Are YOU Ready for HARP 2.0?

Many Americans that were “somewhat” underwater in their home loans were able to take advantage of the lower interest rates available in recent years and save money on their homes..

HARP Refinances since 4/2009 (894,000 borrowers)

But many more could not due to restrictions in the program – called the Home Affordable Refinance Program (or “HARP”).  Well I have great news for you homeowners that could not refinance under the old program .  The NEW and Improved – HARP 2.0 will fix that for you and you can take advantage of rates in the low 4′s or even below 4%.

The program was available to anyone with a loan owned by FannieMae or FreddieMac.  This doesnt mean your statements come from them, it just means they purchased the loan.  Your loan could very well be serviced by a bank like Wells Fargo, Bank of America or Chase. 

The problems with the first program were that there were price adjustments if you were over 100% of the current value of your home and the rate went up considerably if you were over 105% of the value.  Additionally if the loan to value (LTV) was over 125% you were done!  It was also challenging if you had a 2nd mortgage or HELOC (Home Equity Line of Credit)

A recent report by CoreLogic indicated that over 2/3rds of “above average LTV” or above 80%) have above market interest rates.  This means that more than likely you or someone you know will be able to take advantage of HARP 2.0.

What is HARP 2.0?  What changed?

The two biggest changes were the removal of the 125% loan to value (LTV) cap and the elimination of the pricing adjusters that impacted the rate.  this means regardless of what you owe on your home, or if you have a second mortgage you can take advantage.    This means that if you are seriously underwater, the rate is no higher than someone that is only marginally upside down.  Since these components of the loan have been removed, an appraisal is no longer required on the home as long as a reliable AVM (Automated Value Model) estimate is available.

Furthermore the end date for HARP 2.0 has been extended to December 31, 2013. 

To find out if you can take advantage of this great opportunity, first you have to see if your loan is owned by FannieMae or FreddieMac.  The websites to check are:

http://www.FannieMae.com/loanlookup/

https://ww3.FreddieMac.com/corporate/

Your loan must have been sold to Fannie or Freddie no later than May 31, 2009 and

you MUST be current in your payment history with no more than one late payment in the last 12 months.

A requirement to Fannie and Freddie’s automated underwriting system is required before the new HARP 2.0 loans can be closed.  This update is to be delivered mid March.

To find out if you qualify for the new HARP 2.0 program call us at 954-857-3502 or visit us at www.prunermortgage.com or email us at mason@prunermortgage.com

How do I prepare for a Home Mortgage Loan?

Good Day,

I was reading a recent news article about housing prices and being based in South Florida of course I was pleased to see that one of our local communities showed a 15% gain in values from 2008 to August 2011.  This is great news for sellers and of course for those buyers looking for a “bottom” in prices, its apparant that at least in this community, the bottom has come and gone.  Other recent data shows that foreclosure and other distressed sales as a percentage of all sales have dropped considerably from their 2008 peak.

With interest rates still at historic lows, and prices on a slight incline, for those buyers sitting on the fence, its probably a pretty good time to consider making the jump to be a homeowner.  But of course credit markets have changed… and the media is full of news that its so much harder to get a loan these days… So what IS required to get a home loan today?

Actually to dispell the myths perpuated by the mainstream media, while its more work to go through the process, most qualified buyers can get a new home loan.  It really is back to basics for the mortgage loan application proces and this is the focus on this article.

What do lenders look at?  Theses are known as the basic tenets of lending also known as the 5C’s of Credit:

• Character – (Credit)
• Cash – (Equity)
• Collateral – (The home value and condition)
• Capacity – (The ability to repay the loan – AKA Income)
• Compensating Factors – (for loans that push some guidelines, something that offsets that risk)

Lets look at each and what you must do to get ready to talk to a lender.  As always, if you have any questions, please call us or write at Mason@PrunerMortgage.com.

