Home Loan Specialists, Inc. FHA Mortgage Rate Watch – June 10th, 2011

Mortgage rates continued their gradual decline this week with the benchmark 30-year fixed rate mortgage falling to 4.49% and the 15-year fixed rate mortgage falling to 3.68% according to Freddie Mac’s Primary Mortgage Market Index Survey of 125 credit unions, commercial banks, and mortgage companies. Rates continued to fall as a result of a weak job report, continued uncertainty regarding the strength of the U.S. economic recovery, and concerns over a possible double-dip recession.

Weakness in the U.S. stock market drove rates lower as well as investors migrated to the safety of bonds. Though government financial support of the mortgage markets as a buyer of mortgage-backed securities is scheduled to expire soon, mortgage rates may not rise as expected due to economic weakness.

Particular beneficiaries of the rate decline are existing homeowners who have yet to refinance their current mortgages. Many borrowers can benefit significantly from just a 1% decline in rates over the long-term depending upon their present rate and mortgage balance. These borrowers are encouraged to give us a call to have a Refinance Analysis completed on their loan that will indicate the break-even point at which interest savings exceed the costs of refinancing.

Other beneficiaries include home buyers who see their buying power increase with each drop in mortgage rates, home sellers whose home becomes more marketable with this increased buying power, and retirees who may be looking to tap into the equity built up in their home through a government-backed reverse mortgage.

We encourage all participants in the housing market to give us a call to review their options.

Do You Know Why Your Agent Wants You to Get Pre-Qualified?

Have you ever tried to visit a home for sale on the market only to be told by a real estate agent that they won’t show you the property until you are pre-qualified for a mortgage? You might see this as a time-consuming obstacle or an unnecessary intrusion into your finances; however, there are a number of good reasons to support this requirement.

First, many sellers do not want their house being shown to someone who is not serious about buying it. Look at it from the current homeowner’s perspective. The seller has to clean the house and clear their family out and on a Sunday for someone who might be “just looking”. Furthermore, there is a potential security risk in showing a home to someone whom the seller and, in reality, the buyer’s agent know little about. Many sellers are uncomfortable with this.

Even if someone does like the home and is ready to make an offer, a seller will not seriously consider any offer from a buyer who has not been pre-qualified. They simply cannot accept the risk of taking their home off the market while a buyer figures out if they can even qualify for a loan to buy that house.

Another good reason to get pre-qualified is to see how much of a home a buyer can qualify for and on what terms. The pre-qualification process involves taking some basic information, running a credit report, as well as determining the potential borrower’s debt ratios. Typically, a buyer can be pre-qualified within a couple of hours from the beginning of the process. This procedure will often uncover unknown credit report items that can be addressed in advance to enable the buyer to obtain a better rate and thus, more of a loan. It will also allow the buyer to shop around for a lender so that valuable time is not wasted while they are under contract. Lenders can also advise on what types of programs might be available in certain areas.

Lastly, there is the question of etiquette. Believe it or not, there are people out there who look at houses as a hobby, with no true intention of buying. It is important to remember that a real estate agent’s time is extremely valuable. Realtors work on straight commission and often give up many hours of personal family time on the weekends to show property; many times to people who will never buy a home. Very simply, it is disrespectful to monopolize an agent’s time if a buyer is not serious enough to answer a few questions for a lender a couple of hours before going to look at property.

Ultimately, getting pre-qualified benefits all parties involved and represents a small time investment given the magnitude of a home purchase. The pre-qualification indicates to the seller a serious intent to buy; the buyer and buyer’s agent know the buyer’s financial background and purchase limitations; and the buyer will already have “one foot in the door” with their home purchase. It is a win-win for everyone!

Rate Watch – May 31st, 2011 – Home Loan Specialists, Inc.

The average rate for the benchmark 30-year fixed mortgage as reported by Freddie Mac’s Primary Mortgage Market Index (PMMI) stood at 4.60% this week.  This represents a change of -.01% over last week’s average. The average for the 15-year fixed amortization equaled 3.78%, down .02% on the week.  Both averages represent 2011 year lows reflecting the overall upward trend bias in the trading of mortgage-backed securities.

