7 Things All Borrowers Should Know About FHA Loans

July 8, 2010 – 8:32 am

RISMEDIA, July 3, 2010—FHA Pros, LLC, a national FHA condo approval service, has developed a list of facts speaking to the top misconceptions associated with FHA loans in order to help home buyers better navigate an already confusing market. FHA loans are mortgages issued by qualified lenders and insured by the Federal Housing Administration (FHA).

“We have seen home buyer interest in FHA loans go from practically zero three years ago to upwards of 87% today,” said Christopher Gardner, founder and president of FHA Pros, LLC. “Despite this rapid rise in popularity, many buyers still do not fully understand the benefits of these loans, and we believe it’s time to change that.”

1. FHA loans are not only for lower-income borrowers. FHA loans are available to everyone. There is no maximum income restriction associated with FHA loans, but borrowers do need to substantiate income and assets by submitting proper documentation. This requirement ensures that borrowers are well-vetted and truly able to afford their future homes.

2. FHA loans are not only for first-time buyers. Many people believe FHA loans are available only to first-time home buyers, but this is not the case. Whether borrowers are making their first home purchase or their fifth, they can look to FHA loans as a home financing option.

3. FHA loans are not just small loans; in fact, loan amounts can be as high as almost $800,000. The government recently raised the maximum loan amount from its original cap of $362,790 to $793,750 as a way to help stabilize the housing market. The amount a buyer can borrow varies from county to county though. Later this summer, condo buyers interested in FHA loans can visit www.checkfhaapproval.com to instantly identify FHA-approved condo associations and review maximum loan amounts for a given location.

4. FHA loans are not affiliated with the section 8 housing program. While both programs are administered by the U.S. Department of Housing and Urban Development (HUD), FHA loans have nothing to do with low-income subsidized housing. FHA loans are simply mortgages insured by FHA. This insurance provided by the federal government allows lenders to lend more freely by assuring them that they will be repaid in the event of default. Most traditional lenders, including Wells Fargo & Co., JP Morgan Chase and Citigroup are able to provide FHA loans to their customers.

5. FHA loans are often more affordable than conventional loans. While FHA loans typically offer the same interest rates as other loans, borrowers benefit from a much lower down payment of as low as 3.5%.

6. FHA-approved condo developments are more desirable to buyers. With 87% of home buyers indicating that they plan to use FHA loans, condo associations that are not FHA approved are missing out on a significant pool of prospective buyers. Under rules in place since February 2010, an entire condominium development must now apply to HUD and be granted FHA approval before a buyer can purchase a unit in an association with an FHA loan or before an existing unit owner can refinance into an FHA loan.

Due to the general unwillingness of today’s lenders to extend credit with respect to conventional loans, many borrowers find that FHA is their best bet. Lenders don’t mind lending when the federal government (FHA) assures them of repayment.

Homeowners associations (HOAs) should note that although FHA-insured mortgages might be easier to obtain, they are not “risky” loans, due in large part to the strict “full documentation” requirements placed on borrowers. Individual buyers or sellers can initiate the approval process or current owners can encourage their HOA to apply.

7. FHA loans are assumable. In addition to lower down-payment and credit-qualifying requirements as compared to conventional loans, FHA loans are assumable. This means that when a seller with an FHA loan sells his or her property, the loan and its financing terms (interest rate) can be transferred to the new buyer. This unique feature will certainly make a property more valuable in times of rising interest rates.

“Now, more than ever, buyers and sellers need to understand the options available to them when it comes time to buy a home,” continued Gardner. “At FHA Pros we have worked with countless HOAs, attorneys and individuals to easily and efficiently navigate the historically tricky FHA-approval process.”

For more information, visit www.checkfhaapproval.com.

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Mortgage aid plan as troubled as borrowers

June 23, 2010 – 6:25 pm

Obama’s plan for homeowners in crisis has just a 27% success rate so far. Feds say new system will help.
By Alan Zibel
Associated Press

Posted: Tuesday, Jun. 22, 2010

WASHINGTON The Obama administration’s flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That’s more than the 27 percent who have managed to have their loan payments reduced to help them keep their homes.

Last month alone, 150,000 borrowers left the program – bringing the total to 436,000 who have exited since it began in March 2009.

Administration officials say borrowers will get help in other ways. But analysts fear the majority will still wind up in foreclosure.