First lets look at Character.  This is the Willingness to repay the loan as demonstrated by the your credit history.  Years ago it was a simple review of the history, but in the last 20 years, credit scores – also known as “FICO” scores (Named for the Fair Issac Corporation who devised the first score model)  have played an increasing role in the decision with minimum scores required for different kinds of loans.  Normally you are looking at 600 for FHA loans and a minimum of 620 for conventional loans with substantial rate adjustments for lower scores.  If your score is lower, you will end up paying more for the home mortgage loan via higher rates and/or fees. 

Your score is made up from the following criteria as reported in your credit profile:

• 35%: Payment history—Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a credit score to drop. Bills paid on time will improve a credit score.  Any late payments in the last 12 months have a more significant impact on score.
• 30%: Credit utilization—The ratio of current revolving debt (such as credit card balances) to the total available credit limit. credit scores can be improved by paying down debt and lowering the credit utilization ratio.  Alternatively, credit limit increases can also drive down the utilization ratio. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on a credit score. Typically if your utilization exceeds 60% of the limit the score will be impacted and exponentially greater impact as the balance approaches the limit.
• 15%: Length of credit history—As a credit history ages it can have a positive impact on its credit score.  Conversely, too many newly opened accounts can have a negative impact on the score.  Most lenders require at least 3 trade lines with more than 12 months history.
• 10%: Types of credit (Installment, Credit Card or Revolving, Finance Company Lines) Consumers can benefit by having a history of managing different types of credit.
• 10%: Recent Credit Inquiries—Credit “pulls”, which occur when consumers are seeking new credit, can hurt scores. Credit inquiries by individuals shopping for a mortgage or auto loan over a short period (Like kind inquiries over a very short period like a week) have little or no impact, however. While all credit inquiries are recorded and displayed on credit reports for a period of time, credit inquiries that were made by the owner (through online free credit reporting services), or by an employer typically have no impact.  Lenders will typically require explanations for all inquiries for the 90 days preceeding an application.

Now lets talk about Cash – Cash is the “Equity Position” in the loan  The components of this part of the review include down payment and how much the borrower is putting down relative to the purchase price (known as the LTV or Loan to Value) as well as the source of the funds.

All funds to be used for down payment must be “sourced”  meaning the lender must verify the source of all funds in the borrower’s bank accounts.  Normally two months’ statements are required and the borrower will be asked to verify the source of all non-payroll deposits.  Down payments could be as little as 3.5% for FHA loans or 25% for investment properties.  Conforming loans can be done now with 5% down.  For FHA loans, the entire down payment can come from a gift by a direct family member.  If going this route, the gift must also be sourced and the transfer verified.

In addition to down payment, sufficient funds to cover closing costs and prepaids as well as any reserve requirements must be documented.  A good rule of thumb is about 2% of the loan amount, but this is a very rough estimate its best to get a good solid estimate based on the property you are considering and the loan type you are using.  In many cases the seller can be asked to cover all or part of the costs.  This is typically negotiated up front with the contract.

The other aspect of the “Cash” part of the review is the actual loan to value.  This is determined by both the agreed upon sales price and the appraisal done on the home.  the lower of the two is used to base the maximum mortgage calculation.  Any personal property listed on the contract should be avoided as the appraiser will have to allow for the value of those items and they cannot be included in the value estimate so the loan will be based on sales price (or appraised) less any personal property noted. 

A close association with Cash is Collateral in the review.  The collateral must support the loan and the home must be demonstrated to be marketable and in average or better condition.  As noted above, the Appraised value must support the loan.  If the appraisal comes in lower, then the maximum loan would be reduced. The appraisal is a 20-30 page report that reviews the neighborhood, the construction of the home, the marketing time, and uses recent sales of similar homes to determine the relative value of the subject property.  Any items of deferred maintenance, or health/safety issues are noted.  Any items that do not meet minimum lender requirements (like a bad roof) are noted as “subject to correction” items and must be fixed prior to closing.

