As many housing market experts had predicted, with the growing number of Americans reaching retirement age, reverse mortgages are gaining popularity.  The FHA approved over 118,000 Home Equity Conversion
Mortgages, the most widely used reverse mortgage product, in 2008.

The reverse mortgage gets its name from the fact that the stream of payments is reversed.   Instead of making monthly payments to the lender, as with a regular “forward” mortgage, a lender pays you.  A reverse mortgage enables older homeowners to convert part of the equity in
their homes into tax-free income without having to sell the home, give up title, or take on a new mortgage payment.

In at least one sense, they are especially big this year because the maximum size of the FHA HECM has been raised from $417,000 to $625,500 for 2009.  And with a new program available for the first time this year, a reverse mortgage can be used to purchase a primary residence (see shaded box at right for more)!   The amount of funds a person is eligible to receive depends on the age of the youngest spouse, appraised home value and current interest rates.  The older you are and the more equity you have in your home, the more money you can get.

Reverse mortgages make a lot of sense for many homeowners, especially those who have diminished incomes in retirement. However, they aren’t for
everyone. If you are thinking about initiating one, we strongly urge that
you include a financial advisor and family members in the discussions.

Who qualifies for a reverse mortgage?  First, all owners on the title must be over 62. If you have a spouse who is over 62 and is not on the title, you need to think about adding him or her.  Second, you must own your home free and clear or have a small enough mortgage balance that it can be paid off at closing with proceeds from the reverse mortgage.

What are the options for getting the money?  Depending on the particular reverse mortgage program, the options include: (1) as a fixed monthly payment either for a set term or for as long as you live in the home; (2) as a line of credit; (3) as a lump sum; or (4) a combination of the three.

How can the funds from a reverse mortgage be used?  There are no
restrictions on how you use the money, but good judgement should be
exercised.  Some typical uses are: eliminate mortgage payments; supplement retirement income to cover daily expenses; repair or modify your home for health needs; pay off bills; pay for health expenses; underwrite your grandchildren’s college expenses; pay property taxes; avoid foreclosure. 

Does a reverse mortgage affect my current government assistance, retirement benefits or estate plan?  A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, reverse mortgage proceeds that are banked could be counted as an asset and affect eligibility.  With respect to the impact on your
estate, since you still own the home, any equity that remains after death goes to your heirs. You can never owe more than the value of the home. Even if the proceeds received exceed the value of the home, your heirs would not be liable nor would other assets be attached. 

How is the loan paid back?  No payments are due on a reverse mortgage
while it is outstanding. The loan is repaid when you cease to occupy it as
a principal residence, when you or the last remaining spouse pass away, sell
the home or permanently move out.  The definition of moving out is twelve
months of non-occupancy. 

What are the negatives of a reverse mortgage?  Upfront costs for a reverse mortgage are substantial. A HECM will come with origination fees of from $2,500 to $6,000, a 2% mortgage insurance premium, plus many of the closing costs that would be associated with a home purchase. If you plan to stay in the home for less than four to seven years, there may be better options, such as a home equity loan or cash-out refi.  You will be consuming the equity in your home. If your goal was to leave the home debt-free to your children, that can no longer happen. If that was your aim, you need to sit down and conduct a frank discussion of your financial situation with your family to discuss alternatives for your needs. 

Before you can be approved for a Home Equity Conversion Mortgage, you must complete a counseling session with an FHA approved counselor.
For more unbiased information on reverse mortgages, check out the AARP
web site at http://www.aarp.org/money/personal/articles/reverse_mortgage_basics.html.  © 2007, Real Estate Information Services, Capitol Assets & Choice Finance®

Alex Echeandia, Choice Finance

The newest wrinkle in reverse mortgages is that they can now be used to purchase a principal residence under the FHA Home Equity Conversion Mortgage (HECM) for Purchase program.

How does HECM for Purchase work?
-The purchaser(s) must be 62 or older. 
-The appraised value of the home (or contract price if it is less) is subjected to a discounting calculation based on the age of the purchaser(s)
and the current interest rate.  The result is the “principal limit,” which is
the amount available under HECM for a purchase.  The older the purchaser(s), the higher the limit.
-The principal limit cannot be greater than the general HECM limit of
$625,500 for 2009.
-The difference between the principal limit and the purchase price plus the
program fees (which will run to 7% and up), must be made up by the
purchaser.  This essentially constitutes the downpayment on the home.

