The Mortgage Porter

HUD extends Waiver for "Anti-Flipping" Rule through 2012

HUD recently announced they will extend their anti-flipping waiver through December 2012.  From HUD:

In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity...[HUD] will extend FHA’s temporary waiver of the anti-flipping regulations. 

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days... The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA.  All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.  The Waiver continues to be limited to sales meeting the following conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. 
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.
• The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. [Reverse Mortgages]

In addition to what HUD covered in their email on Friday, the waiver also specifies that:

• the sale must be by the owner of record
• the property may not have been a repeatedly "flipped" over the past year
• the property was marketed openly and fairly

When a home is being resold 20% or higher than what the seller purchased the property for in less than 90 days, often times a second appraisal will be required and the seller will need to show documentation to support the increased value in the home, such as receipts for the improvements made. A property inspection reportwill also be required by the lender to assure the quality of the improvements made to the property. Any health or safety issues disclosed by the property inspection will need to be corrected.

If a home has been re-sold withing 91-180 days at more at 100% or more than the seller's acquisition cost, the same conditions will apply. If a second appraisal is required, the home buyer is not allowed to pay for it per HUD. Thanks to LO Comp, which the Fed passed in April, your friendly mortgage originator cannot use their commission to pay for this cost either.

Investors who are reselling in a short period of time for a much higher amount than their acquisition cost should be prepared for the cost of the second appraisal when the buyer is using FHA for financing. Folks should also retain detailed records of improvements (including all receipts) when they're planning to quickly resale a home. The seller's acquisition cost is the sales price of the home, plus the seller's closing cost, including real estate commissions. It does not include any repairs.  

If you are considering buying a home located anywhere in Washington State, I'm happy to help you! I've been originating home loans at Mortgage Master Service Corporation since April 2000, including FHA insured loans.

Private Mortgage Insurance Saves the Day for Refi's with Low Appraisals

Recently a couple of my clients returned to me to refinance their Washington homes wanting to take advantage of the current historically low mortgage rates. The biggest gamble with a refinance is what the appraised value comes in at. We know at the beginning of the application if someone is qualified based on their income and what their credit scores are. We wait to until we receive the appraisal to learn what has been decided to be a current value based on what other like homes in the neighborhood have recently sold for.  If a home's loan to value is over 80% based on the the appraised value, the home owner has options depending on what the actual loan to value is. 

Private mortgage insurance has varying rates depending on risk factors, such as credit score, appraised value, loan program and income. The premium can be paid monthly, annually, by the lender (lpmi), single premium (paid once) or split premiums (a combination of monthly and a lump sum premium). If paid monthly, private mortgage insurance is set to be dropped from ones mortgage payment when the principal balance reaches 78% loan to value based on the original transaction.

Here's an example. A couple from Ballard want to refinance their mortgage with a total loan amount of $400,000 with no cash out (rate-term refi).  They have excellent credit scores (above 740) and have locked in a 30 year fixed at 3.875% (apr 3.978) with a principal and interest payment of $1881.  Mr and Mrs. Ballard would like the appraisal to come in at $500,000 or higher to meet the 80% loan to value criteria. Based on what their neighbors have sold their homes for recently (6-9 months) the appraisal comes in at $480,000 producing an 83.3% loan to value. It's disappointing at first however Mr. and Mrs. Ballard and ready to review what their possible options are. 

Bring in cash to make up the difference. $480,000 appraised value x 80% LTV = $384,000 possible loan amount with no mortgage insurance.  $400,000 proposed loan less $384,000 = roughly $16,000.  NOTE: this figure could probably be reduced with the use of rebate pricing (increasing the rate to reduce the cost) and other closing costs would be reduced based on the reduction of loan amount.

Add monthly private mortgage insurance. Based on their scenario, the rate would be 0.29% of the loan amount divided by 12 months = $96.67 monthly pmi. This premium will remain in their payment until the principal balance reaches 78% of the appraised value of $480,000, which should take approximately 41 months. If Mr. and Mrs. Ballard decides to go this route, their principal, interest and mortgage insurance payment will be $1978 and their initial closing cost will not be increased (apr 4.056). 

Pay a one time "single premium" mortgage insurance. Instead of increasing their monthly payment, Mr. and Mrs. Ballard can opt to pay pmi in one lump sum and be done with it!  The rate, based on their scenario, is 0.72% of the loan amount = a one time payment of $2880. This does increase their closing cost however their principal and interest payment will remain at $1881 (apr 4.039).