Capacity is the borrowers’ ability to repay the loan.  This is a comparison of the borrowers income as can be documentated via tax returns, paystubs, and other forms like pension and social security awards letters, 1099′s, etc.  Be aware that lenders must use “Adjusted Gross” income meaning that for those that are self employed or in a job where they deduct expenses, its the gross income less any expenses.  For self employed, commissioned/bonus or other non-salary positions, an average of the last two years tax returns is required.  The NET income from those returns is used as it passes through to the clients’ personal 1040.

This income is compared via two ratios – the Housing Ratio and the Total Debt Ratio.  The housing ratio is the total new housing payment (PITIMI – Principal, Interest, Taxes, Insurance, Mortgage Insurance and any condo or homeowners dues if applicable) divided by income.  For example if a clients new payment is $1500 and the monthly income is $4000 the debt ratio would be 1500/4000=37.5%  Total debt ratio adds in all other debts to the housing payment and divides by income.  So $1500 housing + $500 car payment and credit cards / $4000 income = 50% 

Maximum debt ratios or “DTI” is typically 45% for conforming loans and 50% for FHA, although some lenders allow for more.  If you want to figure out how much of a payment you can qualify for take your gross income (less any deductions as noted above) X either .45 or .50 (if going FHA) and subtract your other debt (excluding rent)  The remaining amount is your maximum payment. 

For example;  if you make $5000 per month and have $600 in car payments and other debt and are going for a FHA loan – 5000X.5=2500 – 600 = $1900 maximum new home payment. Remember that this payment includes all costs associated with the home (the loan payment, mortgage insurance, taxes and insurance and any HOA)

Mortgage Insurance is required on any loan where 20% down is not provided.  For conforming loans, the mortgage insurance premium varies based on the percentage down, loan type (fixed or adjustable, 15 year or 30 year) and borrowers credit score. for 10% down, its about .48% (for a $200,000 loan at 10% down this is about $80 per month) For FHA its a bit different.  The MIP  (mortgage insurance premium) is split with part financed into the loan (1% of the loan amount) and the rest paid monthly at 1.15% of the loan amount / 12 months  (200,000 loan @ 1.15%/12 = $191.67 per month.)

Finally the last item is Compensating Factors.  No two borrowers needs or situations are the same.  Eveyone has a different history, employment or credit situation.  In many cases, one or more guidelines as noted above, may not fit exactly within the guidelines of the lender.  Therefore a decision to grant credit could be on the fence so to speak.  Demonstrating a factor that compensates for the perceived risk helps in these cases.  For instance, maybe the DTI is 51% for a FHA loan… but the borrower’s new payment is the same or less than they were paying in rent – demonstrating that they have already proven they can handle a higher DTI.  A seasoned and experienced Loan Originator should be able to identify potential risk factors, look for compensating factors and describe them to the underwriter when the loan is submitted for review.

As I noted at the beginning of this very long email, its a great time to buy a home.  The best first step is to get preapproved by a qualified and experienced Loan Originator. 

Please write with any questions and if we can be of any assistance, please feel free to call us at 954-949-9913

Have a Fabulous Day!

Rates, Home Values and Bernanke’s Latest…

So… There is SOOOO much going on right now – and the markets are showing it.  We have seen over 250 basis points in swings in just a week beginning last Wednesday 9/21 when the Federal Reserve announced their latest and greatest effort to “stimulate the economy” (or did they say stimulate Wall Street?  Because frankly this is what QE’s 1 & 2 basically did)

What Mr Bernanke essentially did was detail a new numbers game.  Quantative Easing versions 1 and 2 took federal dollars (which are funded by Treasury Bonds) and used that money to … ready for this?  buy Treasury Bonds and Mortgage Backed Securities.  In relation to the Treasury purchase its akin to taking money out of your wallet and putting it in your front pocket…. but the end result was to keep interest rates low and Wall Street loves low interest rates – as do homeowners, home buyers, banks and of course the US Government who all rely on credit.  The lower the cost, the more money that is available to spend – at least in theory… actual spending increases have yet to be seen as a result of these efforts.

