Many have already discussed the features of the $300 Billion Mortgage Rescue Package signed by President Bush on Wednesday July 30th. This bill is officially known as HR 3221, the Housing and Economic Recovery Act of 2008. Regardless of what everyone thinks and warns about, this is now the law of the land. I know there are many things I can say about the bill, both positive and negative, but I wish to refrain from that at this point.

I’d rather now start making sure those the bill intends to help get the information they need so they can move forward with this new opportunity. So, I’ve put together a guide to help you determine if you are able to take advantage of this bill.

Eligibility

You are eligible if you meet the following criteria:

1. The loan in question is on your primary residence (no allowances are available for second homes and investment properties)
2. The loan was obtained between January 2005 and June 2007
3. Your mortgage payment is at least 31% of your gross monthly income (before taxes - not take home pay)
4. You do not necessarily have to be late on your mortgage payment (you can be current and still take advantage of the program)
5. Whether you are late or current you need to prove that you are not deliberately late on your payment (point #3 above should help you prove your case)
6. You must retire any second mortgages you have taken out (this is going to be tough one for many people - I guess you’re going to need to explain to the second lien holder your plans and ask them to write it off - not sure on this one)

As a side note you must be aware that you will not be permitted to take a second loan in the future without FHA approval and the total will not be allowed to exceed a combined loan to value of 95%. Also this bill makes major changes to the FHA Loan program.

Getting Started

To get started you will first need to obtain approval from your current lender. Please be aware that the current lender is not under any obligation to automatically approve your request. It is a voluntary requirement that the lender comply with the bill. Remember, the lender is being asked to take a loss - writing down the value of the loans up to 90% of its value - so it’s not a walk in the park. Also, in the Phoenix market where we’ve seen a 26.47% drop in home prices from last year alone - the lender is being asked to take an even larger loss. So, be forewarned that you will face resistance from the lender.

Once your lender has agreed to the write down, then you will need to contact a FHA approved lender and go through the loan application and approval process. This means you will need a full appraisal on the house as well. The original lender under the agreement should write off any fees and penalties on the original mortgage such as prepayment penalties. Additionally, the old lender is being asked to pay the FHA up-front mortgage insurance premium of the principle balance (you can see why they will be very careful on who they approve). Once all this has been completed, the old lender is required to then declare the old loan as paid in full. You are now off the hook for the old loan.

The Catch

Now that you have a new loan - more manageable and affordable you need to be aware of a few things.  The first is that you will be required to share any appreciation you gain on your home with the FHA (HUD). You will have to pay the FHA 100% of any profits if you sell the house in the first year - this percentage decreases by 10% every year and stays at 50% after the fifth year. So, if in year seven you make a $30,000 gain you still agree to pay $15,000 to the FHA! Finally, if this wasn’t enough, an automatic 3%  will be charged as you sell or refinance your loan. I guess you can view it as a nice “thank you gift” back to the government for saving you from foreclosure!

Overall it’s a not a bad deal for many who are facing dire financial choices. Considering the alternative, I would recomment that anyone who thinks they might benefit should look into the matter closely.

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Categories: Congress and Government, FHA, Mortgages, Uncategorized
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Bottom is nowhere in sight. So says this expert:

Read WSJ story related to this video.

Tags: appreciation, bottom, phoenix, Real Estate
Categories: Arizona, Gilbert, Real Estate
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At 11:04AM today we received an e-mail stating that about $3.5 Million was now available for the non-target areas of the Home in Five Program. Money previously assigned to targeted areas were now released as non-target, meaning you didn’t have to be a first time home buyer to use these funds anywhere in Maricopa county. This is obviously very good news since we are working with a few buyers who could use these funds.

A little after 5pm we received a call stating that one of these buyers had an accepted contract. Aimee quickly jumped on the Home in Five website (lenders only) to reserve funds. She was stunned! There was only $229,000 left at about 5:25PM. This is a depletion rate of about $585,000 per hour! Wow.