For example, on a home that sells and appraises for $300,000 and has a
principal limit of $195,000 and fees of $21,000, a purchaser would have to
bring $126,000 to the settlement table.  This might seem like a big cash
commitment, but consider the benefit: it enables a purchaser who has substantial assets (such as from the sale of a previous home), but
income that might, otherwise, be insufficient for a home purchase, to
buy a house and have no mortgage payment for life!

While a credit score is not required, the lender will want to determine that
there are no financial obligations, monetary judgments (including any
on a non-borrowing spouse) or liens that could jeopardize the HECM lien
and compromise clear title.  If you choose, you can provide a larger
investment amount in order to retain a portion of the available HECM proceeds for future draws.

Taxes, insurance and any repairs remain the purchaser’s responsibility to pay.  Understand, FHA is very careful about determining the source of purchaser’s assets for the required investment, so they will insist on verification of the sources of these funds. 

Bridge loans and other gap financing methods can’t be used to meet the cash investment requirement or pay closing costs nor can subordinate liens, personal loans, cash withdrawals from credit cards, or seller financing.

Borrowers can use the HECM for the Purchase program on a new primary
residence while retaining their existing home as a rental property.  Lenders will need proof of income sufficient to pay mortgage payments, taxes, insurance and maintenance. 

HECM for Purchase applicants have to undergo counseling with a FHA approved counselor.  © 2007, Real Estate Information Services, Capitol Assets & Choice Finance®

Josh Burley of Choice Finance®

The Treasury Department has announced an expansion of its Making Home Affordable Program aimed at encouraging loan modifications for struggling homeowners with second liens.  The original version of the program did not address situations where homeowners had second liens, such as where a purchaser used a piggyback second mortgage to reduce the need for a downpayment. 

Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified, Treasury found.   Treasury estimates that up to 50% of at-risk mortgages have second liens.  By offering homeowners a way to lower payments on their second, Treasury said it may potentially reduce payments further for up to 1 to 1.5 million homeowners with second mortgages. 

Under the new program for second liens, when a modification is initiated on a first lien, servicers participating in the second lien program will automatically reduce payments on the associated second lien according to a pre-set protocol.  Treasury will enter into agreements with second lien holders to reduce interest rates for five years to 1% on fully-amortizing second liens and 2% for interest-only seconds.

Treasury will also pay second lien servicers for modifying a loan and a
bonus for each year the homeowner stays current on the payments
As an alternative, servicers will have the option to extinguish the second
lien in return for a lump sum payment under a pre-set formula determined by Treasury in cases where extinguishment is most appropriate.

Under the plan, whenever first mortgage holders cut a borrower’s principal
balances by a percentage of the loan amount, second lien holders will be
required to reduce balances owed by a similar percentage.  Stressed homeowners with second liens should call the servicer of the
lien to see if help is available under the program.  © 2007, Real Estate Information Services, Capitol Assets & Choice Finance®

It might have been better to have titled this article “Condos for Cash,” since it seems that all-cash might be the only guaranteed way to purchase a condo today.  Simply put, if you are interested in buying a condominium in today’s market, be prepared to face some substantial financial hurdles. 

The problem now lies with the speculative growth that took place during the
last real estate boom.  Apartment buildings were converted at an incredible rate to take advantage of the demand and sold at exorbitant prices.  When the market sagged, it affected developers who were building new units. Since a condo owner is also a joint owner of all the common areas, any sizeable drops in ownership due to people not going through with their
contracts, being foreclosed on or sales coming to a halt hurts the cash flow
(since condo dues are not being paid) needed to pay the association’s bills.
As this economic stress began to impact condo communities, its effects
have been disastrous for their financing.  Almost all mortgage insurance companies are now refusing to insure any condo loans and Fannie Mae and Freddie Mac have tightened their rules considerably, making financing very hard to obtain. 

