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Fh Arealtors November2008


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Fh Arealtors November2008

  1. 1. The FHA Solution New Loan Limits & Reform For 2008
  2. 2. Today’s Topics <ul><li>Credit Crunch </li></ul><ul><li>Current Lending Landscape </li></ul><ul><li>Historical Perspective </li></ul><ul><li>The 2008 Economic Stimulus Package I & II </li></ul><ul><li>New Loan Limits </li></ul><ul><li>FHA Modernization </li></ul><ul><li>Differences between FNMA and FHA </li></ul><ul><li>FHA Loan Types </li></ul><ul><li>Eligible Properties/Condo Issues </li></ul><ul><li>Property Considerations and FHA lending </li></ul><ul><li>Property Inspections and FHA Lending </li></ul><ul><li>Writing the Contract with FHA Lending </li></ul>
  3. 3. Housing Meltdown Why home prices could drop 25% more on average before the market finally hits bottom… BusinessWeek January 31 st , 2008
  4. 4. The 2008 Lending Landscape <ul><li>Jumbo Secondary Market Seized up </li></ul><ul><li>Declining Values-Reduced LTVs </li></ul><ul><li>FNMA & FHLMC Charging New Fees (adverse market surcharge) </li></ul><ul><li>Private Mortgage Insurance –More Expensive </li></ul><ul><li>Stated Income No More </li></ul><ul><li>ALT A & Subprime Lending Halted </li></ul><ul><li>Seconds vanishing </li></ul><ul><li>100% Financing almost Non-Existent </li></ul>SIMPLY PUT… Buyers must qualify and have a down payment.
  5. 5. Impact of Fannie Mae & Freddie Mac Pricing Changes effective 10/1/2008 <ul><li>“ Surcharge” – 1/2 point – all loans </li></ul><ul><li>Credit scores – Above 75% LTV – 30 year </li></ul><ul><ul><li>700 - 710: + .75 points </li></ul></ul><ul><ul><li>680 – 699: + 1.00points </li></ul></ul><ul><ul><li>660 – 679: + 1.75 points </li></ul></ul><ul><ul><li>640 – 659: + 2.25 points </li></ul></ul><ul><ul><li>620 – 639: + 2.50 points </li></ul></ul><ul><ul><li>Below 620: + 2.75 points </li></ul></ul><ul><li>60-70% LTV – Below 720 - .25+ points </li></ul>
  6. 6. Historical Perspective <ul><li>In the 1930s, mortgages in default reached 50%, after a period of prosperity and easy lending, IOs, short term balloons, the assumption of rising house prices and the firm belief in easy refis… sound familiar ? </li></ul><ul><li>Three institutional creations of the 1930s, involving government guarantees, helped stabilize the market then, and the expanded use of each will aid in this turn around as well. </li></ul><ul><li>They are: </li></ul><ul><ul><li>FHA (The government’s own subprime mortgage credit provider) </li></ul></ul><ul><ul><li>Fannie Mae (originally created to buy FHA loans-but since expanded) </li></ul></ul><ul><ul><li>Federal Home Loan Banks -Providing large loans to financial institutions-Recently $50 billion to WAMU, $50 billion to Countrywide and $100 billion to Citigroup </li></ul></ul>
  7. 7. FHA Congressional help is on the way with The 2008 Economic Stimulus I and The Omnibus Housing Bill Bring your Passion to this Opportunity! Calling all Heroes!
  8. 8. Economic Stimulus I <ul><li>Get Money circulating </li></ul><ul><li>Tax Refunds </li></ul><ul><li>Temporary lift on Conforming loan limits </li></ul><ul><li>Temporary lift on FHA loans </li></ul>
  9. 9. How high did they go? <ul><li>FNMA, FHLMC and FHA to 125% of Area Median to a max of $729,750 in High Cost Areas. </li></ul>New Economic Stimulus I Loan Limits:
  10. 10. Omnibus Housing Bill Economic Stimulus II <ul><li>FHA Modernization </li></ul><ul><li>Higher FNMA/FHLMC/VA to $625,500 permanently </li></ul><ul><li>Tax Credit of $7,500 for first time buyers </li></ul><ul><li>Foreclosure rescue program ($300 billion in loan guarantees for troubled loans) </li></ul><ul><li>GSE Reform (New regulators for Fannie & Freddie) </li></ul><ul><li>Liability protection for servicers making loan modifications </li></ul><ul><li>12 month moratorium on FHA risk based premiums </li></ul>And Now!
