Fannie Mae and Freddie Mac will have lower limits on the size of loans they can buy.
WASHINGTON - People looking to buy more expensive homes next year will have fewer options to find financing because Fannie Mae and Freddie Mac will have lower limits on the size of loans they can buy.
The changes, effective Jan. 1, will lower the limit in high-priced real estate markets to $625,500 down from $729,950. Consumers who need to take out home loans above that amount typically pay higher interest rates, and that can price some would-be buyers out of the market.
The Federal Housing Finance Agency, which regulates Fannie and Freddie, kept the limit for lower-cost metro areas at $417,000. Some counties, including parts of Virginia, Utah and Maryland, have limits that range between $625,000 and $417,000.
Lawmakers temporarily raised the loan limits for Fannie and Freddie in a housing bill passed over the summer.
There are fears, however, that the reduced limits will hurt the housing market next year. Fannie and Freddie have become the dominant source of mortgage funding since last year's collapse of the subprime lending market.
The National Association of Realtors is pressing lawmakers to keep the limit at $729,950 to help the U.S. housing market recover from its worst slump in decades.
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Wednesday, November 19, 2008
Fannie Mae and Freddie Mac will have lower limits on the size of loans they can buy.
Friday, July 18, 2008
The Ever-Changing Mortgage Loan Requirements
The Ever-Changing Mortgage Loan Requirements
In a brutal real estate market where all the players want to hedge against the tremendous risks, down payment requirements and up-front fees have soared, shutting many potential home buyers out of the market.
"I have as many people calling me for financing as ever," said George Hanzimanolis, a Pennsylvania mortgage broker, "but I'm putting less than half of them into loans."
That's happening all over the country, and may slow the housing market's recovery. Indeed, in a Realtor.com survey released today, potential home buyers said high down payments were the second biggest obstacle, after high home prices, to buying a home.
These days, home buyers almost always have to make a substantial down payment, at least 5%, according to Rich Wordman, president of the Florida Association of Mortgage Brokers. The days of no-down loans are over.
In deeply declining markets, lenders are reluctant to issue loans unless borrowers put at least 10% down, he said.
JP Morgan Chase (JPM, Fortune 500), for instance, now asks for a minimum of 10% down in most markets, according to a spokesman, and for 20% in hard-hit areas. In Reno, Nevada, which has been devastated by the housing crisis, the bank requires 25%.
Even bigger jumbos
For expensive homes, the down payments are disproportionately more. Lenders issuing jumbo loans, which are too pricey to be sold to Fannie Mae (FNM, Fortune 500) or Freddie Mac (FRE, Fortune 500) in the secondary market, are asking for at least 20% down, according to Ed Craine, a San Francisco mortgage broker. In the most expensive markets, where jumbo loans are over $729,000, that means a minimum down payment of $148,500.
Higher interest rates on jumbo loans are also making them more expensive than they normally would be - with interest rates a full point to a point and a half higher than non-jumbo loans, said Mike Tacconi, a mortgage advisor with lender CMG Mortgage Services based in San Ramone, Calif.
And buyers purchasing homes for investment purposes are getting clobbered. Lenders are telling them to come up with at least 25% of the purchase price, according to Tacconi - and sometimes as much as 35%, depending on the kind of loan.
"Rents are high where I am," said Pennsylvania mortgage broker Hanzimanolis, "so people are having trouble saving enough for down payments."
Those high down payments are are being driven in part by the privatemortgage insurance companies, according to Jay Brinkman, chief economist for the Mortgage Bankers Association, which have themselves hiked their down payment requirements. These firms insure loans when borrowers put less than 20% down, making lenders whole when homeowners default.
In the past, these companies, such as MGIC Investment Corp (MTG). and PMI Group (PMI), often guaranteed mortgages when borrowers put no money down. Today they require 5%, 10% in steeply declining markets, according to Jeff Lubar, spokesman for the trade association Mortgage Insurance Companies of America.
In addition, private mortgage insurers are also charging higher insurance rates. Historically, PMI cost about 0.5% of a home's purchase price. Now, a borrower putting 5% down can pay about 0.75% for the first year.
Higher rates
And although interest rates are relatively low, industry experts say that they're higher than they should be, thanks to concerns about the solvency of Freddie and Fannie, which buy about half of all outstanding mortgages in the U.S.
The average 30-year, fixed-rate loan carried a 6.37% interest rate last week, according to Freddie Mac, up nearly a point from the year's low of 5.48% set last January and up from under 6% in late May. At the same time, yields on 10-year treasuries, which mortgage rates usually track, have trended down.