So how can you buy a condo?  First of all, all-cash transactions will always work and you can negotiate some incredible deals in today’s market due to the enormous supply and lack of buyers. However, this is generally a
path reserved for well-heeled investors. 
If you finance the purchase, here are your current options: 
FHA- This is the only option if you have limited funds since FHA only
requires a 3.5% downpayment.   However, the condo project has to be FHA/
VA approved and this approval list can change rapidly.  The key requirement for FHA/VA approval is the size of the investor concentration in the project.  The higher the percentage of non-owner occupants (renters), the greater chance that the project is not approved or is in danger of losing its approval.  The reason the number changes is that, in a slow market, if you can’t sell the property you may have to rent it in order to stay current on your mortgage. 

Conventional Financing Financing- You will have to make at least a 20% downpayment and pay a premium (rates will be higher due to the perceived risk) in order to get the mortgage.  Fannie Mae also has rules regarding investor concentration.  But Fannie Mae also monitors the type of development you are buying in (mixed-use projects that have a non-residential component are not eligible), seller concessions and the percentage of units already sold and settled.  A seller will have to provide an incredible amount of documentation to satisfy both Fannie Mae as well as the underwriter. 

Financing Developer/Seller Financing- Where one party is eager to sell, many options are always available.  Developers may well be able to offer below-market financing from the bank that provided the construction loans. Here, everyone has an interest in making things work. 

If you are thinking about buying a condo, extra due diligence is required, so you will need to:
• Find a Realtor who is knowledgeable about condos and who you can trust.
• Closely analyze the financials that must be provided to you before the
contract can be ratified.  Be especially careful if the development
lacks adequate reserves for future maintenance (parking lots will have to
be repaved), has a large number of delinquent condo dues payers or has
too many units on the market.  Today’s approved project may be tomorrow’s casualty.
• Don’t give up hope. Many good developments are being affected
through no fault of their own.  Bargains are there but purchasing one will
require some extra effort on your part.
• These purchases and loans will take longer to process and
complete.© 2007, Real Estate Information Services, Capitol Assets & Choice Finance®

Buying a condo?  Call me, Alex Echeandia

There’s a new sheriff in appraisal town and the name is HVCC.  Home Valuation Code of Conduct.

The HVCC,which was implemented May 1 by Fannie Mae and Freddie Mac, was meant to make appraisals less susceptible to undue influence by loan officers, real estate agents and others, and thus more accurate and reliable
Whether the HVCC will, on balance, be a benefit to homebuyers remains to be seen and so far has been a nightmare.

Ironically, the genesis of the code of conduct was not HUD or Fannie Mae and Freddie Mac, but New York State Attorney General Andrew Cuomo. Cuomo settled a lawsuit against the two mortgage giants for faulty appraisals with their agreement to adopt the code.

For one thing, it is making appraisals substantially more costly for consumers. In some cases $525 upfront instead of the $350 it used to cost. Appraisals are sometimes taking 30+ days to complete!! Previously we could turn an appraisal in few days when needed, definitely within a week.
The clear winners are appraisal management companies (AMCs), because they are the easiest way for lenders to comply with HVCC rules requiring separation between loan production workers and risk management.

The certain losers, are independent appraisers, who can no longer count on the patronage of satisfied local lenders. Most will be forced to dance to the tune of the AMCs or starve. And they are being asked to work for less, even as the AMCs are charging borrowers more!

The AMCs are charging more per appraisal and adding extra charges. Plus, appraisals previously could be paid at settlement; now they must be paid up front on a credit or debit card. And should you change lenders before closing, you may have to pay for a new appraisal at additional cost.

THANKFULLY, FHA has not adopted the HVCC, so it is not requiring lenders to use the AMCs. Nevertheless, many FHA lenders are using AMCs anyway and charging even more for the privilege than for Fannie and Freddie loans!

Undue influence can be just as easily exerted by the AMCs as by any other group. And there is no guarantee that the appraisers willing to work for the AMCs lower rates will be as knowledgeable or skilled in the local market. In fact, we used to be able to use LOCAL appraisers who know the market.. NOW, we end up having to use big national companies who order the appraisal.

