Suggestion: Hey right hand see what the left is holding and other wild ideas to solve the crisis

Monday, December 14th, 2009

It seems as though often these days the left hand does not know what the right is doing.  The government has just greatly restricted lending via Fannie Mae reducing the back end debt ratio down to 45% from 64%.  The back end ratio includes your principal, interest, taxes and insurance + all your credit card, auto, student loans, etc…   What this means is yout total debt cannot exceed 45% of your gross income.  Dropping from 64-55 fine but 64-45 is HUGE.  That restriction will make it impossible for many people to buy or refinance a home unless they do FHA.  FHA, which keep in mind is also looking at adding new restrictions.

Since Fannie Mae made the move to 45% the banks are following suit as they should, since they have been targeted for risky practices in the past.  This has led to a giant segment of people virtually being stamped with denied on their loan applications.

Today our President, implored the banks to lend more.  Hmm…Did no one tell him about Fannie Mae’s new rule?  Did they forget to tell him about the troubles with FHA?  

Banks are lending right now as long as people fit within the guidelines.  Generally, the guidelines that Fannie Mae sets. Obviously the banks have noted the ludicracy of the contradiction and thus the quick movement to pay back bail out funds. 

In theory if one really wanted people to get help with modifications why doesn’t Fannie Mae have a loan modification program where you can refinance your house even if your note is not currently owned by Fannie Mae for a lower rate even if it is completely and utterly upside down. I am talking about houses worth $600,000 with $700,000 loan amounts. If they can qualify to make the payments at today’s low rates, why not? I mean all the money used to bail out the banks was to help people right?  They want the banks to modify loans that are utterly and completely upside down. 

I constantly have people come to me who are in ARMS and slightly upside down.  All they want to do is finance into a fixed rate and we cannot because they are upside down.   That seems like a missed opportunity to fix what will potentially become another foreclosure if not handled. 

There are solutions. We just need to think outside of the box.

Posted in Foreclosure, Government | No Comments »

FHA: It’s the end of the world as we know it…

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.

Posted in Foreclosure, Government, What the media is saying | 1 Comment »

Fannie Mae’s new plan; This should work well…not

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

Posted in Foreclosure, Government | No Comments »

Homebuyer tax credit extended and expanded; the details.

Monday, November 9th, 2009

Last week, a new Home buyers Tax Credit bill was signed into law. The bill extends the tax credit for first-time home buyers, as well as opens it up to current homeowners who are looking to buy. 

          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

•  Tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

 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

• Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. Joint filers who earn up to $225,000 are eligible for the total credit amount. 

Always consult with your tax advisor. The above is not meant to be tax advice.

Posted in Government, Happy news | No Comments »