FHA Increasing Mortgage Insurance Premiums

In a step to bolster its reserves, and prevent the need for a taxpayer bailout, HUD is increasing the amount buyers pay for mortgage insurance beginning April 1, 2012. This move is expected to generate an additional $1.25 Billion through June 2013.

The Upfront Mortgage Insurance Premium (UFMIP) will see a 0.75% increase, from 1.0% to 1.75%. The UFMIP is financed into the mortgage and will not increase the amount of money borrowers will need for closing. The annual Mortgage Insurance Premium (MIP) will increase 0.10%, from 1.15% to 1.25% (MIP is paid monthly with the regular mortgage payment). Again, this will not add to the money needed at closing, but both of these increases will affect the monthly payment for FHA borrowers.

For example, assume a sales price of $200,000 and interest rate of 4.5%:

So, in the example above, the borrowers’ monthly payment on a $200,000 home purchase will increase by $23.41. This increase will not have a significant impact on the amount of a mortgage that home buyers can qualify for but will have a large impact on the insurance reserves of the FHA Program.

The reason the FHA mortgage insurance reserves have fallen to such low levels has to due with the mortgage crisis over the last several years. FHA mortgage accounted for only about 5% of all mortgages in the US in 2005 but has increased to about 40% of all mortgages with the tightening credit standards of conforming mortgages and the collapse of the subprime mortgage market. With a larger percentage of all mortgages being FHA, and the increase in defaults over the last several years, FHA has paid out more in insurance claims which has whittled away at their reserves.

Contrary to popular opinion, FHA is the only federal program that has NEVER used a dollar of taxpayer money. It has been self-supporting since it began in the wake of the Great Depression in 1940. In order to make sure FHA does not need a taxpayer bailout, the increase in these fees is necessary to keep FHA a viable option for the thousands of home buyers who need this valuable financing option.

Short sales

Since I first published this article on short sales, they have become even more widespread and many of my clients have been seeking loans to purchase a "short sale." Many people are still not sure how they work, so I thought it a good idea to reprise the article.

With the continued downslide of the economy, 'short sales' are often the only way some homeowners can get out of a mortgage they can no longer afford without going into full foreclosure. A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. (Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure.)

When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property. With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.

It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.

How does it work?

The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. If you cannot resolve the default with the lender, and you want to see if they will accept a short sale, they will direct you to the department that handles short sales.

The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:

• Income documentation such as W-2s and pay check stubs to verify the borrowers’ income.


• Bank statements to verify the borrowers’ assets


• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.


• Fair market value for the property – depending on the lender they may require an appraisal or may accept an opinion from a local Realtor know as a Comparative Market Analysis (CMA).


• Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.


• Listing agreement and purchase agreement when they are available.

When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.

So, is the borrower off the hook?

Not necessarily. The lender still has options to try to collect this shortage. As a condition of the short sale the lender may require the borrower to sign a note to repay the shortage. They may also file a collection or a judgment for the amount of the shortage. This is something that an attorney with expertise in this area of real estate needs to be consulted.

Also, the IRS may come after the borrowers for income taxes on the amount of the shortage. If the shortage was forgiven, the lender will report the shortage as income to the IRS and the IRS will collect taxes on this amount. Again, for the specifics on this please consult a tax professional.

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HARP 2.0 Should Help Millions Refinance Their Mortgage

The Home Affordable Refinance Program (HARP) was designed to help homeowners, whose home values have fallen, to refinance their mortgage to take advantage of the historically low rates we have been experiencing lately. The changes to the HARP program should sidestep a lot of the reasons lenders were unwilling or unable to help more homeowners.

Under HARP, homeowners who had little to no equity, or were upside down on their properties, could refinance their mortgage at today’s low rates. If a borrower did not have mortgage insurance originally, it would not be required on the new loan even if the new loan to value ratio (LTV) would normally require it. And, if a borrower did have mortgage insurance, the new mortgage insurance requirement would be at the same level of coverage they had before. And, the borrower could refinance even if their first mortgage was up to 125% of the value of the home.

With the changes to HARP that 125% limitation is lifted – allowing a borrower to refinance their mortgage regardless of how much negative equity they have in the property. This will open the program to more borrowers excluded under the original HARP.

But, I’ve read that many lenders did not participate in the original HARP – why will this be any different?

Under HARP, many lenders would only refinance borrowers up to a 95% LTV. Some would go to 105% LTV but very few would go to the maximum of 125% LTV. Why? Because, generally, when a mortgage is refinanced by a lender, the representations and warranties attached to the original loan and property are carried over to the new lender. So, the investors (Fannie Mae and Freddie Mac) can force the lender to buy back that mortgage due to defects overlooked by the previous lender. Many lenders were not willing to take that risk, especially on a refinance with no or negative equity. Therefore, the few lenders that were willing to take the risk of a 125% LTV refinance only took that risk on loans that they were already servicing and therefore already exposed to the buyback risk.

