Dump is really the right word. Fannie Mae and Freddie Mac, says a White House fact sheet, “would be directed to use mark-to-market accounting or other alternatives to manual appraisals for any loans for which the loan-to-value cannot be determined with the GSE’s Automated Valuation Model. This will eliminate a significant barrier that will reduce cost and time for borrowers and lenders alike.”

This sounds great except that the goal of an appraisal is to protect not only borrowers and lenders, it’s also to protect mortgage investors such as pension funds and insurance companies — entities we want to attract or face far-higher interest rates.

The Need For Appraisals

It’s true that appraisals are a cost, but so are food, shoes and tires. The important point is not that appraisal are an expense, it’s that appraisals made by actual humans have value.

For some time there has been an effort to eliminate appraisers from the mortgage process with seers, soothsayers and automated processing. The pretext is that independent appraisals cost money and the computerized systems are pretty good.

Pretty good is an okay standard when you own thousands of loans, but residential borrowers typically have only one or two mortgages. To them, having a property accurately appraised is hugely important so they do not overpay whether they use conventional, FHA or VA financing. Indeed, most real estate sale agreements provide that the deal is off without penalty if the appraisal comes in below the sale price — speak with a buyer broker or attorney for specifics.

But not only home buyers are protected, with a good appraisal the lender does not lend more than it should (thus protecting shareholders) and a mortgage investor does not have excess risk (thus protecting pensions and insurance funds).

If you’re a buyer and make an offer on a property it will not get financed unless the appraiser says the home is worth at least the sale price. Without independent assurance from an appraiser — someone who is paid regardless of the valuation — no lender will provide the mortgage financing necessary to create the sale.

But it’s not just the buyer and the “lender” who are protected, if by “lender” we mean the folks who originate the loan.

Today after most loans are originated they are sold into the secondary market. Packagers gather up 5,000 or 10,000 loans and create a mortgage-backed security or MBS. Investors then purchase a portion of the MBS called a tranche.

One of the most basic protections for buyers, lenders and mortgage investors is an independent valuation of the property. The fact that a buyer and seller have agreed on a price does not mean they have accepted a price that will protect the investor if home values decline or the borrower defaults.

So, yes, let’s move ahead with new and better housing programs to reduce foreclosures and clean-up a system damaged by too many short-cuts. But while we’re at it, let’s not end a basic protection that makes the market safer for buyers, investors and mortgage insurers.

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Actually, both claims are correct but the bigger issue is whether refinancing is actually worthwhile.

According to the letter my mortgage rate would drop from 4.63 percent to 4.46 percent if I refinance. That’s right, based on the APR or annual percentage rate, my rate would fall .17 percent. Not a partial .17 percent, not a fraction of .17 percent, but a full .17 percent. That’s about 1/6th of 1 percent.

But wait, there’s more.

And, yes, monthly costs would fall. For instance with a fixed-rate, 30-year $200,000 mortgage the monthly expense for principal and interest would go from $1,028.88 to $1,008.62. That’s a savings right there of $20.26 per month or $243.12 annually.

So the lender’s letter is literally true: I would have a lower interest rate and save almost $250 a year in this example.

Mortgage Rates

Despite the accuracy of the lender’s claims — which are subject to change along with the interest rate according to the letter — the offer is unacceptable to me. Here’s why.

How much would I have to spend at closing to save $250 a year? If closing costs $3,000 for transfer taxes, legal fees, title insurance and other expenses than it would take 12 years of mortgage “savings” to get back my money.

And why are mortgage rates at anywhere near 4.46 percent attractive in today’s world? The latest figures from Freddie Mac show that a typical 30-year mortgage is priced at 3.98 percent — that’s almost a half point lower than the offered rate.

Nope, I won’t be taking the lender’s offer.

But here’s the question: Why didn’t the lender simply repeat it’s last refinancing offer — an offer I took. In that case the rate went down almost a point, I saved about $200 a month and the lender paid all closing costs except prepaid taxes and insurance.

The lender and I both benefited. I got the lower monthly payment and the lender got a crisp, new loan to re-sell at a profit in the secondary market.

In other words, everybody won.

Mortgage Prepayments

The new refi offer doesn’t work because it’s one-sided — assuming the lender actually provides the terms mentioned in the letter (remember, they’re subject to change).