From June 12 to July 10, 10-year treasurys fell from 4.20% to 3.81%, while mortgage rates actually increased, inching up from 6.32% to 6.37%. Borrowers are probably paying at least a half point more than they ordinarily would, according to Keith Gumbinger of HSH Associates, a publisher of loan information.
That's because the questions surrounding the future of Fannie and Freddie have made the investors who buy their loans - hedge funds, pension funds, and banks - wary. They're demanding higher interest rates to take on the added risk they perceive.
Freddie and Fannie have also imposing higher up-front fees for riskier borrowers, based on credit scores.
As of June 1, buyers with scores of less than 620 with less than a 30% downpayment must pay a fee of 2.75% of mortgage principal, up from 2%. Between a 620 and 640 credit score, borrowers pay 2.5% (up from 1.75%); 640 to 660, 1.75% (1.25%); 660 to 680, 1.25% (0.75%); and 680 to 720, 0.5% (0).
"The fees are costing consumers a considerable amount of money," said Mark Savitt, a mortgage broker there and current president of the National Association of Mortgage Brokers.
All these added expenses are slowing an already moribund real estate market. That means it's going to take even longer to get rid of the tremendous inventory of unsold homes, according to the MBA's Brinkman, especially in areas that were overbuilt during the boom.
Cities hard hit by the housing bust, like North Las Vegas, Stockton, Calif. and Tucson, Ariz, may have to suffer through many more months of stagnant prices and increased foreclosures before they return to better times.
And these higher costs are going to stick around long after housing recovers, according to Brinkman. From now on, they'll just be the price of doing business.
Monday, July 14, 2008
Senate Passes Foreclosure Rescue
Senate Passes Foreclosure Rescue
The 63-5 vote reflected a keen interest by Democrats and Republicans to send election-year help to distressed homeowners with economic issues topping voters' concerns.
The plan lets homeowners buckling under mortgage payments they can't afford keep their homes and get more affordable mortgages backed by the Federal Housing Administration. Banks that agreed to take substantial losses on those distressed loans could avoid costly foreclosures and be assured of recovering at least some money.
The new program would let the FHA insure as much as $300 billion in new mortgages, helping an estimated 400,000 homeowners.
It still faces challenges, however, with the House planning to rewrite key details and the White House threatening a veto without major changes.
"It's not the final stop, but it is a major stop in getting this bill done," said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. "For those who said this Congress cannot come together in a bipartisan fashion to do something responsible about housing, this bill does that."
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and an architect of the bill, says the few but significant revisions House leaders are seeking could be made in as little as one week.
Dodd said he was expecting minor "tweaks" that could be dealt with quickly.
But key players are bracing for intense negotiations to resolve the differences. They hope to smooth over disputes with the White House at the same time, with an eye toward producing a bill President Bush could sign later this month.
The White House Friday renewed its warning that Bush would veto the Senate-passed bill without revisions, citing $3.9 billion in the measure for buying and rehabilitating foreclosed properties it said would help lenders, not homeowners.
The measure includes a long-sought modernization of the FHA and would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. It also would provide $14.5 billion in housing tax breaks, including a credit of up to $8,000 for first-time home buyers.
Democrats are divided over important elements of the plan, including limits on loans the FHA may insure and Fannie Mae and Freddie Mac may buy. The Senate measure sets them at $625,000, while House leaders - including Speaker Nancy Pelosi, D-Calif. - want the cap as high as $730,000.
House leaders also oppose the immediate effective date of the Senate plan, preferring to phase in the new regulations for Fannie Mae and Freddie Mac over six months.
"We'd have a hard time agreeing to that," Dodd told reporters Friday. He called a Capitol Hill news conference to dispel fears about the financial health of Fannie Mae and Freddie Mac as their stocks plummeted on reports that the government was considering taking over one or both of them.
Another key point of dispute is the funding in the Senate measure for buying and fixing foreclosed properties. The House's band of conservative "Blue Dog" Democrats oppose the money, arguing that it would swell the deficit unless paired with cuts or tax increases to cover the cost.
But many Democrats, particularly members of the Congressional Black Caucus, are fighting to keep the funding, which they say will help prevent the communities hardest hit by the housing crisis from sliding into blight.
"There are people who tell me to ignore" that threat, Frank said in a statement Friday. "But there is too much that is important in this bill, and it has already been too long delayed by procedural problems in the Senate, for us to risk the further delay involved in a veto."
