According to Freddie Mac, U.S. 30-year mortgage rates fell for a 2nd straight week. 30-year mortgage rates dipped to an average of 6.01 % from 6.05 % last week, while 15-year mortgages held steady at an average of 5.60 %. One-year adjustable rate mortgages, or ARMs, fell to an average of 5.18 % in the week from 5.29 %.  Freddie Mac said the “5/1″ ARM, set at a fixed rate for five years and adjustable each following year, averaged 5.57 % , down from 5.67 % a week earlier. 

According to a recent government lender survey, FHA mortgage rates remained steady with slight drops for FHA home loan rates across the board.  Last week FHA interest rates had worsened, so consumers were relieved tp see the decrease.

Just twelve months ago, 30-year mortgage rates averaged 6.21 %, 15-year mortgages 5.92 percent and the one-year ARM 5.48 percent. The 5/1 ARM averaged 5.92 %. “Recent remarks by Federal Reserve officials, which partly bolstered optimism that financial markets will recover later this year, helped mortgage rates ease up a little this week,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

“Despite the bleak housing market, there was positive news on the overall state of the economy. Retail sales excluding automobiles rose 0.5 percent in April, over twice that of market forecasts, and there was a significant upward revision in March’s figures as well. Also, the consumer price index for April rose less than expected, allaying some market concerns of inflation taking hold,” Nothaft said. Lenders charged an average of 0.6 % in fees and points on 30-year mortgages, up from 0.3 % last week, and 0.5 % on 15-year mortgages, also up from 0.3 %. Charges on the 5/1 ARM averaged 0.6 %, up from 0.5 % last week, while fees and points on the one-year ARM averaged 0.7 percent, compared with 0.6 % a week ago.

Why should I buy, instead of rent?

• Answer: A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you’ll enjoy having something that’s all yours - a home where your own personal style will tell the world who you are.

Can I become a homebuyer even if I have I’ve had bad credit, and don’t have much for a down-payment?

• Answer: You may be a good candidate for one of the federal mortgage programs. Start by contacting one of the HUD-funded housing counseling agencies that can help you sort through your options. Also, contact your local government to see if there are any local homebuying programs that might work for you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can’t find it, contact your mayor’s office or your county executive’s office.

How do I find a lender?

• Answer: You can finance a home with a loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders. Shopping for a loan is like shopping for any other large purchase: you can save money if you take some time to look around for the best prices. Different lenders can offer quite different interest rates and loan fees; and as you know, a lower interest rate can make a big difference in how much home you can afford. Talk with several lenders before you decide. Most lenders need 3-6 weeks for the whole loan approval process. Your real estate broker will be familiar with lenders in the area and what they’re offering. Or you can look in your local newspaper’s real estate section - most papers list interest rates being offered by local lenders. You can find FHA-approved lenders in the Yellow Pages of your phone book. HUD does not make loans directly - you must use a HUD-approved lender if you’re interested in an FHA loan.

In addition to the mortgage payment, what other costs do I need to consider?

• Answer: Well, of course you’ll have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. Your real estate broker will be able to help you get information from the seller on how much utilities normally cost. In addition, you might have homeowner association or condo association dues. You’ll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment. Again, your broker will be able to help you anticipate these costs.  For more information, visit http://www.hud.gov/buying/comq.cfm 

The House late Thursday approved a narrowly focused bill that would provide $15 billion to the states to purchase fixed-up foreclosed homes.  This mortgage bill is different from one that has been widely discussed that would enable to FHA to ensure new mortgages where the original loans were written down by lenders to reflect a substantial discount off of the original loan.

Ms. Waters’ bill would make loans and grants available to the states for the rehabilitation and eventual rental or sale of foreclosed properties. These properties, thanks to the huge inventory managed by banks and the effects of vandalism, neglect, and other forces, quickly deteriorate and, where more than one or two foreclosed houses exist in a neighborhood, can impact the entire area with a form of creeping blight and decreasing property values.

The House on Thursday passed a contentious foreclosure-prevention package, which still faces a veto threat from the White House and an uncertain fate in the Senate.  In a 266-154 vote - with 39 Republicans voting in favor - lawmakers approved a proposal, to let the FHA insure up to $300 billion in new loans over four years if FHA lenders agree to reduce the mortgage principal.

To qualify, the FHA mortgage lender would have to cut the debt to no more than 85% of a home’s current appraised value. If the FHA refinance loans went into default, the FHA would pay the home loan lender the remaining principal owed.

While 1.4 million loans are likely to be eligible for such a program, the Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers. The CBO estimates the FHA expansion program would cost taxpayers $1.7 billion. “This bill is very time limited and limited in specifics to a subset of mortgages and meant to mitigate a market failure,” Frank said during the floor debate on Thursday.

