About Government Refinance and Home Purchase Programs

The recent budget compromise reached in Washington DC that prevented a government shutdown had a direct effect of government-backed mortgages. The FHA program is an entirely government program so a government shutdown could have put a real crimp in the FHA mortgage originating and closing process. Thankfully, cooler heads prevailed and FHA loan proceed without interruption.

All FHA loans started on Monday April 18th, 2011 or later will have higher monthly mortgage insurance fees than loans started the previous Friday. The FHA is raising its monthly mortgage insurance fees by 0.25% across the board beginning then. The fees will not be retroactive but will apply to all new FHA refinances or purchase loans.

Here is what a 0.25% mortgage insurance fee would mean:

On a $150,000 30 year fixed FHA loan the monthly insurance fees will cost an additional 0.25% per year. That means the insurance fee would be $31.25 per month higher than the same FHA loan started the previous week. ($150,000 x .25% / 12 = $31.25). On a $250,000 FHA loan the mortgage insurance fees would jump $52.08 per month.

So these fee hikes can be significant and the larger the loan the more of a difference the change will make. If you have considered an FHA loan or if you already have an FHA loan you would like to streamline to a lower rate it would be wise to at least start an FHA loan application by Friday April 15 in order to avoid mortgage insurance fee hike. Contact in the sidebar for details on how to get started.

If you have an FHA mortgage with a rate at 5.5% or higher we recommend you contact us in the sidebar. Mortgage interest rates are hovering near their historic lows still and people with FHA loans are eligible for a “streamline refinance”. A streamline allows FHA loan holders to reduce their interest rates significantly without having to get an appraisal or even prove income and assets in most cases. Plus closing costs for FHA streamlines are usually paid for by an FHA-approved lender rather than rolled into the new loan.

But FHA streamlines will become more difficult to utilize in mid-April when the FHA is planning to increase mortgage insurance rates across the board for all FHA refinances. So if you have an FHA loan you will probably benefit by starting the refinance process before about April 18th. After that date all FHA refinances will come with higher fees. Contact us about this FHA streamline program in the sidebar.

After rising fairly steeply since the end on 2010, interest rates on government-backed mortgages finally dipped a bit over the last several weeks. In the latest few weeks the turmoil in Libya has caused a domino effect started with a falling stock market which in turn increased demand for US treasury bonds which helped lower mortgage interest rates slightly.

Even after the rise in rates over the winter, rates are still surprising low by historical standards. For that reason the recent dip in rates is not likely to hold for long. The Fed and Obama administration have gone to great lengths to compress interest rates for around two years now. But those efforts won’t last for ever and there are signs that they are slowly losing effectiveness. The result will likely eventually be 30-year mortgage rates at more than 6% like we saw just a few years ago. When rates increase like that many people with adjustable rate mortgages will see their payments go up by hundreds of dollars per month. But in the meantime rates are still very low.

If you have an adjustable rate mortgage or if you have a fixed rate mortgage that is higher than you want, contact us in the sidebar right away before interest rates start their upward climb again. One of our counselors can point you in the right direction to take advantage of the government-backed refinance programs that are available.

Republicans in the US House of Representatives would like to end several government sponsored foreclosure prevention programs saying the programs are ineffective. We get this from a recent report published at the Miami Herald:

The House is scheduled to vote this week on getting rid of a refinance program for Federal Housing Administration loans and another program, scheduled to begin next month, that would help homeowners with delinquent payments.

The House Financial Services Committee is expected to vote Wednesday morning on ending two other measures: One of them is a massive effort that was designed to adjust up to 4 million mortgages but so far has tackled just half a million successfully. The other is the Neighborhood Stabilization Program, which steers money to communities hit hard by foreclosures

However it appears that such a vote would end up being symbolic only because there is virtually no chance such a law would get past the Democratics in the Senate or President Obama.

Principal reductions have thus far been more of a myth than a reality in the marketplace. The problem is that banks aren’t anxious to forgive debts. As a result the programs that require banks to write down principal like the FHA short refi program have been major flops so far. But Bank of America has recently announced that it will increase the number of loan write-downs it does in certain hard hit states. We get this from a recent HousingWire article:

Bank of America sent letters to Arizona homeowners who may qualify for mortgage assistance, including a principal writedown, under the Treasury Department’s Hardest Hit Fund.

In June 2010, the Obama administration released $1.5 billion in foreclosure prevention funding for states hardest hit by home price declines. BofA said Wednesday the write downs will go to homeowners experiencing financial hardship and owe considerably more on the mortgage than the property is worth.

It is still unclear what would persuade the folks at BofA to write down the principal on a loan. In all likelihood it would require a situation where a borrower is significantly late on payments and on the verge of foreclosing anyway. In such a case the bank may decide that it would be less expensive to write down the principal and keep the occupants in the house than it would be to proceed with a foreclosure, an eviction, and then the process of listing and selling the foreclosed property.

In any case, principal write-downs are still the exception rather than the rule. And they remain entirely at the discretion of the lenders.