Most pundits say that the net effect of these efforts in the past did little to really stimulate the economy, except to bolster Wall Street’s earnings.  The same is expected from this effort, which is simply selling off $400B in short term treasures and buying the same in longer term instruments.

Interestingly enough the Fed has become fairly predictible with the market anticipating the moves well in advance and reacting accordingly.  Just look at the chart below: 

 

As you can see in August when the economy began to show signs of slowing and well in advance of the Fed’s meeting this past week, rates already began dropping with the steepest drop right after the announcement last Wednesday.  Basically Bernanke’s move and statement scared markets a bit and the natural reaction is to pull funds from

Since then its been a rollercoaster…

No… this isnt a picture of the Grand Canyon.  Its actually the last week’s yield curve for the 10 year Treasury.. Mortgage backed securities followed suite with yields down 150 basis points (bps) on Wednesday, a bit more the next couple of days then as other news – most notably the situation in Europe with Greece and a few other nations took the center spot in the news with improving news. people put money back in the stock market sold their bonds and yields reversed course.

The other thing Bernanke said was that he anticipated keeping rates near historic lows well into 2013.  Since low rates are a sign of a lack of confidence in the economy, that was another reason for the big reaction – not only in bonds but in the stock market which saw drops in the Dow from 11,400 on the 21st to 10,600 on the 23rd, but is now back up to 11.300.  A truly wild ride… with more such volatility expected in the coming days, and months.

Currently, rates on 30 year fixed rate loans are just over 4%.  15 year loans in the middle 3′s  With rates like this – and the possibility we can see similar rates for the foreseeable future, housing affordability is a huge plus for homebuyers.  This is translating into more home purchases and for the first time in a long time, lesser inventories and even some price gains.  Today it was announced that in many markets, housing inventory was at 5 months – At one time a few years ago we were at 18 months supply of homes – a huge factor in the price drops we have seen in the last few years.  The tightening supply has provided the first real increases we have seen in values in 5 years.

Click on the link below for the latest home price chart:

caseshiller_092711

In South Florida, one of the nations hardest hit areas, an increase in prices of 1.21% is more than welcome. Similar gains in the largest metro areas around the county are the initial signs of a fledgling housing recovery in the works. 

For those of you waiting for a bottom… the proverbial wisdom is that once you know of a bottom its behind  you.  We are starting to see an uptick in values.  If you ARE on the fence.. time to get off.  If you are a Real Estate Professional share this with your potential buyers.. the time to buy is now.  house price stability, ridiculously low rates is that perfect storm for potential homeowners or move up buyers.

As always, you can write us at mason@prunermortgage.com

Have a fabulous week!

Pending Extension of Temporary FannieMae and FHA Loan Limits

Good Day.

There is a lot of talk about the upcoming expiration of the temporarily increased lending limits for both Conventional loans sold to FannieMae and FreddieMac and FHA loans via HUD. These higher limits were put in place to help keep mortgage money flowing through the housing crisis several years ago and allows for higher limits in most communities ranging from $417K to $729K in some high cost markets. (the only market in South Florida in the much higher range is Monroe County aka Florida Keys)

Currently there is a bill before congress to extend these limits presented by Rep Gary Ackerman (D-NY) and Rep John Campbell (R-CA) and a current letter by 37 Lawmakers urging the extension. Conversely, there is also opposition to this based on the concept that if the government would begin to limit its scope in the residential finance market, it would make room for the private sector to begin to function in this market.

Should this happen loans over the limit would be considered “Jumbo” loans and are subject to the lenders rates and terms. Typically with Jumbo loans, at least 20% down is required, and the rates are higher than loans offered via FannieMae, FreddieMac and HUD (FHA) and VA.