Opponents of the FHA expansion contend it’s a bailout for lenders, investors and “speculators” who took on imprudent risk. And because participation in the program would be voluntary on the part of lenders, critics contend lenders would only unload their riskiest loans into the federally backed program.

Supporters note that the program is limited to loans for owner-occupied residents, not speculators. They also make the case that lenders and investors would be taking a loss on every loan, and that the borrower would be paying higher-than-usual premiums to the FHA to insure the loan and would share equity in their home with the government. “No borrower who goes through this process will say at the end of it, ‘Boy, that was fun. Where do I buy a ticket to get back on Space Mountain?” Frank said.

Supporters also say if the borrower still can’t afford the loan when it’s written down to 85% of appraised value, their loan won’t qualify for the program. If the bill is a bailout for anyone, they say, it’s a bailout for communities across the country, which suffer when home values and property taxes go down because of foreclosures.

Speaker Nancy Pelosi issued the following statement today in response to comments by President Bush after he met with House Republican leaders at the White House this morning: “American families confronting foreclosure deserve better from the President than a veto threat; they deserve the House’s bipartisan housing plan that will protect the American Dream of home ownership.

“The President should work with Congress so that we can speed relief to Americans facing foreclosure and help them keep their homes. The bipartisan plan has been endorsed by leading economists because it is a comprehensive solution to the mortgage lending crisis and is essential for our economic recovery. “Only moments after falsely accusing Congress of inaction, the President signed bipartisan legislation passed by the New Direction Congress that will help keep college loans affordable and will sign other bipartisan priorities that will become law because the he set aside partisanship and worked with Democrats to make progress for America. We urge him to do so again and work with Congress to keep people in their homes and stabilize the housing market.”

Experts Agree: Comprehensive Housing Crisis Legislation Is Needed for American Economic Recovery Recent remarks from leading economists make it clear that the FHA Housing Stabilization and Homeownership Retention Act that the House will consider today as part of a comprehensive housing package has all of the right elements to address our housing crisis and help avert a deeper decline in the overall economy.

Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System - “High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy. Doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.”

“…when the source of the problem is a decline of the value of the home well below the mortgage’s principal balance, the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender. To be effective, such programs must be tightly targeted to borrowers at the highest risk of foreclosure… Finding the right balance — particularly the need to avoid programs that give borrowers who can make their payments an incentive to default — is difficult. But realistic public- and private-sector policies must take into account the fact that traditional foreclosure avoidance strategies may not always work well in the current environment.”

Larry Summers, Charles W. Eliot University Professor at Harvard University, former United States Secretary of the Treasury  - “I think all of those present agreed on the importance of passing through the House of Representatives and ultimately though the Congress the legislation in which Congressman Frank has played a leading roll to support the housing finance system and in particular to provide for the avoidance of foreclosures with a substantially expanded FHA role. We believe that it is of great importance that, that legislation be passed as rapidly as possible.” For more info  http://www.speaker.gov

FHA insured loans require mortgage insurance to protect lenders against losses that result from defaults on home mortgages.  FHA mortgage lending limits vary depending on several factors like of type of home, the state and county in which the property is located.

With a FHA mortgage loan applicant’s credit score is not the primary factor driving the underwriting decision. FHA considers the borrowers entire credit history and specifically look for a pattern of timely payments on their current and past mortgage payments.  See more details at www.FHA.com.

The FHA home refinancing bill is on a fast-track in the House of Representatives but has hit a bump in the Senate Banking Committee, where a scheduled May 6 mark-up has been postponed. The House Financial Services Committee passed the FHA mortgage refinancing bill on May 1, and the full House is expected to vote on it during the week of May 5. The foreclosure prevention bill provides the Federal Housing Administration with $300 billion in loan commitment authority to refinance “underwater” mortgages. House leaders want to attach the FHA refinancing bill to a larger legislative package that includes FHA modernization and GSE reform bills the House passed last year. The bills increase the loan limits for the FHA, Fannie Mae, and Freddie Mac to $729,750. The package also includes a tax bill that provides revenue bonds to refinance subprime loans and a $7,500 tax credit for first-time homebuyers. Meanwhile, it appears that negotiations over a government-sponsored enterprise bill to strengthen regulation of Fannie and Freddie has bogged down, and Senate Banking Committee leaders will reschedule the May 6 mark-up. Committee Chairman Christopher J. Dodd, D-Conn., wants to tackle the GSE reform and FHA home refinancing bills in the same mark-up.

Much of the time we cannot help but agree with former President Reagan’s statement about the nature of government.  But sometimes the government will surprise us by doing something right.  Not often, mind you, but sometimes.  FHA is positioning itself as an institution of importance for the first time in 20 years, and enlightened, energetic mortgage originators are well-poised to be the beneficiaries, along with their borrowers, and by extension, America itself.

