FHA Mortgage, Interest Rates and Marketing

Since my company sells mortgage loans to a number of the instutions who recently volunteered for the U.S. Treasury Stress Tests, I have been anxiously awaiting the results.  Although I don’t think the stress tests are a perfect way to judge these banks, its good to know how strong a bank is when we go to sell them millions of dollars of closed mortgage loans. 

Since we sell mortgage loans to 8 of the banks of the list, the results could have had a signifigant impact on our business.  I downloaded the entire 38 page report (which you can see here http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf) so I can read the details behind the result.

There are currenly thousands of articles being posted on the web and will be all over newspapers tomorrow.  To me, there is no better source than the Stress Test Results released directly from the Fed.  You can read through the actual data without any media spin.

The big news is currently swirling about the results below, but I think the detail behind it hold much more important information.  Seeing the way the Fed is weighting different kinds of bank assets can give us some insight into where banks will be putting capital in the future.  This could have an unintended side effect of pushing banks away from certain types of lending based on the way they play into the stress tests.

Its been a while since I have posted any rate updates.  Mainly because we have been so busy growing and keeping up with our volume.  Rates have remained very low thanks to the Federal Reserve’s purchase of mortgage back securities.

We have seen a pattern emerging of the last few months that each time the Fed starts buying Mortgage Backed 4.5% - 5.0% for FHA Fixed Rate loans making it possible for most homeowners to save money by refinancing.  We even wrote a few 4.25% rates last week (with discount points) for a few borrowers who want to lock in the absolute maximum savings while rates are low.

Week of April 20th, April 21st, April 22nd, April 23rd, and April 24th Mortgage Rate Synopsis/Forecast.

FHA 30 Year Fixed Mortgage Interest Rate: 4.5 - 5.0% depending on credit score and points paid.

Conventional 30 Year Fixed Mortgage Interest Rate: 4.25% - 5.5% depending on credit score, loan to value, transaction type and points paid.

As default rates on FHA Loans continue to soar, most lenders have once again raised credit score requirements.  Last year we saw FHA minimum scores set at 580, and now they have been raised to 620.  I think its important to note that FHA is not setting these minimum scores, but the lenders who make the FHA Insured Mortgage Loans.

According to the March 2009 HUD Neighborhood Watch Data, 8.16% of FHA Loans Originated in Florida over the last 2 years are 90 days past due as of December 2008.  This is up from only 1.81% in June of 2006, a 4 and 1/2 times increase.

An additional 11.63% of all FHA Loans in Florida are currently 30 or 60 days past due, but have not yet hit 90 days to be considered “in default”.   

The major FHA Servicers are taking serious steps to try and get defaults under control.  In addition to the new 620 credit score requirements, many have cut off loans originated by mortgage brokers.  We have also seen restrictions on borrowers with no credit scores, reduction in cash out loan to values and restrictions on higher debt to income ratios.

 I am sure there are a few lenders left out there taking FHA Loans under 620 score, but expect to pay a higher rate and jump through a lot of extra hoops to obtain an approval.  If you have a 580 credit score and are trying to buy a home or refinance with an FHA Loan, your best bet is take steps to try and improve your credit score.

By continuing to offer the lowest rates in the industry we have seen significant growth over the past few months.  While other lenders and mortgage brokers are struggling, R P Funding is steadily growing and helping more homeowners with their FHA mortgage needs.

As an FHA Direct Endorsement Lender, R P Funding is able to offer top quality service, fast underwriting and closing, low rates and by dealing direct with a lender, there are never any broker fees!

 R P Funding is located at 2700 Westhall Lane, Suite 120 Maitland Fl 32751 and specializes in FHA Loans.

 Call R P Funding today for your FHA Loan Needs.

A lot of manufactured home dealers are worried about the impact that the loss of the “No Money Down” FHA construction perm is going to have on their business.  Some people are banking on a miracle resurrection of the program before October 1st.  We are the other hand are rolling out a new program.