Mr. and Mrs. Ballard decide they like the single premium option considering that they won't have a mortgage payment due for one month after the closing of their new refinance and they're receiving a refund of the balance of their existing reserve account a few weeks after closing from their existing mortgage servicer.  Plus they'll break even with the one time mortgage insurance premium quicker than the monthly option. Both pmi options allow them to not dip into their cash reserves and to still proceed with the refinance.

In this climate, sometimes neighbors (or banks) have to sell homes for less than what they or you would like and appraisals may come in lower than expected.  It's good to know that there are options for when this happens. A piggy back second mortgage may be something to consider too with this type of scenario.

NOTE: If Mr. and Mrs. Ballard's existing mortgage qualified for a Home Affordable Refinance, there would not be any private mortgage insurance required and if their exisiting mortgage was FHA, they may have opted for a streamlined refinance without an appraisal (no potential loan to value issues) although the pmi rate is currently less expensive than FHA's mortgage insurance.

PS: For the record, appraisals may come in higher than estimated too. 

If you are interested in seeing obtaining a rate quote for a refinance or purchase on a home located anywhere in Washington, please contact me.

How Much Does My Home Need to Appraise with a Refinance?

This is a question that I'm reviewing for a client in Seattle who's current mortgage was a non-conforming loan amount in 2005. Non-conforming (aka jumbo) mortgages do not qualify for the home affordable refinance program which offer expanded loan-to-values. The current mortgage balance is $400,000 (in 2005, the conforming loan limit was $359,650). In King County, the current high balance loan limit is $567,500 (soon to be reduced to $506,000 on October 1, 2011).

Here are some examples of what programs are available based on how much the home may appraise for (loan to value) with a mortgage payoff of $400,000.

• appraised value of $508,000 or higher = 80% loan to value and no private mortgage insurance = conventional mortgage with closing costs and prepaids financed.
• appraised value of $500,000 or 80% loan to value = conventional mortgage with closing costs and prepaids paid out of pocket or with rebate pricing.
• appraised value of $475,000 or 85% loan to value = possible combo mortgage with first mortgage at 80% loan to value or lower (to avoid private mortgage insurance) and second mortgage at combined loan to value at 85%. Yes, second mortgages are starting to come back. This scenario would require a minimum mid-credit score of 720.
• appraised value of $450,000 or 90% loan to value = mortgage insurance
• appraised value of $415,000 or 97% loan to value = FHA insured mortgage with upfront and annual (monthly) mortgage insurance.
• appraised value below $415,000 means that the borrower will need to consider a cash-in refinance if they want to proceed.

NOTE: If the mortgage that was being paid off was eligible for home affordable or if it was an FHA underlying mortgage, there would be more options...because it was originally a jumbo loan in 2005, the options are limited.

How much this home appraises for will impact whether or not a refinance is possible...I really believe that if Congress is sincere about a housing recovery, we need to eliminate appraisals on certain rate-term refinance where the borrower qualifes based on their income, employment and credit.

Would you like a mortgage rate quote for your home located anywhere in Washington? Click here.

Another Reason You Should Not Postpone Refinancing Your Seattle Home: Your Neighbor's Foreclosure

The media is reporting that the Seattle-Tacoma-Bellevue area saw a huge increase in foreclosures from information provided by RealtyTrac.  According to the media, the Seattle area has had an increase of 71% in foreclosures; one of the largest increases in the nation.  I agree with CNBC's Diana Olick's take on the data:

"During the housing boom, Seattle was actually the last to see the big boom in prices and then on the other side, the last to see the big drop in prices so it could be that Seattle is kind of catching up with the rest of the country now seeing those foreclosures because prices did get so high there and drop so precipitously."

 

Foreclosures and short sales do impact property values and the current "appraised value" of your home as an appraiser may need to use a nearby short sale as a comparable property for your home.  If you're considering refinancing, and your refinance requires an appraisal, this may impact your loan-to-value and home qualifying for the new loan if your home appraises for less than originally expected.  Some refi's do not require an appraisal, such as an FHA Streamline (where you are refinancing an existing FHA mortgage to a new FHA mortgage) and some Fannie Mae Home Affordable refi's are qualified without an appraisal...but a majority of mortgages do require an appraisal.  (I wish that all appraisals could be waived if the home owners qualifed based on employment, income and credit...I truly beleive this would help stimulate the economy...but it's not the case).

If you are delaying a refinance, you may be risking more than losing today's low interest rate, you may be risking your home's appraised value. 