“Guvvies” were hugely popular from the 1940’s through the 80’s, but fell by the wayside as low downpayment conventional alternatives arrived on the scene complete with reduced paperwork requirements.  Today, originators who intend to establish themselves in their markets going forward simply must learn about FHA if they are to stay viable and relevant.  The good news is that government loans aren’t as difficult as you might have been led to believe, and there are a lot of experts willing to help you get your feet wet. 

Among them is Leslie Peterson, a M.O.M. contributor and one of the nation’s leading FHA authorities.  Leslie is in the business of training people on FHA programs and addressing questions and concerns on her Web site, www.MortgageCurrentcy.com, an online newsletter that addresses the wonderful world of Freddie, Fannie, FHA, VA and other agencies.  She helped establish the following 10 things originators should know about FHA:

1. FHA is by far the best loan available in today’s market.  “There are so many reasons this is true,” Peterson said.  “Contrary to popular opinion, FHA is now for everyone, not just the low income borrower.”  This is an essential point.  With the new loan limits, FHA is relevant to a much wider spectrum of your prospects.  “There are no income limits,” she explained.  “Rates and terms are great.  FHA’s 97 percent LTV carries over to the new FHA-jumbos (until year end).  The new conforming jumbos have all kinds of limitations and are not nearly as workable nor as attractive.  FHA has them beat, hands down.”  The predicted “boomlet” in loan production is threatened by the limitations she mentions on Freddie and Fannie’s “jumbo conforming” programs, but FHA may be the white knight here, offering a host of refinance alternatives to people in current conventional jumbo loans who desire a lower monthly payment—a potentially huge market for originators.

2. You cannot originate FHA loans unless you work for an FHA approved company.  While this is true, it’s not a deal-breaker.  Not only are FHA approved companies out there to originate loans for, getting approval is neither rocket science nor onerous.  “It takes a minimum $63,000 net worth, annually audited financials, an FHA-acceptable quality control plan, and more,” Peterson said.  “It shouldn’t be entered into lightly.”  It is very important to note that HUD is all over the issue of non-approved originators.  Their recent Policy Alert explicitly states that non-approved persons or entities cannot be paid for origination services without running the risk of violating RESPA.

3. FHA is a great loan for the borrower.  “FHA is one of the few loans left that is still assumable, subject to qualifying,” she said.  “It’s the only loan that allows the borrower to do a ‘streamlined refinance’ to a lower rate with no appraisal and no qualifying.”  She also points out that the rates are advantageous, there are no prepayment penalties, and FHA mortgage insurance is no more expensive than with comparable conventional high-LTV mortgages.  These are powerful features and benefits to discuss with borrowers, more than overshadowing any negative perceptions that may linger from previous eras.

4. There is no reduction in LTV for properties in declining areas.  FHA has the GSE’s beat here.  Both Fannie and Freddie feature a five percent LTV hit for properties deemed to be in declining areas.  And with so many areas experiencing negative property appreciation, this is another huge factor in FHA’s favor. 

5. FHA offers a true 95 percent cash-out refinance along with other attractive refinance products.  “I still can’t believe it myself,” Peterson said.  “It’s for fully qualifying occupants who have occupied and made all house payments on time for the last 12 months.  What’s incredible is that you can refinance any type of underlying loan, even a subprime.”   Subprime refi candidates aren’t hard to find either.  The government and the press will become your allies here, touting any viable alternatives to subprime hell, especially for borrowers struggling to make payments in the face of adjustments.  You will have many inquiries on positive refinance alternatives, and as Peterson said, “This is the best refinance available anywhere.”  Score one for the government.

6. FHA is for owner-occupants only.  FHA requires its borrowers to move in within 60 days of closing and stay put for a minimum of one year.  No exceptions.  It is critically important for originators to know that the government is serious about this.  Violations are subject to formal and swift foreclosure, not the slap on the wrist of times past. 

7. FHA is a government program through and through, but it pays for itself and is not funded through tax-payer dollars.  As Peterson observed, “It’s not a subsidy, it’s not a drag on the economy, and it’s not a giveaway program.  It’s good for the country.”  How important is that feature of the program?  Very important, actually, for the image and wellbeing of our entire industry.  A generation ago, residential finance suffered a substantial blow to its image and self esteem with the S&L bailout, and this current crisis is far worse, reaching much deeper into the bedrock of the American economy.  Nations are affected by this one, as they bought high-yielding mortgage securities that have become worthless because the underlying mortgages were not paid back.  We will not know the complete impact of this unfortunate episode for years to come, but we know that the business of originating mortgages has suffered an enormous black eye.  More emphasis on programs that are helping fix the mess without smacking of a government bailout is very good for the country as a whole and the industry in particular.

