The Market Unfiltered
Saturday, November 28th, 2009
Over the past two weeks there have been many articles highlighting the woes of FHA. Their reserves are lackluster and it seems that people have just realized that FHA is the new sub prime. Yes cringe, everyone cringes when you say it is the new sub prime but guess what? That is what it is. Lets do the math:
Low Down Payment+less than stellar credit+higher debt ratios= SUBPRIME
There have been FHA borrowers that I have not felt are qualified to buy bicycles that other lenders have helped get homes.
In a nutshell with the way it is set up it sets the borrower up for failure. Reserves are not a requirement of the loan and the 3.5% down paymentcan be a gift and the seller can pay 6% of the closing costs. You basically can have someone get into a house with no money down and $50 in their checking account. So here is the million or trillion dollar question, since the tax payers will ultimately bail this bad boy out. What happens when something goes wrong. A car breaks down or the water heater blows. The person has NO RESERVES. Looks like they are not making a house payment and the foreclosure cycle starts again.
Now that a few congressman have noted the “Oh no, this will tank everything again,” they are attempting to fix FHA. They are proposing stricter underwriting requirement or higher down payments. They are also proposing perhaps instead of tougher underwriting and higher down payments maybe increasing the upfront mortgage insurance fee and the monthly mortgage insurance because “it will not hurt the borrower as much.” It will up their monthly payment but whatever right….?
Let’s talk about the Upfront mortgage insurance fee. Every FHA loan has a built in 1.75% upfront mortgage insurance fee. They are proposing 2-2.25.% It is basically a gimme fee. It can be built into the loan and 95% of the time it is built into the loan. And yes you will still pay mortgage insurance monthly. Currently it is .55%, they are proposing .75%. The one justification right now for the upfront MI fee is that the MI on FHA is cheaper then conventional. Raise the upfront MI and the monthly MI and that is no longer true. People will still get the loans but will be set up further for failure with the higher premiums.
I have shaken my crystal ball and I think that they will not increase the down payments or the underwriting standards but instead will up the fees. It will be interesting to see what happens. If they increase the down payments and underwriting guidelines it will put a stall in the market as currently FHA is the most popular loan program. If they do not stall now they will have a flood of foreclosures later. It is lose lose. If they up the fees it is a bit akin to taking the last $20 before it is gone.
Wednesday, November 25th, 2009
This article is pretty awesome. I am sure it will get appealed and overturned but 10% interest is insane for todays market. They (the bank) could have modified it to a reasonable rate
http://www.nypost.com/p/news/local/judge_kos_mortgage_to_slap_bank_28ZS1oW8Y58z6gu1AQbWMI
Saturday, November 21st, 2009
In the past two weeks mortgage lates have risen to 9.64%. That number lets us know that things are not turning around.
Where this is interesting is where it will lead us to next three years. Starting December 12 Fannie Mae institutes their new more restrictive guidelines. These guidelines essentially make it easier to buy a house with 3% down than 20% down. Sounds contradictory however it is exactly what will happen. The max amount we will be able to qualify at will be 50% on the back end for a conventional, Fannie Mae, loan. So if you are purchasing a house and putting 20% down and your back end debt is 55% you do not qualify via Fannie Mae.
However if you are buying a home and putting a 3.5% down payment that is a gift from your grandma and you have $100 in your checking account and your back end is 55% you will qualify.
What? Right, here’s the deal. While Fannie Mae restricts the back end ratio on conventional loans, FHA is not making any effort to restrict theirs further. What this means is that more people will be doing government FHA loans. Oh and yes FHA as an entity is not doing well right now. They have a lot of bad mortgages…shocking right?