Related post:

It's Not You,It's Your Neighbors

The Wild Card of Refinancing

Declining Home Values: Good for Buyers - Bad for Refi's

When an Appraisal Comes in Low for a Refi

The Cash-In Refinance

Pricing a Home Affordable Refinance

FHA Streamline Refi's with No Appraisal

When HUD changed the guidelines for FHA streamlines last fall,I thought they had pretty much stuck a fork in a program that has been very beneficial to home owners who have an FHA insured mortgage loan.  You see, HUD made it to where if a borrower opted to not have an appraisal, they cannot finance their closing cost or reserves/prepaids.  Back then I never thought we would see rates at their current levels.  With today's rates, many home owners can opt for a slightly higher than "par" rate to have the lender pay for a portion of their closing costs.   In addition, it doesn't matter what your home's current appraised value is since there is no appraisal!

With an FHA streamline refi, if the loan has less than 36 payments, there may be a credit of the balance of the upfront mortgage insurance premium if it was financed (99% of loans have the ufmip financed).  The credit is on a sliding scale (the earlier in the loan, the larger the credit). 

Closing costs are reduced since there's no appraisal fee (and no worry about what your home may appraise for).  The loan amount is limited to the current principal balance plus the new upfront mortgage insurance premium.   With today's pricing, many Seattle area home owners are typically bringing in the mortgage payment they would have "skipped" or funds to start their reserve account at closing and enjoying the benefit of a much lower payment due tot he reduced rate.   Borrowers will receive a refund of the balance of their reserve account a few weeks after closing from their existing mortgage servicer.

FHA mortgage insurance premiums are set to change in weeks (October 4, 2010).  Although the upfront premium is decreasing, the annual (monthly) is increasing and the net effect is more expensive that the current formula.

At Mortgage Master Service Corporation, we are a HUD Endorsed Lender with our own in-house FHA underwriters.   I've been originating FHA loans for over 10 years and I'm happy to provide you a free rate quote for your home located in Washington state.

UPDATE:  In order to qualify for an FHA streamline refinance, the borrower must:

• have an FHA insured mortgage
• have made a mimium 6 mortgage payments (seasoning) by the time they apply
• have a minimum mid-credit score of 620 640 (or higher)
• document income and employment
• document assets needed for closing
• Last but not least, the proposed refinance must create a "net-tangible" benefit to the borrower.

Live Mortgage Rate Quotes

Yesterday, I was not able to post my regularly scheduled "Monday Rate" post since I was on the road taking the day off to celebrate my husband's birthday.  The evening before, I treated him to the Van Morrison concert at the Gorge in George, Washington.  If you ever have the opportunity to see Van live, he's amazing.

Back to work.

As I quote rates today for homes located within Washington state, I'll update this post.  Remember, rate quotes can be like snowflakes, each one unique as different factors, including the time it's quoted, may impact the rate.   Every day, I quote rates live via Twitter.

This afternoon (around 11:15 pst), we have the FOMC meeting may move rates.  As I prepare this post (7:30 am PST), the DOW is down 108 (off it's lows).  Stay tuned.

8:30 am: Quoting 4.875% for a 30 year fixed Freddie Mac HARP refinance with a loan amount of $247,000 subordinating a second mortgage priced with 0.25% points (apr 4.999) mid-credit score is 660-679 in the Seattle area.  Loan to values are 103% for the first mortgage and 115% including the second mortgage (estimated value of the home at $240,000).   If the home appraises higher than estimated, we may be able to improve the rate...but we won't know until we have the appraisal.

8:43 am:  DOW down 85.

9:45 am:  Quoting 3.375% for a 5/1 rate-term "cash-in" refinance based on a loan amount of $301,500 and an appraised value of $335,000 (90% loan to value).  Should the home appraise higher, we can adjust the loan amount higher to reduce the cash needed to close.  Priced with 0 points and $640 in closing costs (APR 6.446%).   5/1 LIBOR ARM: 2.25% Margin with 5/2/5 caps - highest possible rate is 8.375% at 60 months.  

10:07 am:  DOW down 92

10:17 am: Quoting a 5/1 FHA rate-term "cash-in" refinance for the same Snohomish County home owner from 9:45 am:  3.500% with 0 points with 1/1/5 CAPS (APR 4.040) and an 95% loan to value (less cash at closing).  FHA can go up to 97% loan to value with a slightly increased annual mortgage insurance rate (0.55% vs 0.50%/12).  The most the rate can adjust at 60 months is 1% and the the most the FHA rate can adjust annual on the anniversary of the adjustment date is 1% with a lifetime maximum rate of 8.5%.  If the rate adjust at the highest possible every year, after the 5 year fixed period, it would take 5 years to reach 8.5% (2011 = 4.5%; 2012 = 5.5%; 2013 = 6.5%; 2014 = 7.5%; 2015 = 8.5%).   FHA insured loans may be assumable to qualified buyers.  

