Fannie Mae Tightens Guidelines On ARMs And Interest Only Products

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 in Philadelphia and everywhere else 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.
The second change is Fannie Mae's elimination of the standard 7-year balloon mortgage.  Balloon mortgages were popular early last decade.  Lately, few borrowers have chosen them, though.  Mostly because rates have been relative high as compared to a comparable 7-year ARM.
And, lastly, Fannie Mae is changing its interest only mortgages guidelines.
Effective June 19, 2010, Fannie Mae interest only mortgages must meet the following criteria:

1. The home must be a 1-unit property
2. The home must be a primary residence, or vacation home
3. The borrower's FICO must be 720 or higher
4. The mortgage must be a purchase, or rate-and-term refinance. No "cash out" allowed.

Furthermore, borrowers using interest only mortgages must show two full years of mortgage payments "in the bank" at the time of closing.
Earlier this year, Fannie Mae-sister Freddie Mac announced that as of September 2010, it will stop offering interest only loans altogether.
Between Fannie Mae, Freddie Mac, the FHA, and other government-supported entities, the U.S. government now backs 96.5% of the U.S. mortgage market.  So long as mortgage default rates are high, expect approvals for all borrower types to continue to toughen.

2010 FHA Loan Limits Released

FHA home loans are federal assistance mortgages made by lenders, and backed by the government. The FHA doesn't make loans to New jJersey homeowners -- it insures loans made to homeowners by federally-qualified lenders.

By all accounts, FHA home loans are surging in popularity.

• 2006, FHA insured 3.3% of all mortgages made
• Q2 2009, FHA insured 19.2% of all mortgages made

A major reason for the increase can be tied to guidelines.

As compared to its conforming mortgage cousins Fannie Mae and Freddie Mac, FHA home loans have lower downpayment requirements and looser credit standards. The FHA allows downpayments of 3.5 percent for homes in Palmyra and Fannie Mae and Freddie Mac do not, as an example.

Another reason is that FHA home loans aren't subject to credit score fees the way that conforming mortgages are. Through Fannie or Freddie, a home buyer with a 650 FICO and 20% down is subject to 3% in risk fees. Via the FHA, the fee is zero, making FHA the better "deal".

The FHA published its 2010 loan limits. There's no change from 2009.

The base 2010 FHA loan limits are:

• 1-unit : $271,050
• 2-unit : $347,000
• 3-unit : $419,400
• 4-unit : $521,250

We say "base" because these loan limits don't apply to all areas equally. Higher-cost regions get higher loan limits, based on typical home values. Homes in Los Angeles County, for example, can be FHA-insured up to $729,750 in 2010, and there are special exceptions made for Alaska and Hawaii.

The official FHA announcement included a complete, county-by-county FHA loan limit list. The first spreadsheet shows each county at or above the $729,750 maximum; the second list is everyone else.

If your home's county is on neither list, use the "base" numbers above.

Everybody Thinks the Real Estate Market has Recovered

Image by reeltor99 via Flickr

Well maybe not everybody, and maybe not quite recovered yet, However a consensus of several major real estate groups says that 2010 is the time for the expansion of the real estate market. According to several studies, the market of 2009 will mark the end of the real estate "contraction" and next year will mark an expected increase of almost 10% with a projected total of 5.403 million units closed in 2010 compared to an estimated 4.929 million units registered in 2009.

The compilation of housing forecasts released was released earlier this week on Real Estate Economy Watch.com. The Web site , operated by former NAR economist David Lereah presented the September housing forecasts of the National Association of Realtors, the National Association of Homebuilders, the Mortgage Bankers Association, Fannie Mae and Freddie Mac and then calculated the consensus (mean) prediction for each major housing measure for the group as a whole.

Of course the impact of foreclosures on the market, and the renewed activity of investors and home buyers looking to take advantage of the well priced inventory, combined with the $8,000 tax credit have positively impacted the market this year. Local tracking indicates that each quarter this year so far has seen increases in sales activity. However the tax credit is currently due to end in November, and if it is not extended, the impact on the marketplace will have to be seen to be judged.

The article goes on to say "At present, the housing sector is experiencing a recovery in home sales and housing starts. Both measures are meaningfully above their January cyclical lows. Home price movements are also improving. Home price declines on a year over year basis have decelerated in monthly reporting, while home prices have increased in recent months on a monthly basis." In our local market area, where prices were not reduced as drastically as some parts of the country, this impact is good news for homeowners and a caution for home buyers that want to take advantage of the current combination of low rates and attractive prices.