Moral of the story is that these funds go fast. With 100% loans scarce everyone is looking for down payment assistance. There are still programs like the Home in Five out there which are available to needy borrowers, it’s just that there are lots of restrictions attached to them and oftentimes its only available on a first come first served basis.

Fortunately our borrowers loan size was smaller than fit under the available funds, so we were able to reserve the money for their purchase.

Read more on the Home in Five Down Payment Assistance Program.

Tags: Down Payment Assistance, home in five, maricopa county
Categories: Arizona, Mortgages, down payment assistance
5 Comments »

From the WSJ this morning “FDIC Faces Mortgage Mess After Running Failed Bank“:

It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.

Reminds me of Lisa Simpson’s line in “Homer the Vigilante“, when Homer sets up a group to track down a cat burglar.  Lisa’s line goes along the lines of (paraphrase): “but if you’re the police, who’s going to police the police?” To which Homer replies “I don’t know, the Coast Guard?”

Categories: Congress and Government, Subprime Mortgages
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From JibJab…

Tags: 2008 elections, fun, jib jab
Categories: Humor and Fun
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From Bloomberg this morning as stocks tumble:

“This is a systemic financial crisis, there is no end to it,” Nouriel Roubini, professor of economics and international business at New York University, told Bloomberg Television. “It’s a vicious circle between a contracting economy and greater credit and financial losses feeding on the economy.”

President Bush reminds us that the system is “basically sound”:

WASHINGTON (AP) - President Bush urged lawmakers on Tuesday to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the nation’s financial system to be “basically sound.”

My thoughts?

Well - I don’t think the government should move too quickly on the Fannie and Freddie bailouts. I don’t trust them to get it right this quickly. Too many variables, too many unknowns. Take a deep breath, try to really understand what the best solution is to this problem. The last thing you want to do is panic. At the end of the day it’s investors who are losing money right now - and that’s the game they play, and the government can come in at anytime in the future with a more sensible plan and rescue the market. I just want to caution against hastily put together plans.

Late afternoon update (4:12PM):

Fed Chairman testifies on the Hill (Marketwatch):

Fed uneasy about inflation, growth, Bernanke says

But he also spoke candidly about the weak economy and fragile financial markets. “The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth,” Bernanke said.

Tags: crisis, fannie, freddie, market, stocks
Categories: Congress and Government, Debt, Economics
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Major changes go into affect on the FHA loan program on Monday July 14, 2008. These changes are very significant and will impact the affordability of these loans for many borrowers, especially those will less than stellar credit who can’t put 5% down. Basically, almost everybody in todays market.

Essentially, the Upfront Mortgage Insurance Premium (UFMIP)and monthly Mortgage Insurance IMI) will now be risk based. Even though the borrower has the option to pay UFMIP in cash upfront, it is typically financed into the loan. Bear in mind that UFMIP is not part of the regular closing costs. FHA has always charged a flat upfront mortgage insurance premium for every borrower regardless of credit risk. Until last week UFMIP on the 30 year fixed FHA loan was at 1.5%. The monthly mortgage insurance payment has also always been fixed at 0.5% for the 30 Year loan. These percentages will now change effective Monday.

UFMIP will now be charged on a risk basis, i.e., based on your credit score. It will range from 1.25% for lower-risk borrowers to 2.25% for riskier borrowers. In dollar terms this means that on a $200,000 loan UFMIP can range from $2,500 to $4,500. Remember this is on top of the closing costs and down payment already due. Since this can be financed into the loan, your final loan amount will reflect this cost. Having poor credit will now be expensive even on FHA loans.

Monthly mortgage insurance will vary from 0.5% and 0.55% and is determined by the loan to value. If you are putting less than 5% down than its set to 0.55% but if you’re putting more than 5% down it will be 0.5%. Monthly mortgage insurance is calculated by multiplying the percentage to the loan amount and dividing by twelve. So on a $200,000 loan and a MI rate of 0.55% your monthly mortgage insurance payment is $83.34.