However, borrowers who currently have an FHA loan or who have conventional loan backed by Fannie Mae or Freddie Mac still have refinance options even when they owe more than the home is worth. While refinancing doesn’t reduce the principal it can reduce payments. In addition, borrowers control their own destinies with refinances whereas loan modification requests (including requests for principal reductions) leave borrowers at the mercy of the lender.

Contact us in the sidebar for more information.

There was recent news that Warren Buffett is bullish on the US housing market and is investing in it on the belief that falling housing priced in the US will change course within a year and start heading back upward again. Here is a bit from the HousingWire piece on the subject:

Warren Buffett anticipates a recovery in the housing market to begin within one year and the investment guru said in his biennial letter to investors that mortgages written by his subsidiaries performed better than most of the competition through the financial crisis.

Buffett said the recovery hinges on durable, common sense underwriting based on affordability for mortgage borrowers. …

He added that as the housing market pushes toward a recovery, home ownership can still make sense for many Americans with lower prices and interest rates. Future housing policy, he said, should be sculpted from lessons learned during the downturn.

“But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy,” Buffett said. “Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.”

A recovery in housing prices is good news for US homeowners. Of course odds are that mortgage interest rates will be significantly higher next year at this time than they are now. Contact us in the sidebar if you would like to learn about the government-backed refinance programs that are available now.

The FHA announced yesterday that it will be increasing its monthly mortgage insurance fees by 0.25% on all products in April of 2011. This comes on the heels of other recent changes the FHA has made in order to strengthen its financial position in the face of the foreclosure crisis of the last several years.

What does a 0.25% increase in monthly mortgage insurance mean? Well on a $100,000 mortgage that equals an additional $250 per year or about $21 per month. On a $200,000 loan that is $500 per year or $42 per month. And so on. The rate increase also means that if you have an FHA loan now and were hoping to streamline it to a lower rate you should try to get that done immediately because the new, higher FHA mortgage insurance rates will apply to the new loan starting in April and those higher PMI payments could mitigate a lot of the savings that come from lowering the interest rate.

Contact us in the sidebar right away to learn more or get an estimate.

The Treasury and Obama Administration released the the first iteration of their plan to wind down government-sponsored mortgage behemoths Fannie Mae and Freddie Mac. The plan was not earth shattering by any means. The basic ideas in it are to slowly wind down the involvement of Fannie and Freddie in the mortgage market by about 10% per year over the next few years. It also recommends reducing the loan limits on government-backed loans this Fall. Here are some excerpts from the recent HousingWire article on the subject:

The administration’s plan, sent to Congress by the Treasury Department, calls for continuing to wind down of the GSEs investment portfolio at an annual rate of no less than 10% per year.

The Treasury also wants to see 10% down payments from potential borrowers. …

“This is a plan for fundamental reform – to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it,” said Treasury Secretary Tim Geithner. “We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market.” In a conference call Geithner predicted a 5 to 7 year timeline for implementation.

Despite the recent wave on news on rising mortgage interest rates, the interest rates on most government-backed mortgages are still startlingly low by historical standards. But all good things must come to an end and it is not unlikely that rates will bounce significantly higher soon. For folks who have an adjustable rate mortgage (ARM) now, rising rates overall will mean monthly mortgage payments could start shooting up soon.

If you have an adjustable rate mortgage — whether that is on a first or a second mortgage — and have been thinking about looking into a fixed rate mortgage it is definitely time to stop procrastinating. Contact us in the sidebar right away to learn which programs best suit your situation.

Recent reports show housing prices in the US continuing to drop. We get this from a recent HousingWire report:

December home prices fell 5.4% from a year ago, the fifth straight month of declines, according to data provider CoreLogic.

The decrease was steeper in December than the revised 4.39% drop in November. For all of 2010, though, home prices showed no change from the year before and some signs of stabilization. From 2008 to 2009, home prices fell 12.7%. CoreLogic Chief Economist Mark Fleming said 2010 was a year of volatility with the expiration of the homebuyer tax credit.

“It was a bumpy ride which ended with a net gain/loss of zero. Despite the continued monthly decline in home prices and year-over-year depreciation, we’re encouraged that on an annual basis we’re unchanged relative to a year ago,” Fleming said. “Excess supply continues to drive prices downward, but the silver lining is that the rate of decline is decelerating.”

If you still have any equity in your home it is much easier to refinance to a better mortgage rate than if you are significantly underwater. If you would like to improve your mortgage situation contact us in the sidebar to see which programs apply to your family right away before housing prices slide further.

With the economy showing signs of life lately mortgage interest rates have slowly been creeping higher. While it is still possible to get a 30 year fixed government-backed mortgage at below 5% that window of opportunity may be closing quickly.

While rising interest rates will be met with rejoicing among savers and investors, they are not desirable to folks looking to refinance their mortgages or people who have adjustable rate mortgages now. If you have considered getting an estimate on a refinance to a lower interest rate contact us in the sidebar right away. We may be looking at the recent record low rates through the rear view mirror as soon as this Spring.