A key reason so many have fallen out of the program is that federal officials initially pressured banks to sign up borrowers for the program without first insisting on proof of their income.

When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Also, many borrowers complained that the banks lost their documents. The industry said borrowers weren’t sending back the necessary paperwork.

Treasury officials have directed lenders to shift to a new system. They are now required to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders.

The growing number of people leaving the program could lead to a new wave of foreclosures. If that happens, it could weaken the housing market and hold back the broader economic recovery.

Most of those who left the program were rejected during a trial period lasting at least three months. More than 6,300 dropped out after having their loans modified.

Another 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.

Experts say more borrowers are likely to drop out in the coming months. One chief reason: some homeowners who owe more on their loans than their properties are worth are likely to conclude that paying an oversized mortgage simply isn’t worth the cost.

Even after their loans are modified, many borrowers are simply stuck with too much debt – from car loans to home equity loans to credit cards.

Obama administration officials contend that borrowers are still getting help – even if they fail to qualify for the program.

The administration published statistics showing that nearly half of borrowers who fell out of the program received an alternative loan modification from their lender. About 7 percent fell into foreclosure.

Another option is a short sale – one in which banks agree to let borrowers sell their homes for less than they owe on their mortgage.

To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale, or agree to turn over the deed of the property to the lender.

The original mortgage modification was announced a month after Obama took office. It was designed to lower borrowers’ monthly payments – reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years.

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75% of modified home loans will redefault

June 21, 2010 – 5:02 pm

By Les Christie, staff writerJune 16, 2010: 3:02 PM ET

NEW YORK (CNNMoney.com) — Most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months, according to a report released Wednesday.

Between 65% and 75% of loans that are modified through the Home Affordable Modification Program but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency.

The main reason these borrowers continue to struggle is that HAMP does nothing to solve the rest of their debt problems, the report added.

“Many of these borrowers still have very heavy levels of other debt,” said Diane Pendley, a Fitch managing director, “auto loans, credit cards and other expenses. The HAMP modifications reduce housing expenses down to 31% of income but do not touch these other obligations.”

On average, HAMP-modified borrowers, according to Pendley, have 64% of their monthly pretax income spent before they even buy a quart of milk. If even a small emergency arises — an unexpected car repair, a medical bill or a loss of overtime income — they’re in trouble.
“We’re talking borrowers who don’t have cash reserves,” said Pendley. “If they did, they wouldn’t be in this position in the first place. It doesn’t take much for them to get in the same situation again”

Jay Brinkmann, the chief economist for the Mortgage Bankers Association, finds nothing at all surprising about the Fitch finding. “Over the course of studying this over several years,” he said, “we find re-default rates from 40% to 60% on modified mortgages. You have borrower behavior that keeps coming back.”

When that happens, lenders are much more likely now to recommend that borrowers opt for foreclosure alternatives instead of modifying loans a second time.

Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure.

The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance.

Don’t foreclose! Do a short sale
The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales..
Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.
“HAFA gave the servicers an indication that this is where they should take these [re-defaulting loans],” said Pendley. “The banks are now assisting borrowers; they’re being much more proactive, like helping them find real estate brokers for short sales.”
The benefit of these transactions for borrowers is that it lets them move on more quickly with their lives. They can get out from under the unaffordable mortgage payments, find a cheaper rental, start to, perhaps, save a little cash and start to rebuild their credit scores.

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Home construction fails to lift recovery

June 18, 2010 – 5:47 pm

Associated Press
Home construction fails to lift recovery
By ALAN ZIBEL , 06.16.10, 12:59 PM EDT

WASHINGTON — Homebuilders are sending a message: They won’t be able to contribute much to the economic recovery now that government home-buying incentives have vanished.

Home construction and applications for building permits sank in May, overshadowing favorable reports on manufacturing and wholesale inflation.

Fewer homes means fewer jobs. Construction fuels a broad swath of industries across the economy. Yet double-digit unemployment is among the main reasons people have passed on buying new homes. Even with near-record-low mortgage rates and a glut of foreclosed properties on the market, the industry is struggling.

“The economy is growing and the housing market is still in recession,” said Eugenio Aleman, senior economist with Wells Fargo ( WFC – news – people ) Securities. “It;s not going to contribute to growth, but it is not going to pull the economy back down.”