8. FHA is very lenient with borrower credit issues.  How does that sound in the midst of the current “flight to quality?”  Lenient does not mean credit issues aren’t, well, issues, but they are willing to look at credit that sends other lenders into fits of hysterical laughter.  “Depending on the risk level of the entire file,” Peterson explained, “the automated underwriting systems will take credit scores in the high 550 to 600 range.”  She points out that some lenders impose their own minimum credit scores for FHA loans they make, however.  It’s important to note that “FHA allows all alternative credit, nominal credit, and is very lenient in its bankruptcy rules.”

9. FHA is full doc only.  Stated income is a thing of the past—get over it.  “Light doc” is also not in FHA’s vocabulary, apart from saying “no.”  Expect your garden variety FHA loan file to be as much as twice as thick as a conventional loan, so that’s not part of the good news from a workflow standpoint.  Part of the good news is that the additional documentation is what makes the looser credit parameters and generous downpayment requirements feasible, and the additional documentation is handled largely through your LOS system.  So while there is a bit of heavy lifting, you’ll more than make up for it in increased fundings.

Originators who are already doing FHA know this, but as Leslie Peterson cautions, “The FHA program is filled with government-type rules, exceptions to the rules, and exceptions to the exceptions.  It’s not an easy program to learn, nor is it easy to keep up on.  If you are going to be involved in FHA, you need to stay updated.”   Being the government, they think and act in ways normal people don’t always understand.  When they get the word out, it is sometimes in verbiage that is long on “administrivia” and short on clarity, so you will need to be prepared to spend some time trying to figure it all out. 

Look to resources like your NAMB-affiliated local chapter in addition to the national, publications like M.O.M., as well as informational sites such as www.MortgageCurrency.com and, of course, www.hud.gov to stay up on changes and enhancements.  It’s a new day for “guvvies,” and as originators in the past have learned, it can be a great way to make a living.

James Hennessy has over 25 years experience in the mortgage industry and is managing director of Strategic Vantage Marketing & Public Relations, San Diego, California, 858/793-0950

According to the Santa Cruz Senteniel Selected and approved banks and mortgage companies originate, approve, fund and service FHA mortgage loans. The FHA insures home loans that lenders do not have to worry about whether or not there will be a market to sell these loans.

FHA loans have been popular throughout the United States where home prices were low enough to take advantage of the $362,000 maximum loan amount that FHA previously allowed. With the president signing the Economic Stimulus package in February, the FHA limit was increased to $729,750 for high priced areas like Santa Cruz.

This potentially brings the FHA loan within reach of the majority of homebuyers and homeowners in Santa Cruz County. Unfortunately, this higher loan limit will go away as it is scheduled to sunset on Dec. 31 of this year, when the limit is scheduled to go back to the $362,000 level. We all hope that Congress will grant an extension of this incredible opportunity.

According to a recent article in Forbes magazine, FHA loans had a 12 percent market share of mortgages in the U.S. in 1994. By the subprime era of 2005-2006, FHA loans had only a 1.8 percent market share. This was due to the fact that subprime mortgages filled the need for those borrowers with less than ideal credit and small down payments and much less stringent underwriting than FHA. In 2007, 425,000 FHA loans were originated and that number is expected to more than double to 1,100,000 loans in 2008. FHA appears to be filling the need that the subprime lenders had been filling prior to the mortgage meltdown.

The obvious benefits to the FHA loan include down payments as low as 3 percent, which can be all gift, competitive 30-year fixed rates, and the fact that borrowers can qualify for an FHA loan without stellar credit.

Perhaps one of the most important aspects of an FHA home mortgages that co-signers can help the primary occupants qualify. That means, for example, that a borrower who does not make enough money to qualify for the mortgage can get help from a family member who is willing to sign on as a co-borrower. conforming home loans used to allow this but no longer do.

The one aspect of an FHA mortgage that is important to note is that income documentation is required; FHA does not accept “stated income” loans. Although there are exceptions, the borrowers’ debt-to-income ratio needs to be below 43 percent.

Not all home loan lenders or mortgage brokers are approved or can be approved to do FHA loans. The approval process is strict, it requires audited financial statements and requires the loan originators to be W-2 employees of the lender. Be sure you speak with a knowledgeable and approved FHA mortgage professional before you make a decision regarding refinancing or purchasing a home.

Peter Boutell is a mortgage consultant with a local mortgage company. Send questions to ‘Lending a Hand,’ 1535 Seabright Ave., Santa Cruz, CA 95062 or fax 425-1044. E-mail may be sent to Peter@SantaCruzHomeFinance.com. Archived columns are available at www.peterboutell.com

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