Rates quoted by Home Loan Specialists were lower than the overall market.

An article in today’s Houston Chronicle highlighted the risks of mortgage rate increases in the future, citing the dangers of inflation and continued economic recovery to low mortgage rates. Nevertheless, rates today are very attractive for the remaining homeowners who have not yet refinanced, or are facing a balloon or adjustable rate mortgage adjustment in the near future.

As we enter the peak home buying season of the summer, current rates should provide more buying power for consumers than just a couple of months ago. The challenge at this stage is not to get too greedy in thinking rates will continue to fall.

For our current rates, please visit Houston Mortgage Rates.

In 2010, the Federal Housing Administration restructured the mortgage insurance and lending guidelines surrounding mortgage loans insured by the agency. These changes included minimum credit score requirements for low down payment loans, new up-front and annual mortgage insurance premiums, and a change in the net worth requirements for lenders offering FHA loans. One element that was noticeably absent was a change in the amount a seller can pay toward buyer closing costs. It looks like the day of reckoning is coming.

The FHA had announced in 2010 its intention to decrease allowable seller contributions on insured loans from the current 6% down to 3% in order to bring the loan program in line with conventional loan guidelines. Seller contributions allow buyers to contribute less to a transaction, and enable many first-time and low to moderate income borrowers to buy a home. Thus, this policy is essential to maintaining the recovery in the fragile housing market. As an example, a buyer considering a $150,000 home purchase might have to absorb between $5,000 and $7,500 in closing costs in addition to the FHA’s minimum required 3.5% down payment. Currently the seller could pitch in for all of those closing costs from their sale proceeds but, under the proposal, they would be limited to $4,500.

Real estate agents, builders, and mortgage lenders have voiced concern over this new policy on the heels of other changes to government housing policies. Now, it looks as though the FHA is starting to cave, at least a little bit, in this fight. It appears the agency is going to allow some higher seller-paid closing costs, perhaps 4-5% on smaller loans to allow low-to-moderate income buyers the ability to purchase a home. At the same time, they would limit contributions for higher loan amounts to the previously proposed 3%.

This should salvage most transactions as 6% contributions on higher dollar mortgages are less common than for lower-priced homes. This will, however, hurt some entry leveler buyers in areas that have a higher entry price point, but are not considered by HUD to be a high cost market with higher loan limits.

Ultimately, this proposal is another attempt to unravel the Federal government’s support of the housing market. The FHA will continue to play a vital role as government agencies Fannie Mae and Freddie Mac are phased out in some manner, leaving the private markets in charge of most mortgage lending. Until then, it behooves many home buyers with low down payment resources to buy now or they may be forever holding their peace.

90-day FHA Flipping Rule Waiver Set to Expire in Early 2011

In January of this year, the Federal Housing Administration announced that the “90 Day Flipping Rule” was being waived for one year. This rule was designed to discourage flipping by prohibiting FHA financing on any property that had been owned by the seller for less than 90 days. The fear was that the practice of flipping was leading to inflated home prices. The waiver was granted in order to help clear an inventory of foreclosed homes and carried a few restrictions including that the sale had to be an arms-length transaction, the home had to be openly marketed, and that the sale price was limited to 20% above the seller’s acquisition cost.

The anti-flipping rule waiver will be expiring at the end of January, so investors and listing agents should be aware that any property subject to these rules will likely need to be under contract before the end of the year to take advantage of the waiver. This is important because today roughly half of all purchase transactions utilize FHA loans, so without the availability of FHA, the universe of potential buyers narrows dramatically.

The extension of the waiver is certainly a possibility, even a probability, though the political composition of the new Congress makes any assumption dangerous.

New FHA Mortgage Insurance Rates Go Into Effect October 4th

FHA’s new mortgage insurance premium structure went into effect with new FHA loan applications made October 4th and beyond. The new structure is designed to further shore up FHA’s finances while still providing flexible mortgage financing for homeowners in Texas and throughout the country.