  11. 11. FHA Modernization <ul><li>Permanent limit to 115% of median to $625,500 kicks in January 01, 2009 </li></ul><ul><li>3.5% Cash Investment-loans </li></ul><ul><li>Seller-funded DPA to end 10/1/2008 </li></ul><ul><li>Easier Condo approvals </li></ul><ul><li>HECMs OK for purchases for seniors </li></ul>
  12. 12. Why FHA vs. FNMA/FLMC? <ul><li>FHA </li></ul><ul><li>3.5% Down </li></ul><ul><li>Max Financing OK-Declining Value Areas </li></ul><ul><li>6% seller contribution </li></ul><ul><li>Gift OK for 100% of down payment </li></ul><ul><li>Non-Occupant Co-Borrowers OK with true blend of income/debt </li></ul><ul><li>Scores down to 620 no adjustment to rate </li></ul><ul><li>2 years from Discharge of Ch 7 BK, 1 yr Chapter 13, and 3 years on foreclosure </li></ul><ul><li>Fannie & Freddie </li></ul><ul><li>10% Down with 720 score </li></ul><ul><li>LTV restrictions-Declining Value Areas </li></ul><ul><li>3% > 90% LTV </li></ul><ul><li>Gift for 100% not OK until 20% down </li></ul><ul><li>Not Allowed at higher loan to values & occupant must nearly qualify </li></ul><ul><li>Scores below 720 charged higher rates/Higher PMI <660 </li></ul><ul><li>5 years from Discharge of BK and 7 years on foreclosure </li></ul>
  13. 13. Not your Father’s FHA… <ul><li>New FHA </li></ul><ul><li>“ As is” appraisals allowed for minor property defects </li></ul><ul><li>Industry standard appraisal requirements </li></ul><ul><li>Termite, well and septic inspections no longer mandatory </li></ul><ul><li>All closing costs can be paid by buyer </li></ul><ul><li>New FHA Total AU engine allows higher ratios </li></ul><ul><li>Old FHA </li></ul><ul><li>All structures on the property had to be termite cleared </li></ul><ul><li>VC Sheets (appraisal conditions) </li></ul><ul><li>Were always required on every structure on property </li></ul><ul><li>Many closing costs could not be paid by borrower </li></ul><ul><li>Qualifying Ratios 31/43 </li></ul>
  14. 14. Available FHA Programs 203b for Single Family & 234c for Condos <ul><li>30 & 15 year fixed </li></ul><ul><li>1 year Adjustable with 1/5 caps, 2.25 margin, qualify at 1% over start loan > 95% </li></ul><ul><li>3 & 5 year Hybrid Arm with 1/5 caps, qualifies at start rate </li></ul><ul><li>7 & 10 year Hybrid Arm with 2/6 caps, qualifies at start rate </li></ul><ul><li>Buydowns are available-Qual at Note rate </li></ul><ul><li>No Stated Income and No Interest Only options </li></ul><ul><li>No First Time Home Buyer requirement </li></ul><ul><li>No Income Limits </li></ul>
  15. 15. Maximum LTVs in California <ul><li>For SP =< $50,000 98.75% LTV </li></ul><ul><li>For SP > $50,000 up to $125,000 97.65% LTV </li></ul><ul><li>For SP > $125,000 97.15% LTV </li></ul>Changing to max 96.5% with 3.5% down payment required effective January 1 st , 2009 .