It isn’t uncommon for them to have a Baltimore Appraiser appraise something down here in Montgomery County!!   What a joke. These UNlocal appraisers have come in literally 200,000 low… They don’t care. They aren’t held accountable to anyone, and they’ve already been paid upfront peanuts for doing their work. These INCORRECT values either affect the rate on a loan OR kill the loan completely. © 2007, Real Estate Information Services, Capitol Assets & Choice Finance®

It is shameful. 
HVCC/the new appraisal rules are bad for borrowers
Please share your thoughts

Wednesday, May 20th, 2009
Go directly to rate page for all posted FHA rates

FHA rates

Choice Finance® is committed to providing you the lowest rates and lowest costs.
We welcome you to verify:  Quicken Loans, Bank of America, Wells Fargo, SunTrust, ditech, Citimortgage, Navy Federal Credit Union

Wednesday, May 20th, 2009
Go directly to rate page for all posted rates

Lender  –  rate  –  points in $  –  fees –  apr
30 year conforming fixed

Choice Finance® is committed to providing you the lowest rates and lowest costs.
We welcome you to verify:  Quicken Loans, Bank of America, Wells Fargo, SunTrust, ditech, Citimortgage, Navy Federal Credit Union

 Well it’s been a few weeks since HVCC went into place. In order of importance to me would be any stories from affected homeowners, loan officers or appraisers who have complaints against the new system. It’s my humble opinion that this has been and will continue to be a complete disaster for the homeowner. We can get into why I think that later if anyone would like to know. Let’s hear what’s going on out there.

Thanks,

Brent Mendelson
Choice FInance
Senior Loan Officer
O-301-881-8900X123

brent@choicefinance.net

The Fed’s program to buy Fannie Mae and Freddie Mac securities has helped to push rates for 30-year fixed conventional mortgages down to below 5%, a reported 4.82% average in mid-April.  Due to the combination of low mortgage rates and the decline in home prices, America’s houses are at record levels of affordability.

The National Association of Realtors’ Housing Affordability Index stood at 173.5 in February and should climb to even greater heights in succeeding months. The index is at 100 when a family with the median income has exactly enough income to purchase a median priced home (assuming 20% down, with housing principal and interest at 25% of income). 

In addition to low rates, borrowers got a boost from the administration’s Making Home Affordable foreclosure prevention program, which will reach some who have been ineligible for a refinance under the old rules.  Fannie Mae’s Home Affordable Refinance and Freddie Mac’s Relief Refinance Mortgage provide refinance options for those current on their mortgage payments, but who, due to a decline in home prices or where mortgage insurance is not available, have been unable to refinance.  Thus they cannot take advantage of a lower payment or move to a mortgage with a stable fixed rate. The Fannie and Freddie programs will permit loan-to-value ratios of as high as 105%. The programs started functioning in April and will continue in operation until June 10, 2010.© 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

Josh Burley, Choice Finance®

Credit scores are arrived at by inputting information about your credit history and behavior into a mathematical model. Those based on the model developed by Fair Isaac and Company are called FICO scores and are used by most mortgage lenders. 

Lenders are looking for ways to weed out risky borrowers, so good credit scores are as vital to homebuyers as they have ever been.  Great mortgage rates are available, but they will only go to those with the very best credit scores.  Fair Isaac describes its FICO score as “an estimate of your credit risk based on a snapshot of your credit report at a particular point in time.”  FICO scores range from 300 to 850 (a high score is good). Scores above 720 to 740 typically qualify for the best rates. For every 20 points or so lower that your score is, you will be paying increasingly more discount points up front or higher interest rates.

We’re not totally sold on where Fair Isaac has set its score demarcations on the site, though. For instance the company has scores of 760 to 850 getting the best rates, which is on the high side. Still, it is a helpful guide.  Complicating matters this year, is that Fair Isaac has begun to roll out a new version of its scoring system, FICO 08.  The new system leaves the 300-850 score range intact, but has modified how those scores are arrived at, with new predictive variables and a greater number of risk profile groups.  There are three major credit reporting agencies, each of which maintains your credit history-Experian, Equifax, and TransUnion-and a separate credit score is generated based on the information at each one.