So based on the rising lates we have the potential for another wave of defaults, with the government stalling their release, and then ultimately turning theses defaults into new higher risk government loans. This sounds very expensive to the tax payer. Call me crazy but somehow this does not seem like a good plan. I seriously think that no one in our government has sat down and really looked at how what hand will do will affect the other. It seems more like they are constantly trying to put band aids on a gushing wound. In the long run it would be cheaper to stitchup the gushing wound instead of going through 4 trillion band aids. Just saying…
Wednesday, November 18th, 2009
Today my partner Julie went to look at a house with a realtor. The question was could we finance this house. Julie of course forgot her camera but here are the basics. The house was standing. The bathroom was missing fixtures and the carpet was holey in a few spots. It seems like financing would not be an issue however in today’s markets lack of fixtures and missing carpet can be deal killers. In order to finance the house there would have to be fixtures in the bathroom and the carpet would have to be repaired prior to close. It is easy to finance as long as you know what to attack upfront. I would have those items fixed prior to the appraiser coming out. Carpet repair and fixtures are fairly inexpensive so it is worth it to approach it upfront instead of delaying. Now Julie said the house had a rat door….but she did not see rats eeekkk
Friday, November 13th, 2009
I love Cnn news. They pull the best stores off the web in order to tell the public what to think . So “To be sure, foreclosure rates are still elevated from a year ago: They’re up 18% compared with October 2008. But the month-over-month decrease followed a 4% drop in filings during September and a 1% fall in August.”
So foreclosure filings are higher but the foreclosure tide may be turning towards recovery? Not sure how more people in foreclosure= recovery but OK Money magazine. The real title should be Government comes up with new inventive techniques to hold foreclosure inventory. How much more tax payer $ do we need to hold these…seriously. Either fix the loans or let them go. Stalling just prolongs the misery but it is cute how they are trying to fix the market. One prob, the new DTI limits Fannie Mae just threw out are going to throw a nice block to the recovery. How are they going to fix that? Oh yeah we still have FHA and a devaluing dollar. Right On.
Friday, November 13th, 2009
Hot off the press: DTI=Debt to income
“Fannie Mae is implementing DU changes for on December 12th and later. At that time DU require a 45% DTI . Very strong files may receive affirmative findings with up to a 50% DTI. Under no circumstances will you receive an approve/eligible over a 50% DTI. ”
What this means: Currently we could go up to 59% DTI and most likely get an approve/eligible. This will affect a lot of people and make qualifying tougher. If you have been pre qualified or pre approved with a lender you should make sure you meet the new guidelines. Surprises are bad. This will not affect FHA.
Friday, November 13th, 2009
5% of 307,922,823 is a lot of homes and with the $8,000 tax credit that is…
Tuesday, November 10th, 2009
Monday, November 9th, 2009
Based on the below article,if they (Fannie Mae) can not help you keep your home in your name they are going to take it back and rent it to you. There are numerous issues with the concept.
1) If you read the fine print the actuality of it is very slim. If you cannot afford your home you most likely cannot afford market rent and have it be less than 31% of your gross income.
2) How is Fannie Mae going to be a landlord. Sounds like more tax payer money. If we are going to throw more money at the issue I would prefer writing down peoples mortgages and actually helping them over paying third party companies to maintain rentals. Just a thought.
3) The home must be released from any subordinate liens. What 2nd is going to walk away from $ owed so that Fannie Mae can play landlord. Seriously…
4) How long do they think they can prolong the inevitable. This is just another stalling tactic to try and create a false bottom.
5) This is very similar to a modification scam that was/is rampant. The basics are the “mod” company says they are going to help the borrower stay in the house. They then say they are negotiating with the bank on the borrowers behalf but instead take title or sell the house in a short sale to an investor. The victim ends up paying rent in a house they no longer own. Hmm…this plan tends to borrow from that scam, the only difference is that Fannie Mae discloses what they are doing.
I am generally as conservative as they come but this plan just has so many glaring problems. Can’t we do better Fannie Mae?
Below is an excerpt and then the link to the article.
“The Deed for Lease program lets homeowners transfer the deed back to their lender and then sign a lease to remain in the home. The effort is aimed at borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification. Borrowers must live in the home as their primary residence and must be released from any subordinate liens……if the property is sold the new owner picks up the lease”
http://money.cnn.com/2009/11/05/real_estate/deed_to_lease/index.htm?postversion=2009110517
Monday, November 9th, 2009
10% of purchase price capped at $8000.
You are a first time home buyer if you have not had a home in 3 years
Good news for current Homeowners
The New Deadlines
all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010. .
Income Limits
Always consult with your tax advisor. The above is not meant to be tax advice.
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