  16. 16. Mortgage Insurance prior to 7/14/2008 <ul><li>UFMIP (one time) </li></ul><ul><li>1.5% of the Base Loan Amount </li></ul><ul><li>Can be financed in the loan amount </li></ul><ul><li>Percentage Refundable for up to 3 years if buyer refis into another FHA loan </li></ul><ul><li>Annual MIP (paid monthly) </li></ul><ul><li>.5% monthly based on base loan amount on 30 year loans </li></ul><ul><li>Required at all LTVs regardless of amount of down </li></ul><ul><li>Automatically drops when loan reaches 78% of original purchase price & 5 year payment history </li></ul>Hud announced new Risk Based Premiums implemented 7/14/2008
  17. 17. FHA Single Family Mortgage Insurance Upfront and Annual Mortgage Insurance Premiums (Loan Terms > 15 years) Effective as of July 14, 2008 All premiums are specified in basis points (0.01%) Decision Credit Score (FICO) LTV 850-680 679-640 639-600 599-560 559-500 499-300 NON-TRADITIONAL ≤ 90.00 125/50 125/50 125/50 150/50 175/50 175/50 150/50 90.01-95.00 125/50 125/50 150/50 175/50 200/50 n/a 175/50 > 95 125/55 150/55 175/55 200/55 225 a /55 n/a 200/55 <ul><li>A first-time homebuyer, with HUD-approved counseling, will pay only 200 basis points for the upfront mortgage insurance premiums. </li></ul>
  18. 18. Congress says “Hold it!” 12 month moratorium on Risk Based Premiums, effective 10/01/2008. New Bill says HUD cannot base premiums on credit score . They can, however, base premiums on product type or LTV. FHA will announced a new “across the board” premium structure to be implemented on October 1 st , details outlined on next slide…
  19. 19. <ul><li>Upfront Premiums : FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage: </li></ul><ul><li>Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 Percent </li></ul><ul><li>Streamline Refinances (all types) = 1.50 Percent </li></ul><ul><li>Annual Premiums : </li></ul><ul><li>Purchase Money Mortgages, Full-Qualifying Refinances, and Streamline Refinances : </li></ul>MORTGAGEE LETTER 2008-22 SUBJECT: Moratorium on Risk-Based Premiums for FHA Mortgage Insurance Running for one year from 10/01/2008 to 10/01/2009 LTV Annual for Loans >15 Years) LTV Annual for Loans < 15 Years < 95 50 < 90 -None- > 95 55 > 90 25
  20. 20. Investor loans <ul><li>Generally HUD does not insure Investor loans </li></ul><ul><li>Makes exceptions on HUD REOs </li></ul><ul><li>Allows Investors to assume FHA loans on HUD REO properties </li></ul><ul><li>Allows streamline refinancing of a loan originally purchased as owner-occupied, but presently used as a rental </li></ul>
  21. 21. Allowable Property Types <ul><li>Single Family Residence </li></ul><ul><li>2-4 Multi Family as primary residence </li></ul><ul><li>Town Homes/PUDs </li></ul><ul><li>Condominiums-Require HUD project approval-can do Condo Spot Approvals with the following: </li></ul><ul><ul><li>51% Owner Occupied </li></ul></ul><ul><ul><li>90% project presold </li></ul></ul><ul><ul><li>No Litigation </li></ul></ul><ul><ul><li>No more than 10% already HUD insured project > 30 units and 20% project < 30 units </li></ul></ul><ul><ul><li>Cannot have been previously approved/rejected by HUD </li></ul></ul>
  22. 22. FHA Disclosures with the Contract AMENDATORY CLAUSE It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than $ __________________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value nor the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable. REAL ESTATE CERTIFICATION We, the borrower, seller, and the selling real estate agent or broker involved in the sales transaction certify by our signatures below that the terms and conditions of the sales contract are true to the best of our knowledge and belief, and that any other agreement entered into by any of these parties in connection with this real estate transaction is part of, or attached to, the sales agreement. Borrower Date________________________________ Borrower Date________________________________ Seller Date___________________________________ Seller Date___________________________________ Listing Agent __________________________________ Selling Agent__________________________________
  23. 23. Property Considerations Repair & Inspection Requirements FHA has shifted from its historical emphasis on the repair of minor property deficiencies and now requires repairs for those property conditions that rise above the level of cosmetic defects or normal wear and tear. Repair Requirements: FHA now permits an “as is” appraisal for existing properties when minor property deficiencies, which result from deferred maintenance and normal wear and tear, do not affect the safety of the occupants or soundness of the property.
