Forclosure projections and Risk Based Pricing

New tools for assessing mortgage risk. With foreclosures projected to reach 2 million nationwide by the end of next year, bankers are rethinking how they set mortgage rates. Eventually, mortgage pricing may come to resemble pricing for, say, homeowners insurance, which takes into account dozens of factors. Lenders "want to be able to assess the risk, practically down to the biological level, that you won't pay your mortgage," says Keith Gumbinger, vice president of HSH Associates, which tracks the home-lending market.

Housing data: no secrets left. With more innovative real estate Web sites popping up, everyone now knows how much everyone else's house is worth, and consumers will continue to have unprecedented access to housing information that was once found only in multiple listing services. Source: Money

New Trends in Real Estate

New trends will reshape tastes in homes and transform how you buy and sell, experts say. So what will the housing market of the future look like? Money magazine interviewed developers, architects, lenders, and more, to paint the following picture--Smaller houses. In a February survey of potential home buyers by the National Association of Home Builders, 60 percent said they would rather have a smaller house with more amenities than vice versa. "In the past, people would say 'Give me space and I'll add the features later,' " says Gopal Ahluwalia, the NAHB's vice president of research. Newly built houses will have layouts that can "live bigger" than their square footage would suggest, with rooms that can do double duty, experts say.

FHA Guidelines

FHA case number assignments on or after 7/14/08, FHA will implement “risk based” MIP Premiums on 1 to 4 unit mortgages?



Some of the highlights regarding FHA’s Risk-Based Premiums are:



UFMIP will range from 1.25 percent of the loan amount (currently 1.50%) for lower risk borrowers, to 2.25% percent for higher risk borrowers.
No borrower who qualifies for a FHA/HUD insured mortgage will pay more that 2.25% on the UFMIP and .55% for the annual premium.
Borrowers with credit bureau scores must be risk-classified by FHA TOTAL Mortgage Scorecard (AUS).
Borrowers with no credit scores will need to be manually underwritten, and the premium will be determined by the LTV.


So what if your borrowers don’t have 3 credit scores….what then?



3 scores…the middle score is used.
2 scores…the lower of the two is used.
1 score…..that score is used.


What if there are multiple borrowers?



If more than one person is applying for the loan, you use the lower of all borrowers.



What if there are multiple borrowers, and one doesn’t have a credit score?



The borrower representing the greatest risk will determine the MIP factor to be used. Example:



If one borrower has a 620 and the other borrower has no FICO score, then the factor to be used would be the “Non-Traditional” factor.



First Time Homebuyers



HUD has always “suggested” that a FTHB complete a pre-purchase counseling course. Now, if they do, they will benefit from a lower UFMIP factor……BE CAREFUL!!!! HUD requires that this class is a one on one, face to face class that has to be completed BEFORE a purchase contract is executed. HUD wants to make sure that the borrowers understand:



Budgeting and Credit
Assessing Homeownership Readiness
Financing a Home
Shopping for a home…including the professionals involved in the process
Maintaining a home

Source: Mortgagee Letter 2008-16 addresses

The Atvantages of FHA Loans - 100% Financing

The Advantages of FHA Loans

In many regions of the U.S., FHA loans have not been utilized for years, so a lot of real estate agents and mortgage originators aren't familiar with this great resource. The following are a just a few of the recent changes that have made FHA loans a more attractive option again for some
consumers looking to buy a new home or refinance an existing one:

1) Congress passed the Stimulus Act of 2008. During the recent housing boom, home values surpassed FHA loan limits in many regions of the U.S. The recent enactment of this important legislation, however, increased FHA loan limits up to $729,500 in many high-cost regions of the U.S. through the end of the year. FHA loan limits vary by county, so give us a call for loan limits in your area.

2) The FHA changed its appraisal and fee negotiating guidelines. In the past, many sellers steered clear of FHA loans because the appraisals were too strict and certain fees were non-negotiable. The FHA has greatly loosened these guidelines to make it easier for both buyers and sellers.

3) FHA loans are much cheaper now. Because FHA loans are federally insured, they tend to trade at a higher premium in the secondary market.
This means lenders can often charge a lower rate.

Other FHA Benefits

• FHA loans are not credit-score driven. Borrowers can have a lower score than other products and still qualify for a good rate.

• FHA loans require as little as 3% down.

FHA loans allow down-payment assistance programs. This allows the seller to cover the buyer's down payment and closing costs.

This means borrowers, especially first-time buyers, or move-up buyers with limited funds, have a real opportunity of getting into a home with little or no cash at closing.

For sellers, this means you can offer concessions that make marketing your home without having to lower the price of your home again.

• FHA loans allow
a) Sellers to finance all of the buyer's costs to close;
b) Homeowners to take cash out up to 95% of the home's value;
and
c) Homeowners to consolidate a first and second loan up to 97% of the home's value.