He said he was working to find a way to shift the funds to a must-pass spending bill that would be approved before lawmakers scatter for the year in September.
Dana Perino, Bush's spokeswoman, said the money should be stripped out of the measure "so that they can get a housing bill to the president that he could sign right away."
Sen. Barack Obama, D-Ill., the presumptive presidential nominee, said Bush should drop his opposition to the housing plan and other Democratic efforts to ease economic pain.
"I call on the administration to support this bill along with a second emergency stimulus package to jumpstart the economy and build on this important start to advance more rigorous measures to protect homeowners from foreclosure," he said. Obama was on the campaign trail Friday and did not vote on the measure, which had been expected to pass by a wide margin. He was one of 32 senators not voting.
With the administration scrambling to tamp down on investor fears about Fannie Mae and Freddie Mac, Perino called the new regulations in the measure for the two mortgage giants its "most important feature."
Lawmakers and the Bush administration agree on the central concept behind the housing package: allowing the government to backstop new mortgages for struggling homeowners.
To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting a newly created affordable housing fund drawn from Fannie Mae and Freddie Mac profits.
Thursday, July 10, 2008
AZ Home Buyers Getting Down Payment From Non-Profits
Down-payment aid debated
Home buyers turning to non-profits for cash
Arizonans treading in the housing market's choppy waters have found an unusual lifeline - a group of non-profit organizations that siphon down payments from home sellers to buyers.
Use of the decade-old practice known as down-payment assistance has dramatically increased since the demise of subprime lending because it offers another opportunity for buyers without substantial savings to obtain mortgage loans.
Advocates of down-payment assistance contend it has kept Arizona's failing real-estate market on life support by opening doors for responsible borrowers who simply lack the cash for a down payment.
Critics of the practice say it allows home sellers to kick back a percentage of bank-loaned money to buyers, which would be illegal if not done through a non-profit intermediary.
Housing statistics also indicate that charity-assisted loans default at higher rates compared with loans where the down payment comes from the buyer.
The Federal Housing Administration, which insures all loans involving down-payment assistance, has argued that such loans carry a higher default rate and could ultimately bankrupt the FHA.
A housing-reform bill up for vote in the U.S. Senate this week calls for eliminating the practice, while a competing resolution in the House would allow it to continue with some restrictions.
Phoenix loan originator Dean Wegner said nearly half of the home loans being issued involve seller contributions to special non-profit organizations that gift the money - usually 3 to 6 percent of the home's sale price - to buyers after charging a transaction fee of $400 to $600. Unlike other charitable contributions, the seller's donations are not tax-deductible.
"It's a loophole in the FHA guidelines that says the down payment can come from a 501(c)(3) charity," Wegner said.
Now that subprime loans and their creative financing schemes are gone from the market, lenders have returned in droves to FHA loans and the primary reason is down-payment assistance, he said.
"This is what everyone is talking about now," Wegner said, adding that sellers are generally willing to put up the money because it greatly increases their chances of finding a buyer.
The two leading providers of down-payment assistance are AmeriDream, based in Gaithersburg, Md., and Sacramento-based Nehemiah Corp.
Nehemiah was involved in 676 Arizona home-sales transactions in 2007 and is on pace to quintuple that amount this year, passing down payments from buyer to seller on 1,692 sales as of early July.
AmeriDream President Ann Ashburn said the two non-profits provide a vital service to low-income, minority and first-time home buyers while giving the economy a needed boost.
Ashburn opposes eliminating down-payment assistance programs that benefit "good, qualified people."
"The real tragedy will be that 100,000 to 200,000 home buyers annually will be locked out of homeownership," she said.
AmeriDream data indicates that roughly a million U.S. residents have used down-payment assistance in the past 10 years, including nearly 43,000 Arizonans.
Nationwide, $130 billion in loans have been generated by the practice, the non-profit says, with about $5.5 billion in Arizona.
Since its advent, down-payment assistance has faced several attempts by the federal government to ban its practice, but so far the courts have protected it.
In recent months, FHA Commissioner Brian Montgomery has launched a full-scale verbal attack on down-payment assistance, calling it a "shell game" that threatens to bankrupt his administration.
"We had to book an additional $4.6 billion in unanticipated long-term losses, mostly due to the increased number of certain types of seller-funded loans in the FHA portfolio," Montgomery said in June.
"Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate."
Montgomery also said the federally insured value of those loans is often inflated, because many sellers simply tack on the amount of their charitable contribution to the home's sale price.