  24. 24. <ul><li>Examples of minor property conditions that </li></ul><ul><li>no longer require automatic repair: </li></ul><ul><ul><li>Missing handrails </li></ul></ul><ul><ul><li>Cracked or damaged exit doors that are otherwise operable </li></ul></ul><ul><ul><li>Cracked window glass </li></ul></ul><ul><ul><li>Defective paint surfaces in homes constructed post 1978 </li></ul></ul><ul><ul><li>Minor plumbing leaks (such as leaky faucets) </li></ul></ul><ul><ul><li>Defective floor finish/covering (worn through the finish, badly soiled carpeting) </li></ul></ul><ul><ul><li>Evidence of previous (non-active) termites where no evidence of unrepaired structural damage exists </li></ul></ul><ul><ul><li>Rotten or worn-out countertops </li></ul></ul><ul><ul><li>Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post 1978 </li></ul></ul><ul><ul><li>Poor workmanship </li></ul></ul><ul><ul><li>Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting) </li></ul></ul><ul><ul><li>Crawl space with debris and trash </li></ul></ul><ul><ul><li>Lack of an all weather driveway surface </li></ul></ul>
  25. 25. <ul><li>Examples of property conditions that may represent a risk to the health and safety of the occupants or the soundness of the property and will require automatic repair: </li></ul><ul><li>Inadequate access/egress from bedrooms to exterior of home </li></ul><ul><li>Leaking or worn out roofs (if 3 or more layers of shingles on leaking or worn-out roof, all existing shingles must be removed before re-roofing) </li></ul><ul><li>Evidence of structural problems (such as foundation damage caused by excessive settlement </li></ul><ul><li>Defective paint surfaces in homes pre-1978 </li></ul><ul><li>Defective exterior paint surfaces in homes constructed post-1978 where the finish is otherwise unprotected </li></ul>
  26. 26. Inspection Requirements <ul><li>FHA no longer mandates automatic inspections for the following items : </li></ul><ul><li>Termites : inspection required only if evidence of active infestation </li></ul><ul><li>Well: test required if mandated by state or local jurisdiction, within ¼ mile of coal mining, dry cleaning, landfill, factory, etc. Or, water has objectionable taste or smell (if feasible to connect to public-Hud requires-3% of value) </li></ul><ul><li>Septic: test if evidence of system failure or mandated by local jurisdiction </li></ul><ul><li>Flat and/or unobservable roof </li></ul><ul><li>Examples of conditions requiring automatic inspection: </li></ul><ul><li>Standing water against the foundation </li></ul><ul><li>Hazardous materials on the site </li></ul><ul><li>Faulty or defective mechanical systems (electrical, plumbing or heating) </li></ul><ul><li>Evidence of possible structural failure (settlement or bulging foundation wall) </li></ul>
  27. 27. Other Contract Considerations <ul><li>No additional time needed for close of escrow due to FHA financing-however bank owned properties can take longer… </li></ul><ul><li>Seller or Buyer can pay any of the closing costs </li></ul><ul><li>Seller can contribute up to 6% toward recurring or non-recurring closing costs-cannot exceed actual </li></ul><ul><li>All sales concessions, gifts, down payment assistance, should be noted on contract and all financing data reported to the appraiser </li></ul>
  28. 28. Bank Owned REO considerations <ul><li>Anti Flipping Policy Waiver Requirements: lender must verify bank is FDIC insured or a FNMA seller/servicer </li></ul><ul><li>Chain of Title Requirements (POAs) and letters from corporate entities on their corporate letterhead authorizing signers on contracts and deeds </li></ul><ul><li>Allow time on Lock for Bank to return Seller’s papers </li></ul>
  29. 29. Loan Approved!