Under the changes to HARP, Fannie Mae and Freddie Mac will waive the reps and warranties for refinancing mortgage that are already owned by Fannie Mae and Freddie Mac and were originated before June 1, 2009. Even though this may increase the risk to Fannie/Freddie, the increase in risk should be negligible. Experts say that most defects that trigger reps and warranties occur in the first couple years of the mortgage. Also, in order to qualify for the program, borrower must be current on the loan, have no late payments in the past 6 months, and at most one late payment in the past twelve months. These borrowers pose less of a default risk than those with recent late payments on their mortgage.

Not all of the guidelines and details have been completed. Fannie Mae and Freddie Mac are going to have the new HARP guidelines finalized b November 15, 2011 and HARP should be live by December 1, 2100.

Stay tuned to Barkerblog.com for more information on HARP 2.0 as it becomes available.

If you think you can benefit from these changes, contact me ASAP so we can get your application started – this is sure to create a lot of demand for refinancing and ledners can easily get overloaded.

I can be reached at BarkerLoans@gmail.com or 708.473.7688. Or, if you want to apply online, plese go to www.BarkerLoans.com and complete the full application. There is no cost or obligation to apply.

Why can’t I get the lowest possible mortgage rate?

It’s frustrating! You read the headlines, “Mortgage rates lowest in 60 years!” Then, you call the lender and the rate quoted is higher than what you‘ve seen online. You wonder, “What’s going on here?”

There are a lot of reasons that the rates you are being quoted may not be as low as the rates you see advertised. Here are a few of them:

1) They aren’t real. A lot of internet rates are not honest quotes. And, those that are may already be expired or may have have conditions on them that only a tiny fraction of borrowers can meet.

2) You have to pay discount points. Fannie Mae and Freddie Mac Weekly rate surveys show rates from the previous week and will likely require you to pay discount points. On a recent Freddie Mac rate survey, the rate on a 30 year fixed rate mortgage was 4.10%. But, further in the article it stated that the 30 year fixed rate mortgage carried an average of 0.8% of a discount point. A discount of 1.0% (1 Point) can be a 0.125% - 0.500% difference on the interest rate.

3) Your credit score isn’t high enough. Fannie Mae & Freddie Mac have Loan Level Pricing Adjustments (Click here for my blog article on LLPAs). If your interest rate Is below 740 and your Loan to Value Ratio (LTV) is greater than 80% there will be adjustments to your interest rate. For example, if your middle credit score is 700 and your LTV is 75.01% - 80.00%, there will be a loan level pricing adjustment of 0.75%. This is an additional fee (points) that will have to be paid with your mortgage. Since most people do not pay points on their mortgage, this will result in a higher interest rate.

4) Your loan isn’t large enough. The rates you see listed are often for very large loan amounts. Larger loan amounts provide more revenue but don’t cost more to originate than smaller loans, so the lenders can make the same or more profit, even at a lower interest rate.

5) You are in the wrong area. Some lenders have different rates for different geographic areas of the country. This may be due to higher default rates in certain areas or higher costs to originate loans in those areas.

6) You have more than one loan. If you have subordinate financing on your transaction (either purchase or refinance) there may be LLPAs as a result. For example, if you are buying a house with an 80/10/10 (80% LTV on the first mortgage, 10% on the second mortgage and a 10% down payment) there is an LLPA of 1.0% on this transaction. This could result in a rate increase of up to 0.5%. People using an 80/10/10 are trying to avoid mortgage insurance on the first mortgage so they may still be saving money. A lot of people who want to refinance their first mortgage, and already have a second mortgage, are noticing significantly higher than those they read about. Many homeowners took out large second mortgages when their home values were at their peak. Now, they either have little to no equity in their property or they may even be upside down on their property (they owe more than the property is worth). If these borrower are able to refinance, their rates wills urely be higher that the best possible rates.

7) Wrong property type. If you own or are purchasing anything other than a single-family, detached residence your rates will be higher. Condos, townhomes and 2-4 unit buildings may have add-ons to the rates or points.

8) Refi versus purchase. Also, the best possible rates are usually for purchase transactions. If you are refinancing, or taking cash out on your refinance, you will see higher rates.

9) You aren’t going to live there. Last, the occupancy of the property will affect the interest rate. If the property is a second home or investment property your rates will be higher.

This list is by no means an all-inclusive list of the reasons you may not be able to get the rock-bottom, lowest-possible rates you’ve been reading about, but it gives you some ideas. Make sure you are working with a reputable, experienced lender who will give you knowledgeable and honest answers to the rates you are being quoted.