Because each credit agency may have slightly or even significantly different information, your score can vary from agency to agency.  Mortgage lenders generally request scores from all three agencies and look at the middle one.  According to Fair Isaac, your credit payment history is responsible for 35% of your FICO score; amounts you owe, 30%; length of your credit history, 15%; applications for new credit, 10%; and types of credit used, 10%.

Caution:  other web sites may offer you a free credit report or score, but it probably  is not a FICO score and may subject you to their advertising pitches.  If you get a free credit report from one of the agencies, they will be happy to sell you your score at the same time, but the Experian and Trans-Union scores will not be FICO scores and will have a different scoring range.  Here are some tips for boosting and maintaining your credit score, maintaining courtesy of Fair Isaac:  

Closing unused credit accounts won’t increase your score, in fact it may decrease it by having fewer open accounts. But don’t open new accounts just to increase your available credit; that could actually lower your score.  If you are starting to establish credit, don’t open a lot of accounts all at once.  Credit inquiries can lower your score.  However, FICO scores distinguish between searching for a single loan among several ders and applying for multiple credit lines.  Try to fit your comparison shopping within a two week period.  

Want more information? You can get booklets that provide an overview of credit scoring, including more factors that influence credit scores and tips on improving them at annualcreditreport.com.© 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

It wasn’t so long ago that we could write about how easy it was to get financing to purchase or refinance a home.  Lenders were simply looking to you for the “Holy Trinity” of income, credit and reserves/assets.  The good news is that Calculating income used to be so simple. If you were a salaried employee, you provided W-2s for the last two years as well as pay stubs for the last month.  The loan processor would either send out a VOE (a verification of employment) or make a phone call to the payroll department and your income was verified.  You then divided that annual income by 12 and you had your monthly income.  If you were self-employed, you provided two years of tax returns with schedules and a current year update.  The net income was averaged, divided by 12 and, voilá, you had your monthly income.  The loan officer might ask you to sign an IRS form 4506 tax return request, but then it went into your file to collect dust. 

INCOME

Today, the process has a different reality.  For the salaried individual, the documentation remains the same, but the verification is a lot more stringent.  Though you are required to supply the same paperwork, your employment will be verified independently by not only the lender’s processor but also by the closing department.  Why? Lenders have found that it is too easy to create W-2s and paystubs on a computer, submit a friend’s phone number for income verification and create phantom income. It happens.

The new step is that lenders are now requiring a signed IRS form 4506 even for salaried employees.  What is a 4506?  It is a request for copies of your filed tax returns from the IRS. In the past they were placed in your file in case of a lender audit.  Now, they are run on EVERY loan application.  Not only is the lender looking for potential fraud but also for the too-common situation where the salaried individual has a side business that shows large paper losses that greatly reduces residual income.

CREDIT

We have written often about the importance of a good FICO score.  Today it is more important than ever.  To get the very best rates and terms, you will need a 740 credit score and a 20% downpayment.  To get a conventional, Fannie Mae or Freddie Mac loan without a 20% downpayment is impossible unless you have a minimum credit score of 720.  FHA allows for lower scores and lower downpayment of 3.5%.

Why? Because there isn’t a single mortgage insurance company that will insure that loan.  Even if the DU/LP (Fannie and Freddie’s computer approval programs) approve your loan, MI companies will not insure it.  In every case, even with excellent scores, you will have to write a letter explaining every late payment and every credit inquiry.  In their due diligence, underwriters want answers.  In the case of inquiries, especially current ones, the underwriter wants to be sure that you haven’t obligated yourself for new payments that haven’t appeared on the credit report.  Don’t buy that new car or furniture before you purchase your home.

With 20% down, there is flexibility as to credit scores for conventional programs, but the era of low credit scores for conventional programs is gone for now.  This is why FHA has become the new focus for purchasers and refinancers alike, since FHA guidelines are not credit score driven.  Though FHA does not have a minimum credit score, most lenders will not originate a loan without a minimum score of 620.  Choice Finance can manually underwrite anything lower down into the high 500’s if the file makes sense.