There is also a cost to continuing to subsidize the housing finance market and for a debt weary America, there is increasingly a greater opposition to many of the programs that make up the $13.59T budget (bringing the US budget deficit to $15.1T) so passage of the extension is not a sure thing.

Should the extension fail to pass, the impact on South Florida’s limits for conventional loans will return to the $417K, but FHA loan limits will drop to $345K. While there may be a nominal impact, most borrowers using FHA typically are buying below that level and for someone who will want to purchase a more expensive home where the loan amount would exceed FHA’s new limit, there is good news.

The Mortgage Insurance companies are back with a vengence. Someone buying a primary residence can put 5% down and get standard mortgage insurance. The private mortgage insurance (also known as PMI) is less expensive than FHA’s MIP (Mortgage Insurance Premium) and can be cancelled after a couple of years with a new appraisal in most cases whereas FHA’s MIP cannot.

So the impact of this legislation for South Florida is not as dramatic as one might assume. Sure for conventional loans with standard mortgage insurance, a buyer will need good credit (above 720) and a more reasonable debt to income ratio (typically 41% or less) vs FHA’s 640 minimum score and 49.99 debt ratio, but aside from that, the standard MI programs are much better and cheaper.

If you have any questions, please visit www.prunermortgage.com or email us at mason@prunermortgage.com

New CPI Figures (Consumer Price Index) and Rate Impact

Good Day,

Yesterday the August CPI (Consumer Price Index) figures were published.  The Core CPI rose to 2.0%.  This key measurement tracks the price of consumer goods and is used by the FED to measure inflation – a key element in how the FED sets monetary policy AKA Rates.

CPI Chart August 2011

CPI increased .4% in August on a seasonally adjusted basis to 2.0%.  Over the last 12 months, the index increased 3.8% before seasonal adjustment.  The increase was predominantly in gasoline, food, shelter and apparel with food rising .5%

Markets reacted modestly to this report yesterday with the stock market rallying and bonds falling in tandem.  When bond prices fall – yields rise inversely – and bond yields predominantly MBS (Mortgage Backed Securities) mortgage rates rise. 

The relation of CPI to Mortgage Rates is very clearly demonstrated in this chart:

However with rates at historic lows the impact is not yet a major factor with 30 year fixed rate loans in the 4.125-4.25% range.  This however will change if other economic data aligns with the CPI to indicate that inflation is indeed inherent in the market and the economy is on the road (albeit a road with bumps and potholes) toward recovery.

Average 30 day yields on FNMA coupons since 8/15/11

As you can see, there was a mild upturn in rates, but still near the lowest levels of the year and even longer as 30 year rates have not been this low in 50 years.  I do expect rates to continue to be low but unless something drastic happens (ie.  very bad jobs data, retail sales data, etc… ) they should continue to track upwards slowly.

Long story short, we should continue to see mortgage rates at very attractive levels for some time, but the best time to take advantage of these rate is now.

As aways, you can visit our site and post questions to:  www.prunermortgage.com

Have a fabulous day and a great weekend.

 

August Retail Sales Report – and the impact on Rates

Click Here for My Featured Chart.

We have been discussing the current economic situation for the past few weeks and more importantly its impact on home loan  borrowing costs – notably interest rates – which have been hovering near 60 year lows… Yes you read that right… 60 year lows.  Current best execution on a 30 year fixed rate loan is 4.25% which is frankly remarkable.

The biggest pressures on rates is a good economy and the inflation that normally accompanies it – which drives the FED to take action to reduce the impact inflation has on the economy.  The natural response from the FED is to raise rates to tame inflation when it does start to creep into the economic picture.

The good news (relative to rates)  is that with the recent reports we have received the economy is going nowhere fast.  There was no (ZERO) job growth last month and today’s chart shows that there was no increase in August Retail Sales following .3% gains in July and June.  While this does not bode well for jobs as consumers cut back on spending it does mean that these low interest rates will be around for the forseeable future. 