Under the revised structure, Up-Front Mortgage Insurance premiums will fall from 2.25% of the loan amount to 1.00%. Like a homeowner’s insurance premium, this fee is paid up-front at loan closing. This premium is typically added to the borrower’s loan amount, so effectively financed into the loan. While up-front premiums have dropped, annual premiums have increased. For borrowers putting less than 5% down, the annual premium jumps from .55% of the loan amount to .90%. For borrowers with larger down payments, the premium increased from .50% to .85%. Annual mortgage insurance premiums are paid as a portion of the borrower’s monthly mortgage payment and thus a higher premium means a higher mortgage payment for borrowers taking out loans today.

Despite the recent changes, FHA loans remain among the most attractive loan options for borrowers with limited down payment funds and good, but not great, credit scores. Borrowers can still get an FHA loan with only a 3.5% down payment and credit scores as low as 620 to 640. Conventional financing requires at least 5% down and credit scores in the high 600′s. In addition, mortgage rates have recently hit all-time lows accoding to the Freddie Mac Primary Mortgage Market Survey thereby muting some of the negative effect of mortgage insurance premium increases.

FHA Announces Mortgage Program Policy Changes for Texas Homebuyers

FHA this week announced policy changes to FHA-insured mortgages affecting home buyers in Houston, The Woodlands, Spring, Tomball, Conroe, and throughout TX. These changes are designed to address an FHA capital reserve that has fallen below the 2.0% minimum set by Congress. The popularity of these loan programs for first time homebuyers makes these changes particularly significant. 

First, FHA will be increasing their up-front mortgage insurance premium to 2.25% on a purchase. This mortgage insurance premium protects lenders against default for borrowers, allowing them to purchase a home with as little as a 3.5% down payment. The premium is typically financed into the borrower’s mortgage, so no additonal closing funds are required, though it will result in a slightly increased mortgage payment. FHA will pursue regulatory authority to shift some of the increase from the up-front premium, to the monthly premium that is also charged on an FHA loan.

Second, FHA is retaining the 3.5% down payment requirement for borrowers with credit scores of 580 or above. Those with lower scores will be required to put 10% down. Previously, FHA had no minimum credit score requirement, however minimums are set by lenders who make FHA loans. Most lenders today require a minimum credit score of 620-640.

Third, FHA will be decreasing the amount a seller may contribute to a buyers closing costs from 6% to 3% to prevent inflated appraisals and other abuses. This change brings FHA in line with other loan programs.

Lastly, FHA will increase monitoring and enforcement of lenders who make FHA loans. Recently, FHA announced a probe into 15 mortgage lenders who displayed unusually high default rates. These stepped-up efforts will help insure that abusive lending practices are identified quickly and prevented. 

 Most of these changes are not likely to go into effect until the summer, so there is still time to obtain an FHA loan under the current guidelines from an FHA-approved Texas mortgage lender.

2010 FHA Mortgage Loan Updates

Updates to FHA mortgage loans have been announced for 2010 and more significant changes may be coming. Effective February 15th, mortgage lenders and other interested parties will no longer be able to order your appraisal directly. Essentially, lenders will have to order appraisals through “appraisal management companies”, impartial third-parties who will manage the appraisal process. These entities are already required on most conventional loans today. While it sounds good, the result will likely be a slowdown in the loan approval process as it has for conventional loans. We may also see more cases of low appraisals as some appraisers unfamiliar with the areas they are working, err on the low side. This process has been under fire in the conventional loan market for almost a year and may be amended as the year goes on.

FHA loan limits remain unchanged for 2010 with the single family loan limit in Texas remaining at $271,050, $347,000 for two-family, $419,325 for three-family, and $521,250 for four-family homes.

There are also some proposed changes that FHA has offered up that would affect which lenders could offer FHA mortgage loans. Some lenders, previously approved directly through the U.S. Department of Housing and Urban Development, FHA’s parent agency, would have to be approved through larger lenders who directly underwrite these loans. There is a potential here for more control of FHA lending by the nation’s largest lenders. This proposal is still in it’s comment period so no final decisison has been made.

There are also some more significant changes that could affect the availabiliy of FHA loans to consumers which we will comment on in our next post.