A true 100% financing program that doesn’t require Down Payment Assistance.   This new program will be available for manufactured home dealers in Florida and will provide stage funding to borrowers with no money down.  This program is NOT FHA and does not require the recently banned DOWN PAYMENT ASSISTANCE.  In fact this program has a LOWER Monthly payment than FHA!

If you would like more details on the program, call R P Funding at 888-648-4843.

It amazed me last week to see how swiftly lenders eliminated the HECM 150 and began attempting to force Reverse Mortgage Borrowers into higher margin programs like the CMT 200. 

At RP Funding we took a look at what was left in the industry and put together the RP HECM which, for a limited time, will match HECM 150 calculations.  The Expected Rate we are using for calculation on the RP HECM is currently 5.5% the SAME as the HECM 150 so there is no change in principal limit for borrowers. 

If you or someone you know is working with a lender that eliminated the 150 and is now offering lower calculations, we can help.  We will match the previous HECM 150 calculations with our new RP HECM by using a 5.5% Expected Rate.  The RP HECM is still an FHA Insured Home Equity Conversion Mortgage we are just using a different combination of index and margin and cutting our profit to help out. 

Other lenders could have made a decision to offer the same product, but most of them refused to cut their profit margins. Instead they lowered the calculations for their borrowers.  If you are working with a lender who is forcing you to take higher rates and reducing your principal limit, check out our website at http://www.efreverse.com/hecm-150-match-calculator.cfm 

FNMA announced drastic increases in HECM Reverse Mortgage rates over the last few days.  National lenders such as Everbank Reverse Mortgage (MetLife), Sun West Mortgage, and J B Nutter have all eliminated the Treasury based 150 margin reverse mortgages.  All loans must close and fund by the end of August to maintain the current rates.  In addition to eliminating the HECM CMT 150  (The HUD Insured Reverse Mortgage tied to the Constant Maturity Treasury with a 1.5% Margin) pricing to mortgage lenders and brokers was also greatly worsened on the 175 Marin and 200 Margin Treasury Products as well.

This move seems to be an attempt to push lenders, brokers and borrowers into Reverse Mortgages based on the more lucrative LIBOR Index.   With treasury rates currently under 4% FNMA will make much greater returns by basing the mortgages on the LIBOR Index.   One has to wonder if this move isn’t partially based on their current loss in value on the stock market - make more money on the loans that can’t default… Reverse Mortgages.

Other factors have to include the surge of reverse mortgage refinances that are expected to take place when the new higher HUD limits go into effect.  Almost any current reverse mortgage holder with a home worth more than $400,000 will receive significant additional funds under the new loans limits.  I think FNMA is hoping to force this surge of refinancing seniors into higher margins and/or LIBOR based products to increase profits over the long run.  Once the initial surge is over I wouldn’t be surprised to see lower margins return to the market.

Sometime between October 1st, 2008 and January 2009 HUD will be increasing the loan limits for HECM Reverse Mortgages as outlined in the Housing and Economic Recovery Act of 2008.

According to the NRMLA, HUD’s lawyers are still trying to figure out how to enact these limits.  Now I am not a lawyer but it doesn’t seem like there are too many ways to interpret it.  We gave it a shot and put a New Proposed HECM Reverse Mortgage Limit Calculator on our website to give you an idea of what the calculations will be.   Below is an explanation of our interpretation and the EXACT TEXT from the bill to back it up.  DISCLAIMER:  I am not an attorney and this may not be how HUD interprets the law.

First it establishes the base amount of $417,000.00 through the following text: ” Section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by striking the 7th and 8th sentences and inserting the following new sentences: `Such limitations shall not exceed $417,000 for a mortgage secured by a single-family residence”

That seems pretty cut and dry the limit cannot be higher than $417,000.  Simple enough, but then just like on the forward side there is an exception for High Cost Areas:

“(2) HIGH-COST AREA LIMIT- Section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by adding after the period at the end the following: `Such foregoing limitations shall also be increased, with respect to properties of a particular size located in any area for which 115 percent of the median house price for such size residence exceeds the foregoing limitation for such size residence, to the lesser of 150 percent of such limitation for such size residence or the amount that is equal to 115 percent of the median house price in such area for such size residence.’.