About 30 percent of all FHA loans now involve down-payment assistance, according to the U.S. Department of Housing and Urban Development, FHA's parent agency.
HUD data indicates that charity-assisted loans were more than twice as likely to go into default or foreclosure in recent years than loans with the down payment coming from buyers' pockets.
However, Wegner said all FHA loans have credit-score and income requirements, which make them far less risky than subprime loans.
"These people are still getting scrutinized heavily," he said.
One such buyer is Lawrence Smith, who recently purchased a vacant Phoenix home from an out-of-state investor. Although he had never heard of down-payment assistance, his real-estate agent recommended he look into it.
"I had gone through a divorce, so most of my assets were gone," Smith said.
He got an FHA loan with down-payment assistance through AmeriDream. Smith said the entire process was transparent and spared him the six to 12 months it would have taken to save up a down payment.
"I think if you have people that have decent credit and decent incomes, but for whatever reason can't come up with the down payment, it makes a difference," he said.
Source:AZ Republic. J. Craig Anderson - Arizona Republic
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Friday, November 30, 2007
Feds Likely to Cut Interest Rates on Dec. 11
Hope grows for a half-point cut from Federal Reserve
Recent comments by Fed Chairman Ben Bernanke and vice chair Donald Kohn indicate a rate cut is likely on Dec. 11. The only question is how big?
A quarter of a point cut or a half of a point cut? That is the big question for investors to grapple with between now and the Federal Reserve's next policy meeting on Dec. 11.
Wall Street has heard signals loud and clear that a cut is coming. First, Fed Vice Chairman Donald Kohn said on Wednesday that the central bank needed to be "nimble," and then on Thursday night Fed chair Ben Bernanke, speaking before a business group in Charlotte, N.C., indicated that the Fed will stay "alert" and "flexible."
"Bernanke gave the markets an early Christmas gift last night in Charlotte. If there were any doubts about a rate cut, they are now gone. He wrapped it up, stamped it and sent it in the mail," said John Norris, managing director of Oakworth Capital, a private bank based in Birmingham, Ala.
According to futures listed on the Chicago Board of Trade, investors are placing a 100 percent bet that the Fed will lower the key federal funds rate by at least a quarter of a percentage point to 4.25 percent. What's more, traders are factoring in a 34 percent probability of a half-point cut to 4 percent.
By Paul R. La Monica, CNNMoney.com editor at large
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Wednesday, November 21, 2007
How To Get A Home Loan in Metro Phoenix Area
How To Get A Home Loan in Metro Phoenix Area
What are the Steps in the Phoenix AZ Loan Process?
When you apply for a mortgage in the metro Phoenix area, you will need to furnish information regarding your income, expenses and obligations. It will be very helpful and a time-saver, if you have the following items available:
· Most recent two pay stubs
· W-2's for the last two years
· Last two months' bank statements
· Long-term debt information (credit cards, child support, auto loans, installment debt, etc.)
How Does a Arizona Lender Determine the Maximum Mortgage I Can Afford?
The three primary areas lenders examine in determining the size of mortgage you can handle include your monthly income, non-housing expenses, and cash available for down payment, moving expenses and closing costs. The most common way lenders interpret these variables to estimate your mortgage capacity is the Percentage Method. Most lenders feel a family should spend no more than 28% of its income on housing costs, including the mortgage, insurance, and real estate taxes. Also, these housing costs plus your long-term debts (car loans, child support, minimum credit card payments, student loans, etc.) shouldn't exceed 36% of your income.
Although this is not a true method, you can use the Multiplier Method formula as a general rule of thumb to determine how much home you can afford. Most lender's guidelines allow a family to carry a mortgage that is two to three times its gross annual income (income before taxes and expenses are taken out). The amount of down payment and the type of mortgage (fixed or variable rate) will determine the precise ratio used by the lender.
How Much of a Down Payment Will I Need to Buy a Home in the Phoenix area?
The amount of money that a buyer must put down at closing depends on the loan-to-value ratio - the percentage of the property's appraised value or sales price (whichever is less) that a lender is willing to loan.
For example, if a property is appraised at $100,000 and the loan-to-value ratio is 90%, the lender would be willing to loan $90,000. The buyer's down payment is the remaining $10,000. Because the loan-to-value is a percentage, the higher the sales price of a house, the higher the down payment. A down payment of 20% has been the benchmark for conventional financing, but today, many options are available, some requiring as little as 5% down. A representative from your bank can help you determine which down payment option is right for you and your budget.