NOTE:  this borrower could consider waiting until HUD begins the FHA "short refinance" program...the risk is where mortgage rates may be next month, when the program starts, and IF their mortgage servicer will reduce their principal balance by at least 10%.

10:30 am:  DOW down 114 ...results of the FOMC meeting are about 45 minutes away.

11:20 am:  FOMC Statement has been released leaving the Fed Funds rate unchanged for an "extended period" of time.  DOW was down 38 and now (11:27) down 60.

11:30 am:  preparing a rate quote for a returning client from Edgewood who would like to refinance their existing 30 year fixed mortgage and are interested in possibly reducing their term.   They have excellent credit and we're assuming they have an 80% loan to value with a base loan amount of $207,000.

30 year fixed priced with 0 points @ 4.375% (apr 4.480) with a principal and interest payment of $1033.52.  Reducing monthly mortgage payment by $200.   It will take 17 months to return to their current existing principal balance of $202k.   If these home owners perfer, they can opt to not finance the closing costs (bring cash in to close).

20 year fixed priced w/0.5 points @ 4.250% (apr 4.452) with p&i of $1,281.82.  Increasing the borrowers payment by $40 per month returning to their existing principal balance in about 9 months.

15 year fixed priced with 0 points @ 3.875% (apr 4.054) with p&i of $1,518.22 increasing the borrowers payment by $280 per month returning to their existing principal balance in 6 months.

NOTE:  I'm personally "typically" in favor of home owners opting for the lower payment/longer term...depending on how much additional income and/or assets are available.   With a 30 year fixed rate, you can always pay additional towards the principal to reduce your term and interest paid over the life of the loan.  However, if something should happen (health, employment, etc) where you do not have enough income to meet your increased payment of your shorter term mortgage (like a 15 year), you do not have the option of making a "30 year payment".  Opting for a 30 year fixed rate provides more flexibility than a 15 year. 

12:12 pm: DOW down 30

1:00 pm: Quoting 4.375% for 30 year fixed rate-term refinance $399,000 loan amount 80% loan to value condo in Seattle priced with 0 points with $3,000 in closing costs (apr 4.441) does not include prepaids/reserves.  P&I = $1,992.15.  

Same scenario with a 20 year mortgage provides a rate of 4.250% (apr 4.339) with a principal and interest payment of $2,470.75.

NOTE: condo's have a price hit of 0.75% with loan to values over 75% and terms amortized over 15 years with conventional mortgages.  

DOW closes down 52.

2:40 pm: Quoting 4.375% priced with 0 points for a rate-term conforming high-balance refinance $504,000 loan amount for a West Seattle home appraising for $750,000 or higher (apr 4.427).  My returning client will save $200 per month and break even on the closing cost in 16 months.

Next Monday...I should be back to my regular scheduled rate post!   For your personal rate quote for a home located in Washington, please contact me!

Disclosure Periods: Three Days Counted Three Different Ways

Anyone who's refinanced a home they live in probably remembers having to wait a couple days after signing before their loan can close.  This is called the Three Day Right of Recsission.  Thanks to all our new guidelines over the past year, we now have waiting periods triggered if your rate changes (for better or worse) with MDIA and once you receive your appraisal thanks to HVCC.   All of these waiting periods are for three days and each one is counted differently--go figure!   Here's a quick overview.

Home Value Code of Conduct. (HVCC) On residential transactions where there is an appraisal, we are required to provide the borrower a copy of the appraisal three full days before signing.  This is very similar to the right of recession where it's "postal days" that are counted.  A rush transaction can be put into a pinch if the appraisal is received late.   Receive the appraisal on a Friday, and the earliest the borrower can sign is Wednesday.

Three Day Day Right of Rescission:  This applies to refinances of a primary residence and is triggered the day of signing.  Three, what I like to call "postal days" must pass after you sign before your transaction can fund.  So if you sign on Monday, the earliest the loan can fund (close) is Friday; sign on Tuesday, the earliest your mortgage can fund is Monday.  

Mortgage Disclosure Improvement Act:  MDIA has two waiting periods: how soon a mortgage originator can collect funds after an application--depending on how an application is taken AND a redisclosure period if your APR (annual percentage rate) changes by an 0.125% for fixed rates and 0.25% for an adjustable rate.   The redisclosure period is also three days however the first day starts after the redisclosure and the earliest a borrower can sign is on the third day.  Most Seattle area real estate contracts have language providing an automatic extension of the closing date should closing be delayed due to MDIA (this is different than your rate lock extension).