And you can always reach out to me at BarkerLoans@gmail.com or by calling 708.473.7688 to answer any questions you have or to help you with your financing needs. There’s never an obligation, and always free information!

Who could use some extra money for the holiday season?

Did you realize that Christmas is less than 60 days away?
Hanukkah begins in only 55 days!
Are you ready?
Could you use some extra money to help with the holiday expenses?
What if you would skip your December mortgage payment?

If you were to refinance your mortgage and close in November the first payment on your new mortgage would not be due until January 1, 2012! And, your mortgage payment would be lower to start the New Year. How nice would it be to have the amount you pay for your mortgage available to help with the holiday expenses?

Call me today to see how much money you could save by refinancing and get the application started to make sure we can close your loan in November.

I can be reached at 708.473.7688 or BarkerLoans@gmail.com. To apply online go to www.BarkerLoans.com.

The Fed Does the “Twist”

Mortgage rates could fall even lower!

No, we’re not talking about the Chubby Checker hit from 1960. We’re talking about the Federal Reserve’s latest attempt to keep long-term interest rates low in order to boost the sagging economy. Operation Twist, as some have nicknamed it, is a plan by the Fed to sell short-term treasuries (3-year and shorter) and purchase long-term treasuries (6-year and longer) in an effort to keep the long-term interest rates low. The Fed will also use the principal payments from its portfolio of mortgage-backed securities to purchase longer-term treasuries.

The Fed has committed to purchase $400 Billion in longer-term treasuries over the next year. By buying these treasuries the price will increase thereby reducing the rates on the securities. Fixed interest loans and mortgage should see a slight improvement in rates due to this program.

One of the targets of this program is the housing market.
The Fed hopes that by keeping rates low it will spur some home buying. However, I think the impact on the housing market will be limited at best. With mortgage rates already at historic lows, prospective homebuyers are not putting off a potential home purchase because rates are too high. They are putting off a purchase due to lack of confidence in the economy, fear of future job loss, current home they are unable to sell, and property values that continue to fall – none of which have anything to do with mortgage rates.

Current homeowners looking to refinance may benefit, though. Even though interest rates have already been historically low, many people may still be able to save money as rates decrease. Hopefully, this savings will help consumers pump more money back into the economy and help prevent a second (or double-dip) recession.

The impact on the overall economy won’t be known for months. But, if you are a homeowner looking to save some money, give me a call today to see if refinancing is right for you. I can be contacted at 708-473-7688 or BarkerLoans@gmail.com.

Property need some TLC? Try an FHA Streamlined 203K

FHA Streamlined 203(k) Loan

Perfect for purchasing a foreclosure, short sale, or fixer-upper

With the increase in the amount of foreclosures, short-sales, and fixer-uppers on the market, many people are looking for ways to purchase a home that need some work without paying for all of the costs out-of-pocket. FHA offers a streamlined version of the traditional 203(k) rehab loan. The Streamlined 203(k) loan offers that homebuyer the ability to finance up to $35,000 of improvements to the property into the mortgage.

The Streamlined 203(k)is designed for non-structural repairs to the property. You cannot move load bearing walls or add an addition to the property with the Streamlined 203(k) loan. However, there are a lot of repairs that can be covered:

• Repair/ replace/upgrade roofs, gutters/downspouts, HVAC systems, plumbing systems, electrical systems, flooring.
• Remodel kitchens, baths, etc.
• Painting – interior and exterior
• Weatherization of property – doors, windows, insulation, etc.
• Finish/re-finish basements or attics
• Handicap-accessible improvements
• New appliances
• New siding
• Basement/crawlspace waterproofing
• Lead-based paint stabilization or abatement
• Repair/replace/add exterior decks, porches and patios

Following are the limits to the extent of work that can be performed with a Streamlined 203(k) loan:

• Major rehab/remodeling that may require the addition or relocation of a load-bearing wall.
• Any new construction including adding an addition to the property
• Repairing any structural damage to the property
• Any work that cannot be started within 30 days of closing or completed within 6 months of closing
• Any work that requires detailed plans, drawings or architectural exhibits
• Any work that would require the homeowner to vacate the property for more than 30 days.

In addition to the above, the Streamlined 203(k) loan also does not require the use of a consultant nor the use of a general contractor to complete the work. And, if the amount of work to be performed on the property is less than $15,000, the mortgagee (lender) may not require an inspection of the completed work. The Streamlined 203(k) can also be used on a refinance to remodel/rehab a property you are currently living in. However, it can only be used on owner-occupied properties.

If you are thinking of purchasing a property that will need some work after closing, please give me a call so we can go over the details of the requirements of this loan. I can be reached at 708-473-7688 or BarkerLoans@gmail.com