About Government Refinance and Home Purchase Programs

Legislation has been proposed in congress that among other things would increase the minimum down payment requirement for FHA-backed home purchase loans from 3.5% to 5%. The head of the FHA recently came out in opposition of this plan. Here are some bits from a WSJ blog on the subject:

The head of the Federal Housing Administration warned that raising down payment requirements or taking similar steps to limit the pool of eligible buyers for FHA-backed loans would hamstring a fragile housing recovery.

“If it weren’t for this program, assuming that risk is being protected, this would forestall recovery of key metropolitan markets across the nation,” said David Stevens, the FHA commissioner, during a panel session at the Mortgage Bankers Association annual convention in San Diego on Monday.

Rep. Scott Garrett (R., N.J.) introduced a measure in Congress earlier this month that would require minimum down payments of 5%, up from 3.5%, on loans backed by the FHA. (See FHA Should’ve Done This Long Ago.)

The folks at the FHA insist the answer is no. The guy in the following interview over at Yahoo is skeptical of that claim.

Whatever the case, the FHA is the best program around for folks with less than 700 credit scores or less than 20% equity in their home.

There were some encouraging signals from the Fed recently. Here are some excerpt from a recent AP story on the subject:

Federal Reserve Chairman Ben Bernanke sent a fresh signal Thursday that he’s in no rush to reverse course and start boosting interest rates.

The Fed’s key bank lending rate is now at a record low near zero and will probably stay there for an “extended period,” Bernanke said in a speech to a Fed conference here.

That echoed the pledge he and his colleagues made at their meeting in late September. The goal: super-low rates will entice people and businesses to spend more, nurturing the budding recovery.

…

Still, Bernanke made clear on Thursday that when the time is right the Fed will have the tools and the political will to reel in the unprecedented amount of money it has pumped into the economy to avoid unleashing inflation.

“At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road,” Bernanke said.

There has been a lot of news lately on the recent dip in mortgage interest rates. In many cases rates are as low as 5% and FHA streamline loans are currently coming in between 5% and 5.5%. There is no telling how long this dip in rates will last but odds are that it won’t be very long so if your have a rate of 5.75% or higher contact us in the sidebar today.

See an interesting AP article on the subject here. With lending standards tightening even further it won’t be surprising in the the number of denied applications increases even further in 2009.

The great interest rates we are now enjoying are not going to last long. A Fed official indicated this week that when the Fed raises rates to stave off inflation it will happen sharply. We get this from a recent AP article:

To prevent inflation from taking off, the Federal Reserve will need to start boosting interest rates quickly and aggressively once the economy is back on firmer footing, Fed officials warned Tuesday.

“I expect that when it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity” to when the Fed was slashing rates to battle the recession and the financial crisis, said Richard Fisher, president of the Federal Reserve Bank of Dallas.

Although Fisher has a reputation for being one of the Fed’s toughest inflation fighters, it marked the second such warning by a central bank official in recent days. Fed member Kevin Warsh on Friday said the central bank will need to move swiftly when the time comes to raise rates.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia and also a hawk against inflation, waded into the debate in a speech Tuesday in Easton, Pa., saying the Fed may need to act “well before” unemployment — now at a 26-year high of 9.7 percent — returns to normal. The Fed, he said, will need to be on guard “to prevent the Second Great Inflation.”

If you have been thinking about a refinance contact us today in the sidebar. The sooner you lock your rate the better if you would like to refi before rates shoot back up. Rates for most loans this week have been hovering between 5 and 5.5%. We expect them to be much higher soon.

Housing Wire had a story recently saying that six more mortgage servicing companies have come on board with the Obama loan modification program. Here is an excerpt from the story:

Six more servicers joined the Home Affordable Modification Program (HAMP), pushing the total number of participants to 63, according to the most recent Troubled Asset Relief Program’s (TARP) transaction report.

AMS Servicing leads the new inductees with $4.3m in cap incentives. Bay Federal Credit Union receives a $410,000 cap; Schools Financial Credit Union receives a $390,000 cap; Yadkin Valley Bank gets a $240,000 cap; Glass City Federal Credit Union receives a $230,000 cap; and Central Jersey Federal Credit Union is allocated $30,000 in capped incentives.