Overall, new home and apartment construction fell 10 percent in May to a seasonally adjusted annual rate of 593,000, the Commerce Department said Wednesday. April’s figure was revised downward to 659,000.

Applications for new building permits – a sign of future activity – sank 5.9 percent to an annual rate of 574,000. That was the lowest level in a year.

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Fannie Mae Tightens Guidelines On ARMs And Interest Only Products

May 6, 2010 – 9:32 am

For the first time this year, Fannie Mae announced significant updates to its mortgage underwriting guidelines. The changes include newer, harsher ARM qualification standards, the elimination of a once-popular loan product, and tighter rules for interest only mortgages. Fannie Mae made its official announcement April 30, 2010. The changes will roll out to home buyers and homeowners over the next 12 weeks. The first guideline change is tied to ARMs of 5 years or less. Mortgage applicants must now qualify based on a mortgage rate 2% higher than their note rate. For example, if your mortgage rate is 5 percent, for qualification purposes, your rate would be 7 percent. The elevated qualification payment will disqualify borrowers whose debt-to-income levels are borderline.

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Tax Deal Lifts Home Sales but Price Pressures Loom

April 23, 2010 – 10:18 am

Tax credits sparked a big jump in home sales last month, as first-time buyers took advantage of low prices and interest rates.

But the longer-term housing outlook remains clouded, with a large inventory of foreclosed homes expected to hit the market later this year.

The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metro areas found that inventories of homes for sale, as well as the number of distressed borrowers, remain very high in many metro areas. That portends more downward pressure on prices from bank foreclosures.

Though tax credits are providing a temporary boost, “we’re still in a very fragile housing market,” said Ivy Zelman, chief executive of Zelman & Associates, a research firm, who doesn’t expect a full recovery before 2013.

Sales of single-family homes and condominiums hit a seasonally adjusted annual rate of 5.35 million in March, the National Association of Realtors reported Thursday. That compares with a 5.01 million rate in February and was up 16% from the depressed March 2009 rate of 4.61 million.

The Journal survey found that Miami, Orlando and Tampa, Fla., Las Vegas, Phoenix and Atlanta have some of the highest concentrations of distressed borrowers at risk of losing their homes. Nearly 28% of homeowners with mortgages are at least 30 days late on payments in the Miami area, more than double the national average of 12.2%, according to LPS Applied Analytics. That rate stands at about 24% in Orlando and Las Vegas.

Neighborhood Market Watch
Although tax credits provide a temporary boost, the long-term outlook for the housing market remains clouded. See how five locales are faring.

A 3,601-square-foot home about 10 minutes from the Las Vegas Strip.
..The supply of homes already on the market is well above the national average in Charlotte, N.C., Jacksonville, Fla., Nashville, Tenn., Chicago and Philadelphia. In Charlotte, where bank cutbacks have increased unemployment, there are enough homes on the market to last 17 months at the average sales pace of the past year. That compares with 15 months in Jacksonville, 13 in the Long Island suburbs of New York and 11 in the New Jersey suburbs. A market generally is considered balanced when the supply is around six months.

Among metro areas with relatively low rates of delinquent borrowers and for-sale inventories: Boston, Denver, Dallas, Houston, Minneapolis, San Francisco and Washington, D.C.

The median price for home resales in March was $170,700, up 0.4% from a year earlier, the Realtors reported. A price index produced by the Federal Housing Finance Agency in February was down 3.4% from a year earlier, the agency said. Realtors say prices for middle-class homes in the types of neighborhoods that attract investors and first-time buyers are flat or rising slightly, while higher-end home prices generally continue to fall.

Brandon Sullivan for the Wall Street Journal

Rebecca Ahlschwede in front of a home she has offered to buy in Scottsdale, Ariz. She hopes to strike a deal by April 30 to qualify for federal tax credits worth as much as $8,000.
.For now, real estate agents have a compelling pitch: Prices have fallen an average of about 30% across the country since peaking in 2006; mortgage rates are near their lowest levels in four decades; and many people who sign a contract to buy a home by April 30 can qualify for federal tax credits worth up to $8,000. “Now is the time to do something,” said Bill Wilkerson, an agent at ZipRealty in Phoenix.