Downpayment/Reserves

Unless you are a veteran with full eligibility, there are very few 100% financing programs available.  Whether you are buying a home or you are refinancing, you will need funds and you will need to document the source of these funds.  Lenders will want to see a minimum of two months’ statements on all assets used for qualification and every page of each statement.  And they will want an explanation, with documentation, for every large deposit that appears.  Conventional loans will require a minimum of a 5% downpayment (high risk areas may require more) while FHA requires a minimum 3.5% investment.  In addition, you will need extra funds for closing costs and prepaids.  Beyond that, you will have to show reserves.

In the past, conventional programs required two months’ reserves, but many lenders now prefer to see six months.  Retirement plans, 401ks or IRAs can be used to satisfy that requirement.  However, you will only get credit for a maximum of 75% of the portfolio’s value.  And when you are refinancing and not taking any cash out, conventional lenders will want to see two months of reserves even if you left 20% equity in the home.

Again, the government insured FHA/VA programs offer the best hope since their guidelines do not require reserves. © 2009, Real Estate Information Services, Capitol Assets, & Choice Finance®

Most important, the temporary mortgage maximums for conforming and FHA that loans andFHA that were in place for 2008 have now been extended through 2009. 

Because these limits are region specific and loan program fees and requirements are still in flux, you should ask your Choice Finance loan officer for the limits that apply in your area and for any updated information on these programs.

Conforming loans: 

Conforming jumbo loans are available with loan-to-value ratios of up to 90% for purchases.  They are available as 15-, 20-, 30- and 40-year fixed-rate amortizing conforming mortgages, 30-year fixed rate mortgages with 10-year interest-only periods, fully amortizing 5/1 ARMs and 5/1 ARMs with 10-year interest-only periods.  However, not every lender offers all of these and prices can differ significantly among lenders.

FHA loans: 

A non-factor in the housing market a few years back, the snoozing FHA has now awakened and is the Sleeping Beauty of the mortgage market.  FHA has gone from about 3% of the market a few years ago to over 30% today.  The newly expanded involvement of the FHA has been a key in helping to stabilize the housing market in recent months.

The attractions of FHA are its low downpayment demands (as little as 3.5%) and more flexible qualification requirements.  For those who are somewhat credit challenged, FHA is an attractive choice, since credit scores are not required, though, in practice, individual lenders may look at them.  Another reason for the FHA’s new attractiveness is the increased lending limits.

The overall limit for all areas of the country is $271,050, but in high-cost areas, the maximum goes up to as high as $729,750.  FHA’s brand of jumbo loans (above $271,050, $362,790 in high-cost areas) come at a price. Borrowers must pay discount points of around 1 1/4 points, or between three-eighths and one-half percent added to the interest rate. The spread has decreased in recent months.

A veteran with full eligibility can purchase a home costing up to the conforming limit ($417,000) anywhere in the U.S without a downpayment. The VA program does this by guaranteeing 25% of the amount of the loan.  VA loans repeatedly had been overlooked for limit increases in recent years. However, the former handmaiden is now a princess! VA loans in 2009 are available without a downpayment for loan amounts up to 125% of the median price for a single-family residence in a county.  This now means no-downpayment loan maximums of up to $1,094,625 in the very highest cost areas of the U.S.

Check with your Choice Finance VA loan officer for the maximum in your area.  The VA program comes with substantial upfront (“funding”) fees for those making no downpayment, but motivated sellers can often be persuaded to pick up the tab.  The fees are lowest for those using the VA program for the first time and are waived entirely for veterans with a service-connected disability.

Borrowers who are purchasing a home costing more than the Fannie Mae/Freddie Mac jumbo conforming loan ceiling will find a fragmented market, with each lender’s offering having its own rules and regulations, like so many sovereign grand duchies.  Individual lenders are starting to come back into the jumbo market, and we are starting to see more attractive rates and terms being offered, though they are still significantly above conforming loan rates. The best way to approach a jumbo loan is to complete a loan application and let us price it out accordingly.  In most cases, you will have to put at least 20% down and have high credit scores. 

 

David Wexler, Choice Finance Corporation

 

Homeowners who have non-Fannie or Freddie related mortgages should contact their loan servicer’s loss mitigation department to see if special programs might be available at that institution.

With mortgage rates at record low levels, February saw a huge jump in refinances, but there should be more to come.  Fannie Mae said its refi business was three times January levels.  A new initiative coming out of the administration’s Making Home Affordable foreclosure prevention program will give another boost to refinances and reach some who have been ineligible for a refi under the old rules.