It is no surprise that the Fed will be winding down its efforts to compress mortgage interest rates over the next few months. The announcement this morning simply noted that they plan to spread the remaining fund out more thinly between now and the end of Q1 2010 instead of shutting the program down entirely by the end of this year. In any case, the end result will likely be that mortgage rates will be higher soon than they are now. If you have an ARM or need cash out or have a fixed rate above 5.75% contact us in the sidebar now before rates end up in the high 6’s again.

The FHA released the details on its policy changes regarding FHA streamlines (see mortgagee letter 09-32). The new policies go into effect November 18, 2009. Here are what we consider the most significant changes:

A. Seasoning

At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

This means there is a minimum 7-9 month waiting period one must wait between FHA streamlines. It used to be that one could get an FHA streamline and if rates improved thereafter get another streamline immediately.

II. Revised Streamline Refinance Transactions WITHOUT an Appraisal

The maximum insurable mortgage cannot exceed:

– The outstanding principal balance minus the applicable refund of the UFMIP,

PLUS

– The new UFMIP that will be charged on the refinance.

This is the most major change. Right now, most FHA streamlines allow a borrower to roll closing costs into the new loan (thus bring no money to closing), skip one month of mortgage payments, and reduce interest rates. With this new rule closing costs will not be able to be rolled into the new loan so as a result it will be much more difficult to get a streamline with no money at closing. The requirement for money at closing will mean many families will not be able to streamline their FHA loan soon.

If you have an FHA loan at 5.75% or higher contact us in the sidebar today. Getting a streamline will be more expensive and difficult starting in November 2009.

As part of the steps the FHA is taking to bolster its cash reserves, it appears that FHA streamlines are about to get harder to qualify for. Right now people with FHA loans can refinance to a better FHA loan without needing an appraisal no matter what their current income is or how upside down they are on the home as long as they have not been 30+ days late on a mortgage payment and have a credit score above 620. According to this report over at Housing Wire the requirements for FHA streamlines will be tightening in significant ways soon:

The new policies revise current procedures to streamline refinance transactions. FHA will establish new requirements for seasoning, payment history, income verification and demonstrate a net tangible benefit to the borrower. The new changes provide for a collection of credit score information when available and caps the maximum loan-to-value (LTV) ratio at 125%.

Also, new guidelines will be provided on ordering appraisals for FHA-insured mortgages and supports the agency’s policy requiring appraiser independence. While FHA’s current policies continue to comply with the Home Valuation Code of Conduct (HVCC), FHA will adopt language from the Code to align with GSE standards.

These changes potentially do away with some major benefits of the FHA streamline process. If you have an FHA loan with a rate of 5.75% or higher contact us today about streamlining to a lower rate while the procedure is still relatively inexpensive and easy. Tell your friends and neighbors with FHA loans as well. FHA streamlines are about to become significantly less streamlined and significantly more expensive and difficult to come by.

Reports came out today that in the face of increasing foreclosures on homes insured by the Federal Housing Administration, the cash reserves for the FHA will soon be dipping below mandated levels. We get this from a recent AP story:

The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue.

The agency, a growing source of funds for first-time homebuyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17 percent of FHA borrowers were at least one payment behind or in foreclosure, compared with 13 percent for all loans, according to the Mortgage Bankers Association.

Rising defaults mean the FHA’s reserves may sink below the 2 percent mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.

David Stevens, the agency’s commissioner, however, said in an e-mailed statement that FHA “will not require taxpayer assistance.”

Banks still have the final say on who they help and who they don’t help, but the FDIC is at least encouraging banks to help unemployed people. We get this from a recent CNNmoney.com article:

Some unemployed homeowners at risk for foreclosure could get a temporary break on their mortgage payments under a plan being pushed by the FDIC.

The Federal Deposit Insurance Corp. said on Friday it is encouraging certain banks to reduce mortgage payments for the unemployed or underemployed for at least six months.

Overall, relatively few of the unemployed will benefit from this recommendation because the effort would only apply to a handful of institutions. Specifically, it would affect those that bought failed banks and participate in loss-share agreements with the FDIC. In such deals, the agency covers some of the losses incurred on the assets of the failed banks. Some 53 institutions, mainly regional or community banks, have entered into such arrangements since January 2008.

“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures,” said Sheila Bair, FDIC chairman, who has led the efforts to have loan modifications be based on income.