If you or someone you know is thinking about buying or refinancing a home, give us a call. We'll see if an FHA loan is right for your financial goals and needs.

Source: The Loan Tool Box

Risk Based Pricing Impact

The Federal Reserve Board and the Federal Trade Commission have announced proposed regulations that generally would require a creditor to provide a consumer with a risk-based pricing notice when, based in whole or in part on the consumer's credit report, the creditor offers or provides credit to the consumer on terms less favorable than the terms it offers or provides to other consumers. Risk-based pricing refers to the practice of using a consumer's credit report, which reflects his or her risk of nonpayment, in setting or adjusting the price and other terms of credit offered or extended to a particular consumer. Many creditors offer more favorable terms to consumers with better credit histories. The proposed rules would apply, with certain exceptions, to all creditors that engage in risk-based pricing. Under these rules, a risk-based pricing notice would generally be provided to the consumer after the terms of credit have been set, but before the consumer becomes contractually obligated on the credit transaction. The proposal provides a number of different approaches that creditors may use to identify the consumers to whom they must provide risk-based pricing notices. In addition, the proposed rule includes certain exceptions to the notice requirement. The most significant of the exceptions permits creditors, in lieu of providing a risk-based pricing notice to those consumers who receive less favorable terms, to provide all of their consumers with their credit scores and explanatory information.


Source: Mortgage Bankers Association of America

When Higher Rates Are Good News.

When are higher rates good news? The fact that rates on fixed mortgages have moved up in the past few weeks may actually be. Why? Because the rates on Treasuries have moved up further. This means that the spreads between mortgages and other rates are decreasing and could mean that the secondary markets are gaining confidence in mortgages again. Remember, part of the reason that rates on many mortgages have increased in spite of lower rates everywhere else is that the default rates on mortgages were so high. This accounted for the fact that adjustable rate mortgages and jumbo mortgages rose dramatically over the past year despite generally lower rates. Source: Origination Pro - Dave Hershman

Over 1 Million Forclosed Homes!

More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that the crisis will continue to worsen. The Mortgage Bankers Association's first quarter report showed that a record 2.5% of all home loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That's up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007. The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007. The number of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans are now at least one payment past due, while about 737,000 are at least three months past due but not yet in foreclos ure. This marks the sixth straight quarter in which a record percentage of loans went into foreclosure. The trend has led to a widespread decline in home prices, as well as huge losses for banks and other financial firms that issued or invested in the loans. Source: CNN/Money

CalHFA Changes and Other Options for 100% Financing

Here are the changes from CalHFA

Hi All,

Be careful on CalHFA right now!!

*Note the changes below.

1) Seller credit max is 3% - even if you are doing an FHA loan
2) Nehemiah can no longer be used with Cal HFA products
3) 45.00% max DTI on manual underwriting and 55.00% on Automated
approvals
4) 3 years from BK discharge - regardless of what kind of first
mortgage you have
5) Mid low FICO of all borrowers must be 620 for 95% LTV or less or 680
for 95.01% LTV or more (Note this is LTV, not CLTV)

Please make sure you are relaying this info to your clients...

Another option for 100% financing is FHA loans with Nehemiah gifts through seller contributions (up to 6%)!

For Further information please contact our chief FHA and Nehemiah Specialist Joe Littell at joe.littell@partnersnet.com for further information.

Short Sale and Forclosure News

Banks say they want to help troubled homeowners, but they are delaying deals that could save everyone - including the lenders themselves - a lot of time and money. Lenders are taking much longer than necessary to approve short sales, according to Duane LeGate, of House Buyers Network, a short sale specialist. In a short sale, a homeowner who cannot keep up with their loan asks the lender to take a dollar amount less than what is owed on a home's mortgage, and forgive the remainder of the unpaid debt. So if a borrower has a mortgage balance of $100,000 and finds a buyer who will pay $95,000 for the house, the lender agrees to accept that $95,000 and close out the loan. "There was a much greater chance of success with these in the past," said LeGate Ideally in a short sale, everyone wins. Borrowers avoid the ugly foreclosure process that destroys their credit, while lenders recoup more of their costs than they would by s pending the time and money it takes to kick an owner out and resell the property. Lenders typically lose about 19% of a mortgage's value in a short sale, according to Clayton Holdings, a Conn.-based, provider of loan analytics, while they lose an average of 40% on loans that go into foreclosure. Coldwell Banker CEO Jim Gillespie agrees that short sales are taking too long to complete. And he speaks from firsthand experience; a short-sale offer he made on a house in Marin County, Calif. in late fall didn't win approval until April. But most buyers can't, or won't, wait that long."That's been our biggest challenge - keeping the buyers interested long enough as we wait and wait for an answer," said Jeff Morrell, a Colorado Springs real estate agent who specializes in short sales. Source: CNN/Money