Lately I've been renegotiating rate lock commitments for my clients, and even when I'm improving their rate, I need to redisclose and trigger the MDIA waiting period.  If it's a refinance, I need to be especially careful of not causing a lock extension if we run out of time due to the MDIA disclosure AND the Right of Rescission time period.

What was done "for the best interest of the consumer" has caused some transactions to be delayed.  It's important to be aware of the various timing factors that may be involved with your transaction.  Delaying your appraisal or not being able to get to your signing appointment in time with a refinance can wind up costing in the form of an extension fee when you factor all the timing periods...which everyone wants to avoid (and is why I like to lock a little longer when possible).

If I can help you with a mortgage on a home located in Washington state, please contact me.  Click here if you would like a rate quote for your home located in Washington.

It's Not You, It's Your Neighbors

One of the most challenging aspects with refinancing homes in the Seattle area is the appraisal.  It doesn't really matter what you paid for it or how much you love your home.  What is probably going to impact the appraised value of your home the most is what your former neighbors have sold their homes for. 

If your neighbor had to drastically drop their sales price to sell their home, it may impact your home value.   The closer their home is located to your home and the more similar to your home, the more weight that home will have as a "sales comparable" to the appraiser. With fewer sales for an appraiser to rely on for sales comparables to your home, it can make it even tougher.  

Appraisers today need to ideally find three - four recently sold homes in your neighborhood to create a value for your home.  They also need to comment on the real estate market and how long homes are typically staying listed.

When I'm helping a home owner who's considering refinancing their home in Washington, I'll do my best to review recent sales in their area and I tell you, it's not an easy job!   At the very least, I'll share what I find with the home owner so they can have a rough idea of what the appraiser may be viewing as well.

If you get a low appraisal, thanks to HVCC (and NY Attorney General Coumo) your mortgage originator cannot order a new appraisal as that's considered "value shopping".   Worse case scenario, if a home owner does not qualify for a home affordable refinance after discovering the appraised value is lower than expected, they may be out the cost of the appraisal (typically around $500).

As home sales pick up and sales prices begin to rise, appraised values will eventually pick up.  Remember, an "appraised value" is different than how you value your home and it's reflective--it will change up or down over time.  Unless you are selling or refinancing your home, what it would "appraise for" doesn't really matter.

If You are in any aspect of the real estate industry, you don't want to miss this...

Both events are at the Seattle Center:

March 18, 2010 - Pacific Northwest Housing Summit  
March 19, 2010 - RE Barcamp Seattle

The panelist for the Summit continue to grow and we anticipate quite a turn out from across the country at both events.  Sponsorship opportunities are still available and start at $250.  

Of course there will be "tweet-ups" and social hours following both days.

Be there!  Follow both events on Twitter: @pnwhs #pnwhs and @REbarcampSEA #rebcsea

PS:  Space is limited to the first 700 registered attendees for the PNWHS...and there's a "sweet heart deal" for pre-registrations by Valentines Day.  

 

Only 5 Days Left for FHA Streamline Refi's Without Appraisals

EDITORS NOTE 6/28/2010:  Since writing this post, many FHA home owners have opted to reduce their mortgage rate via the streamline refi without an apprasial when they have the funds available.

If I wanted a super long title to this article--it should actually read:  "5 Days Left for FHA Streamline Refi's Without Appraisals with Closing Costs Rolled Into the Loan Amount"... but that's just too long.

Back in late September I warned that FHA guidelines are dramatically changing effective on FHA case numbers issued after November 17, 2009.

Considering our current home values, if you currently have an FHA mortgage, this could be your last chance to reduce your rate without having to shell out your hard earned money on an appraisal!

If you have a home located in the State of Washington, I'm happy to provide you with a good faith estimate at no obligation to you.   In order to provide an accurate estimate for you, it would be ideal to have the following information (which you can find on your HUD-1 Settlement Statement):

• Original base loan amount
• Amount of your FHA upfront mortgage insurance premium (or portion of your upfront MIP may be credited towards your new FHA loan)
• Estimated credit score (we currently require a minimum credit score of 620 or higher)
• Home address (so we can obtain accurate property taxes).

Our company does require that you are employed and will verify your income and credit with an FHA streamline.   We have our own in-house FHA underwriting and are a HUD approved Direct Endorsed lender.   You can apply on line (only for homes located in the State of Washington) by clicking my "apply on line" link on the top of this web site.

You will be able to do FHA streamlines after November 17, 2009...they just won't seem so "streamlined" anymore.

Attention Real Estate Agents: if you have buyers who used FHA financing to purchase their home with mortgage rates around high-5's or higher, you can be a real hero by sharing this article with your clients.