First time home buyers who fall in the hefty 2.25% UFMIP bracket do have a way to obtain a slight reduction to UFMIP. If you are borrowing more than 95% of the purchase price (loan to value) and your credit score is below 559 then you may be eligible for a reduction in your UFMIP by 0.25% - so it would be 2.00%. However, you need to complete a HUD-approved pre-purchase counseling session. FHA will only provide the discount after you have successfully completed the course and will ask for a certificate of completion.

Additional Reading on FHA: Is the FHA Loan Program Right For Me?

Relevant FHA Down Payment Assistance related posts on other blogs:

Arizona Republic Article on DPA
Dear HUD, Stop Being a Bully
Real Estate Road Signs - “Buy A House for $500 Down”
Down Payment Assistance Programs

Tags: FHA, mortgage insurance, upfront mortgage insurance
Categories: Credit Scores, FHA, Mortgage Insurance, Uncategorized
7 Comments »

I came across an interesting post at The Liscio Report called “Presidential economics: Do parties matter?” And as I read through it I came across some interesting analysis and I realized there may be come misconceptions about which party really does what. Democrats are believed to be fiscally irresponsible, spenders and Republicans are supposed to be fiscally responsible and small government. Which should technically result in bloated budgets with lots of deficits for Democrats and trimmed outlays with balanced budgets for Republicans. I know in recent years fiscal responsibilty has been thrown out the window, but that seems to fit the pattern and does not appear to be an anaomoly.

Take a look at this chart:

This is not what I would have expected. Democrats lowering the budget deficits and Republicans increasing it for the most part? Are we being misled here then? Do the parties have a branding issue? This is how the authors explain it:

Though the picture so far is of the Republicans as the party of austerity and the Democrats as the party of stimulus, there’s a surprise when it comes to changes in the federal deficit: Republicans are more liberal with the red ink than Dems. On average, a Republican in the White House has meant a shift of –1.9% of GDP in the government’s budget balance (i.e., towards smaller surpluses or bigger deficits), while a Dem has meant a 1.5% improvement in the budget position (or 1.8%, if you start in 1949, thereby omitting the huge World War II deficit). And in this case, the average is a faithful representation of the distribution, with only one Democrat in the minus column and only one Republican in the plus.

Some of this reflects different tax policies, with Reagan and Bush 43 cutting, and Clinton raising income taxes. But it also reflects the partisan difference in GDP growth.

Read the whole thing. Certainly makes you think, doesn’t it?

Hat tip: The Big Picture

Categories: Congress and Government, Debt, Economics
1 Comment »

With stocks down 98% from a year ago, rising loan delinquencies and very little liquidity, Indymac, one of the nations top 10 mortgage lenders is done! It’s closing its wholesale and retail operations as well as halting any new locks. At one time IndyMac was a major player in the “Alt-A” market (loans with risk levels between subprime and prime). From Bloomberg earlier today:

IndyMac, the second-biggest independent U.S. mortgage lender last year behind Countrywide Financial Corp., has lost almost $900 million in the nine months ended in March amid tumbling home prices. The company is focusing on mortgages that can be sold to government-sponsored enterprises like Fannie Mae and Freddie Mac.

If you are in the market for a home mortgage and were working with a mortgage broker, call your broker to ask if the loan was to be placed with IndyMac. You’ll need a new lender!

In other bleak news, it was disclosed today that Fannie and Freddie may be required to raise as much as $85 billion in additional capital. To be fair it’s due to new accounting rules, but still the markets were in turmoil.

Tags: credit crisis, indymac, liquidity
Categories: Economics, Mortgages, Subprime Mortgages
6 Comments »

I’m out taking a few days off. So, happy July 4th everyone:

photo credit: The Lone Cypress

And of course if you’re in the UK happy National Kissing Day (which happens to be on the 6th), but I won’t be blogging then so….

photo credit: madmonk

Categories: Humor and Fun
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