For the High Cost HECM Limit this is saying that if 115% of the median price for an area is more than the $417,000. You use the LESSER of 115% of that areas median price OR 150% of $417,00 which is $625,500.

Here is an example using the current median home prices Miami-Dade County, Florida  - current median price is $339,000 and 115% of 339,000 = $389850 so this is NOT a high cost area under the new law and would default to $417,000. 

HUD has 3,233 counties in their current database for loan limits.  Under my interpretation of this ruling 3,028 counties would have a limit of $417,000 and not be considered “high cost”.  81 counties would utilize the cap of $625,500 leaving only 124 counties to that would be calculated.

I think HUD’s biggest problem with implementation is going to be waiting for the updated median prices to be released so they can calculate these 124 counties that fall in the middle.  Again I AM NOT AN ATTORNEY, but you can read exactly what I read and draw your own conclusions.  To me it seems like this is the only way to calculate to stay in accordance with the law.

If you are curious as to the impact the new limits will have on your reverse mortgage eligibility, we put up a calculator on my companies reverse mortgage website to give you a comparison.  WE ARE NOT ADVERTISING THESE AS AVAILABLE LOAN LIMITS, WE ARE NOT 100% SURE THAT HUD WILL USE THE METHOD I HAVE OUTLIEND ABOVE, but if they do then our calculator is correct.  You can check it out here New Proposed HECM Reverse Mortgage Limit Calculator

After dodging the bullet a few times over the past few years, seller funded DPA is finally gone. This time it will take more than a court order to save Seller Funded Down Payment Assistance.  A new bill passed by the house and the senate and expected to be signed into law by the President, bans seller funded down payment assistance on FHA loans.  These are companies like Nehemiah, Ameridream, American Family Funds, The Dove Foundation, etc.

 On top of banning DAP they also INCREASED THE FHA MINIMUM DOWN PAYMENT TO 3.5% from 3%.  Making it even harder to buy a home. 

Many people had no idea that the Housing and Economic Recovery Act of 2008 included:

 The house passed the bill last Wednesday and the senate passed it today, Saturday.  All that’s left is for the president to sign the bill.

This bill is going to do a lot of great things, don’t get me wrong.  But I think they picked a poor time to decide to make buying a home harder.  Some estimates indicate that 30% of home-buyers were just taken out of the market with this new requirement for 3.5% down.  To buy a $200,000 house a buyer now needs at least $7,000 of their own money!  As it stands today the buyer can buy they same house with very little money out of pocket.  With the recent changes in fanniemae and freddiemac this eliminates the last source of “No Money Down” financing to purchase a home.

The president has already agreed to sign the bill, since the clause to ban down payment assistance is a part of the 300 billion dollar package to help Americans keep their homes (like he can really veto that!)

This change is going to hit New Home Builders and Manufactured Home Dealers the hardest.  They used the programs extensively to move inventory.  I would say 80% of the new construction loans my company funds have Seller Funded Down Payment Assistance.  Lucky for us New Construction only makes up about 10% of our overall volume. 

HUD Announced the much awaited changes to the FHA Mortgage Insurance Premiums (MIP) and Up-Front Mortgage Insurance Premiums (UFMIP) based on LTV and Credit Score.  With all the talk about FHA doing what it can to help home-buyers I find this to have strange timing.  This will definitely put a lot more cash into the FHA coffers, and although it is going to impact homeowners I don’t think it will be that drastic.

Below you will find a copy of the new risk based mortgage insurance premium chart.  You can see that LTV and now Credit Score are going to play a large factor, and FHA effectively sets a minimum credit score (over 90% LTV) as a part of this announcement.  This is FHA’s first real acknowledgement of credit score after years of a stance that FHA was NOT credit score driven.  Guess what.. now it is.   The FHA Risk Based Mortgage Insurance Premiums show that FHA feels Credit Score = Risk.

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