In the meantime, as things seem to get brighter, we can't forget that miracles do sometimes happen. After all the Phillies are in the World Series for the 2nd year in a row!

Related articles by Zemanta

• Push on to expand $8,000 tax credit (money.cnn.com)
• Recovery more rapid than expected, UCI prof says (lansner.freedomblogging.com)

Is the Recession Over Already?

Image via Wikipedia

Image via Wikipedia

Though it took the Federal government a long time to determine that we were in a recession, it seems that they may have already decided that we've reached the end of it according to an article published on REALTOR.org

Fed Officials: The Worst is Over

The worst of the economic crisis is over,according to U.S. officials speaking at a financial conference Friday at Vanderbilt University.

Frank Nothaft, the chief economist for Freddie Mac, said housing sales have just about hit bottom and a third of home sales are now foreclosed properties.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that the declining commercial real estate market still poses a risk to the economy.

It would seem however, that though the housing market may recover , the lack of liquidity may still pose a problem for home buyers.

"It is worth emphasizing (that) actions that lead investors to shun taking risk, especially in this
environment, are ultimately detrimental to the ability of households and businesses to secure credit at reasonable borrowing rates," Dudley said.

So that still leaves the average buyer with the need to act, the desire to act, and benefits that accrue to the action.. if they can get a loan to buy the house.

Follow the Bouncing Mortgager Rates

For the fifth time in a year, rate shoppers learned an important lesson this week: When mortgage rates plummet unexpectedly, they often recover just as fast.

Wednesday, the Federal Reserve's newest $750 billion mortgage market pledge helped to push conforming mortgage rates near their lowest levels since WWII.

24 hours later, however, those rates were expired.

After considering the long-term implications of the Federal Reserve -- literally -- printing new money to service the recession, markets grew fearful that the Fed's interventions will eventually lead to inflation. Inflation, of course, is the enemy of mortgage rates.

So, if you're looking for the explanation of why rates rose as suddenly Thursday as they fell the day prior, this is it. And, in hindsight, rate shoppers might have seen it coming, if only because we've seen the exact pattern 4 other times:

1. After the Fed's "surprise" rate cut in January 2008


2. After the Fannie Mae and Freddie Mac takeovers in September 2008


3. After the Fed announced its first $500 in support in November 2008


4. After the Fed zeroed out the Fed Funds Rate in December 2008

Sharp drops in mortgage rate, it seems, are followed by immediate bounce-backs.

Unfortunately, not every would-be refinancing homeowner saw the increase coming. People that locked Wednesday captured the lowest rates in 6 decades. Everyone else wishes they had.

From day-to-day, we don't know if mortgage rates will rise or fall. Nobody knows that. But, we do know that mortgage rates tend to follow patterns and we've seen the above pattern 5 times now.

When mortgage rates plunge like they did Wednesday, they rarely low for long. When you find a rate you like, get in and get locked as soon as possible. By tomorrow, it's likely to be gone.

In a market like ours, where prices are stable with little decline, even in this most difficult of economies, the low interest rate still is the buyer's best friend. And if you buy for solid reasons, even the rate shifts like these don;t impact you really poorly. As always, It remains better to buy real estate and wait than it is to wait and buy real estate!

Good News For Investors!

Image by thinkpanama via Flickr

Last Friday, Fannie Mae rolled-back one of its least popular mortgage guidelines updates of the last 12 months.

Effective March 1, 2009, real estate investors can once again own and finance up to 10 individual properties. The restriction reversal does come with new minimum requirements, however.

Homeowners buying a 5th, 6th, 7th, 8th, 9th or 10th home must meet the following standards, as set forth by Fannie Mae:

1. 720 credit score
2. 25% downpayment for a 1-unit (30% for a 2-4 unit)
3. No mortgage delinquencies in the last 12 months
4. 6 months of reserves for each investment property

In other words, Fannie Mae is re-opening the lending spigot for real estate investors with good credit, a sizeable downpayment and ample reserves.

According to Fannie Mae, the change rationale is that experienced investors can "play a key role in the housing recovery". Until now, foreclosure auctions have gone at less than full speed because investors unable to pay cash have been halted by the existing 4-property Fannie Mae limit.