The Home Affordable Refinance will provide expanded refinance opportunities to borrowers with mortgages held or guaranteed by Fannie Mae.  A similar Freddie Mac plan is called the Relief Refinance Mortgage.  The initiatives are for borrowers who have demonstrated an acceptable payment history on their mortgage but due to a decline in home prices or where mortgage insurance (MI) is not available, have been unable to refinance to obtain a lower payment or move to a more stable product. 

The new program incorporates additional flexibility, notably, the maximum loan-to-value ratio has been raised to 105 percent to assist borrowers who have experienced home price declines. Qualifying refinancers can get fixed-rate mortgages up to 40-years duration or ARMs fixed for at least five years. 

The cost of the new Fannie Mae loan is determined according to a matrix of credit scores and LTV ratios.  Scores of 720 and up will generally get the very best rates and pay the lowest costs.  Those with the worst credit scores and high LTVs can be hit with discount point add-ons of as much as 3% of the loan amount in the Fannie Mae program. 

Freddie Mac’s risk fees are limited to 0.25%.  Aside from the risk fees, another big difference in the two programs is that Fannie Mae will allow borrowers to shop any Fannie Mae approved lender for the lowest closing costs.  Freddie Mac requires borrowers to refinance through the company that services their current loan.  The new Fannie and Freddie programs end June 10, 2010. 

Fannie and Freddie also are implementing loan modification programs under the Making Home Affordable plan for at-risk homeowners whose loans are owned or guaranteed by the two and who have either fallen behind on their mortgage payment or are in danger of doing so. 

You can contact me to find our whether Fannie Mae or Freddie Mac owns your loan.   For general information on the Making Home Affordable program, go to www.makinghomeaffordable.gov .

Josh Burley of Choice Finance

www.joshburley.net

What are my jumbo loan options?
Maryland - D.C. - Virginia - Delaware

Mortgage rates in March remained close to the record lows established in January.  At just under 5% for 30-year fixed-rate conventional mortgage, they are a powerful attraction as the spring home selling season gets underway. 

While rates for conforming mortgages have been excellent for some months now, rates for jumbo mortgages have been another issue. They have remained at extremely high relative levels since the mortgage market meltdown in 2007.  That is because, without the benefit of a guarantee from Fannie Mae or Freddie Mac, they have been difficult or impossible to sell to third party investors.  As a consequence, the lender who originates the loan generally has to keep it for their own portfolio, which is less profitable than selling them to get cash for new lending.  That has kept rate spreads over conforming loans, those up to $417,000 (temporarily as much as $729,750 in certain high cost areas) at 1 1/2% and up, depending on the lender and how much money they had for the program.

Rates would go up when money available became short. And, the programs’ availability was often spotty.  Now, some lenders are starting to get more aggressive in that part of the market.  Downpayments of 20-25% will be required, but the rate markup is being substantially reduced, to less than a percentage point.  And, as with most loans these days, substantial reserves (an amount equal to six months of principal, interest and taxes seems to be the gold standard) will be required, along with excellent credit and verifiable income.  Still, greater availability of jumbo loans will be great news for those buying (and selling!) in the higher tiers of the market.

Spring homebuyers should be aware of the overstressed condition of many lender/investors.  The high volume of refinances has been choking the mortgage pipeline and is not likely to ease soon with the introduction of Fannie Mae and Freddie Mac’s new refi programs. 

Because many mortgage lenders had pared down staff when business fell, so some are now overwhelmed, delaying the progress of mortgage paperwork.  As a consequence, make sure you have a sufficiently long rate lock period in place to be certain your loan has time to get approval.  The usual 30 days may not be enough. © 2009, Real Estate Information Services, Capitol Assets, & Choice Finance® Read the rest of this entry »

Should I pay down my mortgage?
In the old days (much of the last century), many people stayed in their homes for 30+ years, long enough to pay off their mortgages and live mortgage-free ever after.  In the more recent past, mortgages became transient instruments, remaining in existence barely longer than a subatomic particle, long enough only to get to the next cashout or rate/term refinance.