Federal Housing Administration is overhauling a long-held policy of charging extra interest payments on loans it insures to borrowers who have already paid off the principal debts on their mortgages.

FHA has permitted its lenders to charge borrowers a full month of interest when they sell or refinance a home, even if borrowers had paid off the mortgage weeks prior to the end of the month. For example, if borrowers went to closing on an FHA loan on Sept. 3, lenders would be allowed to continue to charge them interest through Sept. 30.

Beginning Jan. 21 of next year, new FHA mortgages will require lenders to collect interest only on the balance remaining on the date of closing for a home sale or refinancing. (However, sellers and refinancers who currently have FHA loans and expect to close before Jan. 21 likely won’t see much benefit from the new policy.)

The Consumer Financial Protection Bureau raised the issue with FHA last year, asking why FHA was allowing its lenders to collect post-payment penalties from borrowers at closing. FHA had argued that its bond investors, who purchase packages of insured mortgages, expected full-month payments of interest plus principal. FHA said that its lenders did charge borrowers slightly below market rates to help compensate for the post-closing payments.

However, critics argued that the policy was unfair to borrowers. The National Association of REALTORS® had lobbied against the FHA policy for more than a decade. NAR estimated that during 2003 alone, sellers and refinancers paid nearly $690 million in extra interest charges due to the policy.

Source: “FHA to Ban Lenders From Charging Extra Interest Payments on Mortgages,” The Los Angeles Times (Sept. 7, 2014)

 

Take a Class, Save on Your FHA Loan

The Federal Housing Administration will be ending its public comment period  in mid-August on a proposed program that would allow first-time home buyers to get a discounted mortgage if they enroll in housing counseling classes.

The program, called Homeowners Armed with Knowledge (HAWK), was announced last month by the FHA as way to curtail home buyers’ mortgage insurance premium costs. FHA is operating under the assumption that the more borrowers understand about home ownership, the less likely they are to default on their loans, thereby decreasing their lending risk.

To be eligible for the discount, borrowers must take several courses before and after closing. FHA says consumers could save an average of $325 a year or nearly $10,000 over the life of the loan.

The courses will be taught by agencies approved by the U.S. Department of Housing and Urban Development. FHA hopes that borrowers will be able to apply for the program by the end of the year.

Source: “FHA Offers First-Time Homebuyers Discounted Loans for Taking Class,” RISMedia (June 14, 2014)

It’s Taking Less to Get an FHA Home Loan

First-time and low-income mortgage borrowers may have an easier time qualifying for a Federal Housing Administration loan. Ginnie Mae, a government agency that issues bonds backed by FHA loans, reports that the average credit score on FHA-backed loans fell to 680 in 2013, and the average debt-to-income ratio rose to 40.3 percent — both indicators that credit may be easing.

In comparison, Ginnie Mae reported in January 2013 that the average credit score was 701 and the debt-to-income ratio was 38 percent.

“The FHA theoretically allows credit scores as low as 580,” the L.A. Times reports. “But lenders, buffeted by defaulted loans and demands that they buy back troubled mortgages that they sold, generally have set standards higher since the mortgage meltdown.”

Source: “Average Credit Score Falls on FHA Loans,” Los Angeles Times (Feb. 27, 2014)

Sellers May Use their FHA, VA Loans as Marketing Tool

Home owners who have a mortgage insured by the Department of Veterans Affairs or Federal Housing Administration are often unaware of one feature: The buyers may be able to take over the home owner’s loans under the same terms. This prevents the buyer from having to take out a new mortgage, and may be an incentive that can be used as a marketing tool to sell a home — particularly at a time when mortgage rates are on the rise, The New York Times reports.

“You could now have a seller saying, ‘I have a great house to sell you and a great mortgage to go with it, which is better than my neighbor, who only has a great house,’ ” Marc Israel, an executive vice president of Kensington Vanguard National Land Services and a real estate lawyer, told The New York Times.

The advantage to buyers is that they may be get a lower mortgage rate by assuming the seller’s loan. It also can be cheaper than applying for a new one with fewer settlement fees. An appraisal is not required, but buyers must  prove their creditworthiness.

Another potential perk to assuming the seller’s loan may be that buyers then will be further in the amortization schedule than on a new loan, which could mean more of the monthly payment would go toward the principal.

Source: “Taking Over a Seller’s Loan,” The New York Times (Sept. 19, 2013)

Report raises questions over “Racial Lending Disparities?”

Seven consumer advocacy groups say their analysis of mortgage data raises questions about whether lenders are steering minority borrowers into government-backed loans that are slightly more expensive than conventional mortgages.

The report looked at data disclosed by banks under the 2010 Home Mortgage Disclosure Act. “The findings indicate persistent mortgage redlining and raise serious concerns about illegal and discriminatory loan steering,” according to a recent report.

The majority of government-backed loans are issued by the Federal Housing Administration, allowing borrowers to make down payments of 3.5% and remains virtually the sole source of low down-payment mortgages for homeowners today.

FHA loans require borrowers to pay mortgage insurance premiums no matter how much equity they have. Conventional loans, meanwhile, typically require mortgage insurance when borrowers have less than 20% in equity. Insurance premiums vary depending on the borrowers’ credit score and other risk factors.

“It’s not that the [FHA loan] isn’t a good product,” said Spencer Cowan, vice president at the Woodstock Institute, a Chicago-based research organization. The problem, he said, is that “to the extent that a borrower who could qualify for conventional financing is instead offered an FHA product, that person is being disadvantaged.”

More information at source: http://blogs.wsj.com/developments/2012/07/19/report-raises-questions-over-racial-lending-disparities/

FHA announces “changes to their Mortgage Insurance”

·         The “upfront” MI (the amount added to the loan amount at closing) is being reduced from the current 2.25% to 1.0% – that’s good news.  Means the client will be starting out with a lower loan balance. 

·         Bad news is that the MONTHLY MI will be going up from the current .55% per year to .85% to .90% per year.  On a $250,000 purchase price, this means approximately $55 per month in higher MI payment.

Implementation date is estimated to be September 7th, meaning all case #’s drawn after this date will have the new MI structure.  So if we have a house identified and it looks like the offer will most likely be accepted, you might want to get a case # on that house for that client and lock into the existing MI structure.  Some clients may opt for the lower up front cost and take the higher monthly payment.