As with anything, each day brings a new economic report with different figures and in a skittish market, event the slightest of news items can spark a bond rally or drop.  I do anticipate that we will continue to see volatility in the markets – a bit up one day and down the next – for the next few weeks.  It is unlikey that anything beneficial will come from the President’s Jobs’ bill – Congress is not in a spending mood (watching what is going on in Europe is probably a good wake up call) and spending another $450B with no real way to pay for it is not likely to get passed.

Expect a lot of grandstanding as we get closer to the National Elections next year.  The President’s approval ratings continue to plummet, and the Republicans are smelling the blood in the water.  Expect each viable candidate to come up with a Jobs Bill and a spending reduction plan.  The good news is that the near panic by the incumbent party over the polls will result in an increased incentive to negotiate and compromise – which will be good for America.  We need compromise, lower regulation on business, reduced tax burdens and incentives to hire (not temporary ones as suggested in the President’s jobs bill)  to get America on track toward a real recovery. 

The good news in all of this is that house prices have ratcheted back nearly 10 years in some markets.  Rates are at 60 year lows… meaning that the affordability index… (what it really costs to buy a home) is the lowest in 50 years.

We are already seeing price leveling in the resales market in South Florida (excluding distressed sales) so for those looking to buy NOW is the time.  For Real Estate professionals, I would recommend sharing this and my other blogs if you have fence sitters.  It really is a wonderful time to buy a home.

Have a fabulous Day!

 

9/12 Market Update

Market Update for this  Week – 9-12-2011

Dow closed Friday down 303.68 at 10992.13, Nasdaq -61.15 at 2467.99, S&P -31.67 at 1154.23

U.S. Stocks slid last  week as investors continue to fret over the European debt crisis and on recession fears here in the States and continued high unemployment - sending the S&P 500 falling for 6 out of the 7 last weeks.  President Obama’s  American Jobs Act was a bit more money that expected at nearly $450 million and investors didn’t react well to the bill.   Many saw it as more of the same.  One comment was that it was a “great campaign speech”.

Fears of a Greek default as early as this week sent global financial shares plunging and sent the broader markets into a tailspin on Friday.  Financial shares here in the U.S. fell and they too pushed Stocks down across the board.  

Also helping to push share prices lower on Friday was news that a key European Central Bank leader, Juergen Stark, abruptly resigned from the ECB late last week on rumors that he opposed of buying any government Bonds to help prop up the Euro zone. 

The President spoke on Thursday night and he introduced his American Jobs Act bill and asked Congress to quickly pass it through the system.  Look to this week’s Extras section for a summary of the bill.  Investors seemed to have shrugged off the bill for now and will look to deal with it when or if it gets passed. Despite saying it was going to be “fully paid for” the ability of the joint task force in congress charged with finding another $450B in cuts and the prospects of passing tax increases is not likely to work..

For last week, the S&P 500 lost 1.7%, the Dow fell 2.2% while the Nasdaq dropped 0.5%. 

Gold finished the week at $1,859.50/oz. while the benchmark 10-year T Note yield fell to near a record low of  1.925% as the safe haven trade was underway once again.  Oil settled at $87.24/barrel down $1.81.  The national price for a gallon of gasoline at the pump is $3.65 up from $2.69 a year ago. 

This week is full of economic reports that will give us any hints of recession fears building.  Manufacturing, inflation gauges, retail sales and consumer sentiment will show a broad picture of the economy. 

Another concern will be how the situation regarding a possible Greek default will impact the markets.  Look for the continued volatility in prices with spikes higher and lower throughout the trading week. 

In Housing, Chase’s economists predict another 5% drop in housing this year.  With the “shadow inventory” of foreclosed homes soon to hit the market, the impact could be a welcome increase in well priced inventory, but nothing to boost home prices in the near term.  Only after we get past this inventory issue will we see home prices begin to level off and improve.  Unfortuantely foreclosures are in big part a factor of the jobs crisis which is still above 9% nationwide and higher in some markets like Florida, Michigan and Nevada.