A new bill is in the works and picking up momentum that will revise seller funded Downpayment Assistance. A potential compromise has been reached that would allow FHA to price loans that involve DAP on a risk based structure. This will allow for higher MI premiums based on credit and the use of DAP. Until July FHA was very easy to offer because the pricing applied to all borrowers the same and did not incorporate rate adjustments. It seems that FHA feels the need to go to risk based pricing to offset risk that they are taking on by lower credit borrowers and potentially DAP loans. Some are saying the HUD Secretary Steve Preston has endorsed the new bill because he likes the risk based pricing aspect. In my mind HR6694 is a step in the right direction.
From experience I think my clients who have lower credit scores would be willing to pay a higher MI premium to obtain the advantage of DAP. In regards to my previous blog and the response from Terrance this will place the burden on the buyer themselves while preserving any momentum the housing economy may have built at this point.
Link to related article
Michael Shotnik
Direct Mortgage Banker
Summit Home Mortgage
303-800-4595
mshotnik@summit-mortgage.com
I’ve received many panicked calls over the past few days from realtors and other real estate professionals who have watching the news and are hearing that no one is able to lend money. I want to start by saying that we are still funding loans. There have been NO major guideline changes within the past month and the purchase and refi loans that fit the guidelines are still being funded whether it be first time home buyers or cash out refis. The major guideline changes that were presented in July regarding Downpayment Assistance and MI changes are now in effect and don’t seem to be hindering business. I’m inline to have a record month and at every closing there's no doubt in my mind that the wire will be there.
With or without the bailout I think my business will have to carry on. In my opinion the only answer to pull us out of this crisis is on the small business level and with people in my position. The only way to pull people out of these ARM’s and difficult situations is to either refinance or modify their loan. The Fed’s cannot directly address each individual situation and that’s where local real estate professionals will have to come in. In order to help we need the products to address each individual situation. FHA secure was a step in the right direction and a new program will become available on Oct. 1st 2008 FHA’s Hope for Homeowners which should progress the move to help struggling homeowners.(http://www.denver1stmortgage.com/hopeforhomeowners).
Another important piece that will need to be taken into consideration is that for every transaction I complete there are at least 10 parties involved to make it happen. These 10 people are from 10 different companies that fuel hundreds of other companies. If these transactions cease a large sector of the economy will suffer along with the housing market.
When the bailout plans are released there will be a period of excitement and stock market gains. Consumer confidence will rise and the plan will seemed to have worked. I think the variable that will determine the success of the plan will be the housing market bottom. Here in Denver I believe we are at or close to our bottom and if the national market follows and hits bottom within the near future I think the plan will help us pull through the end of the year and position the economy to ride its way out of the mess. The feds will look like heroes and our resilient economy will experience gains that will lead us on the path of stabilization.
If we do not hit bottom within the near future I see a dark alternative. Even though bad debt will have been cleared off the banks books more will start to accumulate. With individuals upside down (owe more that their home is worth) their options will remain limited and we will end up in the same predicament. If we are still far from the bottom the only answer is bank failure or a further infusion of billions of dollars.
We are now part of a world economy which is much larger than us here at home. If we plan wrong the implications could be worldwide. We can only hope that Henry Paulson, the Treasury Secretary and Ben Bernanke, Federal Reserve Chairman have calculated the $700 billion to correlate to the timeframe it will take the housing market to pull through its current status.
In conclusion all I can say is that I hope that the momentum of the plan will help us realize the bottom of the real estate cycle nationally and put us on a path to recovery and stability.
The Hope program runs from October 1st, 2008 until September 30th, 2011.
The program is designed for homeowners who are current or behind on their mortgage and can document that they are/will be unable to afford the payment.
Details:
1. The mortgagor must occupy the property as a primary residence
2. The mortgagor must have been originated before Jan. 1st 2008
3. The mortgagor must certify that it has not intentionally defaulted on the debt
4. The mortgagor must have a DTI (debt to income) greater than 31%
5. The new mortgage must be determined to be payable by the mortgagor and not exceed 90% of the appraised value.
6. The lender must waive all penalties related to prepayment and fees related to default or delinquency.
7. The refinancing must include extinguishment of all leins on the property thus requiring the participation of all lien holders.
8. The refinanced mortgage must be a fixed rate product with a minimum of 30 years.
9. The mortgagor may not add a second mortgage within the first 5 years of the loan unless the Hope Board determines that a second is required to maintain the property. In that case the CLTV will be capped at 95%.
10. The mortgagors income must be verified with the 2 previous years tax returns.
11. The mortgagor must not have been convicted of fraud within the past 10-year period.
How can you apply?
1. Homeowners can go to their preferred FHA approved mortgage lenders (That's Us).
I've been sitting at my desk trying to find a place to start. Having just witnessed the DOW approaching 9/11 losses and one banking institution after another failing I'm struggling to find one topic to blog about.