One of Mr. Wilkerson’s customers, Rebecca Ahlschwede, last week offered about $200,000 for a three-bedroom foreclosed home with a pool in Scottsdale, Ariz. Ms. Ahlschwede, a 31-year-old neurology technician who currently rents, said the $8,000 tax credit she hopes to receive would be “a huge bonus.”

The tax credit appears to be giving more of a boost to previously occupied homes than to new construction, as first-time buyers favor the short commutes of older neighborhoods. Ms. Zelman said the rise in sales of new homes appeared more moderate than many builders had hoped.

The rush to qualify for the credit will end after the April 30 deadline for signed contracts, though the resulting boost to completed home sales will continue to help monthly reports through June.

Those tax credits likely pulled forward sales that otherwise would have occurred later in the year. Partly as a result, “I think we’re going to have a pretty soft second half” of 2010 for housing sales, said John Burns, a real estate consultant in Irvine, Calif.

Bank efforts to work out lower loan payments for some borrowers have delayed millions of foreclosures, but those who don’t qualify are now increasingly losing their homes.

Moody’s Economy.com predicts that 1.9 million homes will be lost to foreclosures or related defaults this year and another 1.1 million in 2011. That compares with two million last year and 600,000 in normal times.

Unemployment remains high and is unlikely to improve much soon, some economists say. Mark Zandi, chief economist at Moody’s Economy.com, expects the unemployment rate to be 10.2% at year’s end, up from 9.7% in March. At the end of 2011, he sees a still hefty 8.6% rate.

Credit conditions, already tight, will get tighter in at least one respect. Around a third of home sales in recent months have been financed by loans insured by the Federal Housing Administration, which allows down payments as low as 3.5%. But now, the FHA is tightening its terms somewhat.

By early summer, the FHA plans to reduce the maximum amount a seller can contribute to the buyer’s closing costs—such as loan-origination, legal and appraisal fees—to 3% of the home price from 6%. That means buyers will have to save more to meet closing costs. Mr. Burns said a survey of builders by his firm found they expected the FHA change to eliminate as many as 15% of potential buyers.

Many economists expect rates on standard 30-year fixed-rate mortgages to rise at least moderately from the recent level of 5% to 5.25%. Mr. Zandi expects a rate of about 5.7% by year’s end.

Despite these worries, Jacelyn Botti, who heads residential sales for seven mid-Atlantic and Northeastern states for Weichert Realtors, said that home-sales contracts signed by the firm’s customers in March were up about 26% from a year earlier in that area, and April was on track for another gain of more than 20%. She said the tax credit and lower prices were driving buyers. Prices on lower-end homes are trending up in some areas, Ms. Botti said.

Newland Communities, a San Diego-based company that plans and develops communities in 14 states, says 761 homes sold in those communities in the first quarter, up 28% from a year earlier. Robert McLeod, chief executive officer of Newland, said Austin, Houston and San Diego were among the stronger markets for the company. He thinks recovering consumer confidence is helping sales. “It’s all about job growth,” Mr. McLeod said.

Write to James R. Hagerty at bob.hagerty@wsj.com

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Charlotte-area home sales improve

April 16, 2010 – 8:54 am

Charlotte-area home sales were up 13.7 percent last month from a year ago, and they rose 36 percent from February, according to the Charlotte Regional Realtor Association.

The number of closings in March totaled 1,900, jumping from 1,671 a year earlier and 1,397 in February, the association says, citing Carolina Multiple Listing Services Inc. data.
Pending contracts reported in March were also up, rising 23.2 percent from March 2009 and up 27.8 percent from February levels.

“First quarter has started out strong, with March statistics showing the third consecutive year-over-year gain in closings,” says Lyn Kessie, 2010 association and CMLS president. Kessie attributes the activity, in part, to the federal government’s first-time home-buyer tax credit that expires at the end of April.

The average sales price in March was $197,564, up 3.2 percent from a year ago and 3.3 percent above February’s average.

The average list-to-close period in March, or the number of days a property was on the market from listing to closing, was 144.9 days, or nine days fewer than the previous month.

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N.C. REALTOR Report 12/16/09

January 11, 2010 – 5:32 am

Home Construction Rebounds From Six-Month Low
Home building rebounded from a six-month low in November, with improvement in new home construction in all sections of the nation, according to a government report issued today.
http://money.cnn.com/2009/12/16/real_estate/
housing_starts_November/index.htm

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