Can I get an FHA or VA Mortgage?
Just about anyone can apply for an FHA-insured mortgage through banks and other lending institutions. They are particularly well-suited for buyers of moderate income; the low down payments requirements (as low as 5% of the purchase price) are matched by a relatively low maximum mortgage amount.
Similarly, VA-guaranteed loans often require no down payment for up to four times the amount guaranteed by the VA. These loans are reserved for either active military personnel or veterans, or spouses of veterans who died of service-related injuries.
If there is a downside to these loans, it's the qualifying process. Though you apply for government-insured financing through a lending institution, the Federal Housing Administration or the Department of Veterans Affairs must insure or guarantee the loan and may require specific documentation or procedures not necessarily required for conventional financing. That may take more time than is generally required for conventional mortgage approval. Additionally, FHA-required insurance must be added to your payment.
What Is A Mortgage, & What Are the Benefits of Different Kinds of Mortgages?
Simply put, a mortgage is a loan that a home buyer obtains directly from a lender to purchase real estate. The mortgage is a lien on the property that secures a promissory note (promise to repay the debt) that states the terms of the loan, including the interest rate, and the number of payments.
The most popular mortgages available to home buyers today can be divided into two general categories: those which offer fixed interest rates and monthly payments, and those where one or both of those factors are adjustable. Fixed rate/fixed payment loans are more traditional, and remain the most popular home financing method, currently accounting for about two-thirds of all residential mortgages. Their advantages are well-known: You always know what your monthly principal and interest payment will be, so your basic housing cost will remain unaffected by interest rate changes until the mortgage is paid off.
Mortgages that entail flexible rates and/or payments have grown in popularity in recent years, primarily during periods of high interest rates and/or rapidly rising home prices. Many, including the popular ARMs (Adjustable Rate Mortgages), offer lower-than-market initial interest rates that allow buyers a measure of affordability unavailable in fixed-rate loans. The tradeoff may be higher interest rates and higher monthly payments later on.
What Is the Difference Between Pre-qualifying and Pre-approval?
A pre-qualification consists of a discussion between you and a loan officer. The loan officer will collect information regarding your income, monthly debts, credit history and assets, and based on this information calculates an estimated mortgage amount for which you qualify. The pre-qualification is not a mortgage approval, but more an estimate on what you can afford. A pre-approval, on the other hand, is a more comprehensive approach giving an actual decision on a home loan. This is an actual credit approval, and it carries with it some considerable benefits. From this information, a loan approval is given agreeing to finance a home and the total mortgage amount available to you. You will have a greatly improved negotiating position when you are pre-approved for a mortgage. Sellers are more apt to negotiate with someone who already has a mortgage approval in hand. The pre-approval letter lets the seller know they are working with a serious cash buyer. A pre-approved buyer can also close on a property more quickly-another major consideration for a motivated seller. I strongly recommend it if you're serious about buying.
What Are Typical Closing Costs for home financing loand in the Phoenix AZ metro area?
You can expect to pay the following closing costs at the time of settlement:
· Appraisal fee - covers the cost of a professional written estimate of the property's value.
· Attorney's or escrow fees - your own, and the lender's if they have one.
· Credit report fee.
· Points.
· Documentation preparation - covers the cost of preparing the deed and other paperwork.
· First-year's premium on fire and hazard insurance.
· Impounds - sufficient to cover real estate taxes on the purchased property for the current tax period to date. The lender then pays these bills when they come due.
· Interest - paid from the date of closing until 30 days before your first monthly payment.
· Title insurance.
· Mortgage insurance if required.
· origination fee - covers the lender's administrative costs.
· Recording fees.
· FHA mortgage insurance (FHA loans only).
· VA guarantee fees (VA loans only).
What Are Points, & What's the Point in Paying Them?
In real estate, the term "point" refers to 1% of the total mortgage loan amount. Buyers often pay lenders a supplemental fee, calculated in points, to get a better interest rate on a particular mortgage.
For instance, a lender may offer you a choice of two 30-year mortgages: the first at 8% with no points, and the second at 7-1/2% with an additional three points. If the loan is for $100,000, those three points will cost you an extra $3,000 up front - but you'll get a payback of significantly lower monthly payments for the lifetime of the loan.
Many lenders will advise you to pay the points for the better rate if you can afford it, especially if you plan on keeping the home for more than a few years. Like interest, the money you pay for points may be tax-deductible, and the investment may pay for itself through savings generated by lower monthly payments. I suggest you call your tax preparer to learn more about this.
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