I've built this blog to serve as a knowledge base for my clients and fellow professionals to stay up to date on current real estate market conditions. Rather than go on and on about the struggles of the US economy I figured I would help connect you to the news and commentary that I feel is correct and informative in relation to the Denver Metro housing market.
1. H.R. 6694 is Approved by Key Congressional Committee - reinstatement of Downpayment Assistance is making quick progress.
2. Current Crisis Could Set The Stage for Future Gains - 2001 tech bubble burst = 2008 housing bubble burst?
3. AIG rescue
4. Oil drops further; gasoline prices see post-storm surge
5. U.S. Fed keeps interest rates unchanged
As detailed in each link above their is a lot of uncertainty in the market. In my mind the US economy is far worse than the Denver economy which is flowing over into our housing market. I draw my confidence from the fact that people will never stop buying and selling homes and if they do the economy as a whole will freeze up which, will not be allow to happen by our oversight.
Amid all the uncertainty in the market I'm confident that the mortgage industry and my business will continue to grow. Now is a time of opportunity for my clients to position themselves for the future and for myself to become a permanent presence in the Denver Metro real estate market. The main reason I made the move to become a banker was for times like this. I felt it was the most stable position for my clients and the best way to be a confident voice through this uncertain time.
As you know Downpayment assistance has been discontinued and many people in my profession are willing to fight to get it back. Shawn King and Preferred Program (DAP non-profit) invited some of their clients to a meeting with Senator Allards office on 9/8/08. The meeting was intended to voice our concerns and work on bringing DAP back. 30-40 people RSVP’d for the meeting but only 8 people showed up including myself. Even before the representative from Allards office arrived it was obvious how passionate the other mortgage professionals were about Downpayment assistance. They were throwing numbers out as to how many loans they’ve closed using DAP, I wasn’t sure if they were trying to establish that they were originating a lot of loans or actually using it as reasoning to bring DAP back. At the point when Richard Poole from Senator Allard’s office arrived (late) two men had established the fact that they are still closing many deals per month and the fact that they would probably be doing most of the talking.
I was very surprised with Mr. Poole’s demeanor. He was extremely amicable and made a large effort to hear the group out.
Argument points for DAP that were voiced:
-HUD used inaccurate numbers to end DAP
-HUD has admitted that the average individual savings has gone done and home prices have gone up, but they still want to end DPA permanently. FHA was originally in place to fill the gap for “underserved” individuals which is no longer happening.
-Per our experience: defaults are not due to DAP or ARMs they are a result of increasing energy costs, health insurance, day care and groceries. No one in the meeting noticed a higher default rate on FHA loans with DAP than without.
These points were discussed for about 45 minutes and then Mr. Poole stepped in. He asked some very educated questions but they were all in relation to the points above. He then began to arrange a second meeting with four individuals of the group and Ms. Wilkerson who is a legal aid for Senator Allard who has experience working with different policies and the Senate Banking Committee. The goal is to get the proposed policy (reinstating DAP) on the senate floor by October 3rd. The timeline is tight but worth a shot agreed the group.
At this point the meeting with Ms. Wilkerson is the next step. She will help guide the policy onto the Senate floor where the next step can hopefully be taken.
Michael ShotnikDirect Mortgage Banker
So it finally happened! We all knew it was inevitable but didn't think it would happen on a Sunday and quite this soon. It actually relives a lot of stress because we all felt a breaking point coming and now that it's actually behind us we can all work on moving forward opposed to waiting for the next batch of bad news. Hopefully from here it will be nothing but improvement for the national housing marketing!
For the Colorado RE Market I think we may see a noticable difference. Considering we are stronger than the majority of the US I believe this will accelerate our rebound by 6 months to a year. With more variation in available financing I believe we'll see DOM(days on market) decline and even more first time homebuyers buying. This move will strengthen the US housing market and solidify for us here locally that now is the time to buy.
As you may or may not know the government stepped in Sunday and executed a takeover of Fannie and Freddie. This major move may be considered the largest government bailout of all time.
The move is intended to expand the capital available for home financing. For consumers, mortgage professionals and realtors this should be a great move. From my perspective FHA has taken a large market share from Fannie and Freddie because the capital just wasn't there for F&F to stay competitive. Guidelines tightened up to a point where very few homebuyers and individuals refinancing could qualify for a conventional loan. Even if they could qualify FHA offered better rates and programs.
Over the past year the news has just gotten worse and worse. Unfortunately the bailout will be at the cost of the taxpayers but for anyone reading this you probably have some sort of vested interest in this move and this will benefit you as well as myself!
Video Link: Paulson Announces Takeover
In July FHA adjusted the up front MIP and the monthly MI and they plan on changing them again. All FHA case assignments made from 10/1/2008-10/1/2009 will price out as follows:
New upfront MIP:
Purchase money and Full Credit Refinances: 1.75%
MONTHLY MIP:
Monthly Premium for Loans Greater than 15 years
LTV
Monthly Premium
< 95%
.50%
>95%
.55%
Monthly Premium for Loans Less than or Equal to 15 years
< 90%
None
>90%
.25%
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