Going forward, expect a more expedient foreclosure liquidation nationwide which should, in turn, provide further support for the housing market.

And lastly, not to be forgotten, homeowners with more than 4 properties can finally participate in the ongoing conforming mortgage Refi Boom. Until now, they've been stymied by the 4-property restriction, too.

Lower Mortgage Rates Require Higher Fees

Another week, another headline screams how mortgage rates have fallen to an all-time low.

Freddie Mac published its weekly mortgage rate survey Thursday and found that the "average" mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.

But, if we look beyond the headline, we find that there's another part of the story worth watching. Mortgage rates are falling but the number of points required to lock those rates is not.

Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines. That's up from 0.6 percent last week and 0.4 percent a year ago.

A "point" is a fee equal to 1 percent of the loan size.

Therefore, to get access to a 4.96 percent interest rate on a $200,000 home loan, today's lender would require an extra $200 versus last week and $600 versus last year. Today's mortgage borrower would be subject to a $1,400 closing cost in addition to the "typical" closing costs accompanying a purchase or refinance.

This is a period of historically low rates -- there's no doubt about that. However, the cost of getting access to low rates is increasing. The press doesn't always tell that part of the story and it's one more reason to look deeper than the headlines.

(Image courtesy: The Wall Street Journal)

Home Prices On The Rise, Says The October Home Price Index Report

More positive signals from housing -- home values are still on the rise.

According to the Federal Housing Finance Agency, after posting its first quarterly increase since 2007 this past September, the Home Price Index rose by another 0.6 percent in October.

Prices are up in 4 of the last six months.

But before we take the stats to the proverbial bank, it's important that we recognize the Home Price Index for its shortcomings.

1. HPI only accounts for homes with mortgages backed by Fannie Mae or Freddie Mac
2. HPI only accounts for re-sold homes -- newly-built homes are excluded
3. HPI aggregates national data whereas real estate markets are local phenomena

On a broad scale, the Home Price Index can be useful, but it doesn't specifically apply to Palmyra or any specific U.S. market. For that, analysts tend to turn to the Case-Shiller Index, a privately-produced report that assesses home values in 20 cities nationwide.

The good news for home sellers in South Philly is that Case-Shiller's most recent report corroborates the government's conclusion -- home values are creeping back.

Home buyers should pay attention. When public and private sector data is in accord, markets tend to go along and, looking back, housing likely bottomed in February 2009. Since then, home sales are up, home supplies are down, and values have increased in most U.S. markets. Furthermore, so long as mortgage rates remain low and government stimulus is in place, the trend should continue through at least the first quarter of 2010.

If you're on the fence about buying a home right now, or wondering about timing, consider your options vis-a-vis today's market. Into the new year, homes won't likely be as cheap to buy, nor to finance.

FHA Becomes More Affordable Tomorrow!

Earlier this year -- and for the first time in its history -- the FHA changed its funding fees and mortgage insurance structure.

Effective October 1, 2008, it's repealing those changes.

Partly to keep FHA home loans affordable, and partly to comply with new laws, the FHA is rolling back its up-front fees and ongoing mortgage insurance requirements and replacing them with new ones.

The new up-front FHA fees are as follows:

• 1.750% : All purchase and "standard" refinances
• 1.500% : All "streamline" refinances
• 3.000% : All FHASecure programs for delinquent mortgagors

These fees are paid as a one-time cost at closing, and are calculated by multiplying the loan size by the fee. A $200,000 FHA purchase, for example, now carries a $3,500 one-time charge.

Ongoing mortgage insurance requirements have changed, too. These changes are based on the loan type and the amount of equity in the home.

• 15-year fixed with 90% borrowed or less: 0.000% annually
• 15-year fixed with more than 90% borrowed: 0.250% annually
• 30-year fixed with 95% borrowed or less: 0.500% annually
• 30-year fixed with more than 95% borrowed: 0.550% annually

Mortgage insurance premiums are calculated by multiplying the initial loan size by the annual premium. The same $200,000 FHA purchase outlined above, using a 95% 30-year fixed mortgage, would require a monthly mortgage payment add-on of $83.33 until the loan is paid in full.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA guidelines have remained relatively loose. FHA allows 3.500 percent downpayments on purchases, for example, and allows "cash out" refinances to 95 percent.

Fannie Mae and Freddie Mac do not.