If I’m going to spend more money on a loan, I certainly would not pay $3,000 in closing costs to save $250 a year. Instead, I might simply increase the monthly payment by $25. While a $200,000 loan at 4.63 percent costs $1,028.88 per month, I might instead pay $1,053.88.

That would reduce the total interest bill over the loan term by nearly $10,000 — from $170,396.80 to $160,502.20 – and shorten the mortgage term by 18 months. This approach works regardless of whether the loan is an FHA, VA, or conventional fixed-rate loan. The concept also works for fixed-rate jumbo mortgages as well.

As to the lender — hey, write me again. Let’s redo the last deal at today’s rates. You know where I live.

Caution: Refinancing with Low Mortgage Rates May Not Work is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The Massachusetts official is turning over nearly 32,000 documents to state prosecutors on the grounds that they may be improper. As a result O’Brien says criminal investigations should be started.

If 32,000 documents are questionable in just one recorder’s office, then what is the total nationwide?

In considering this matter, let’s recognize that a sworn foreclosure affidavit is used by judges and courts to throw people out of their homes for not paying FHA, VA or conventional mortgages.

If the affidavit is wrong — or fraudulent — it means an innocent family can unfairly be made homeless by order of the court. This is a big deal, certainly as big as shoplifting or stealing a cow, crimes we seem to prosecute with great zeal.

The O’Brien release is below:

Saying that the time has come for a full scale criminal investigation, Southern Essex District Register of Deeds John O’Brien, today has sent some 31,897 of what he says are fraudulent documents that have been recorded in the Salem Registry to Massachusetts Attorney General Martha Coakley, U.S. Attorney General Eric Holder and U.S. Attorney Carmen Ortiz.

O’Brien said that he is asking these officials to impanel a Grand Jury to look into the evidence that he has presented.

“I am confident that these documents will show a pattern of fraud, uttering and forgery. These documents are signed by known robo or surrogate signers, whose signatures were supposedly witnessed by notary publics. In addition, these documents may contain fraudulent information in the body of the documents. I believe that a criminal investigation is the next step to hold the perpetrators responsible.”

O’Brien praised Attorney General Coakley for her aggressive pursuit of wrongdoing in her civil action but noted that other states such as California, Nevada, Illinois and Michigan have launched criminal investigations, and O’Brien is hopeful that Massachusetts will do the same.

O’Brien strongly suggests that the Grand Jury should subpoena both the past and present Chief Executive Officers (CEOs) of the Mortgage Electronic Recording Systems, Inc. (“MERS”), Bank of America, JP Morgan Chase, Citibank, Wells Fargo, Countrywide, Washington Mutual among others. In addition, he is asking that the top officials of DOCX, Nationwide Title Clearing, Inc. and LPS also be subpoenaed.

“These companies have been retained by MERS and its member-banks to produce the documents that I am alleging contain fraudulent information. It is one thing to go after these institutions with a civil action, but the only way to let them know that you are serious is to call them before a Grand Jury.” O’Brien said,

“There is no question in my mind that the officers of these banks and loan processing servicers made a conscious decision to commit fraud and participate in a scheme to deprive the public from knowing the true holder of their mortgage while at the same time avoiding paying billions of dollars in recording fees. It is my opinion that they acted as a criminal enterprise, crossing state lines to commit their crimes and in most cases using the U.S. Postal Service to send these documents to registries of deeds, thereby committing mail fraud. We need to know what they knew and when they knew it. Until the CEOs who allowed these fraudulent activities to happen under their watch are sent to jail for what they did, these types of illegal behaviors will continue.”

Just last week, O’Brien’s Registry received 3 documents from Bank of America, all signed by a known robosigner, Linda Burton.

O’Brien said, “If they are sending them to me, of all people, it is safe to assume that they are sending them to registries across the country.”

O’Brien refuses to record any documents signed by a robo-signer on his list unless those documents are accompanied by an affidavit attesting to the signature. So far, he has not received one affidavit.

“That clearly shows me that those documents were in fact fraudulent.” O’Brien said that if he or anyone else went into one of these major banks and forged a signature on a loan document they would be arrested and sent into jail.

So it begs the question, why haven’t these CEO’S been held accountable? O’Brien cited the case of the individual who walked into a Walmart and tried to make a purchase using a fraudulent One Million Dollar bill. He was arrested and charged with attempting to obtain property by false pretence and uttering a forged instrument.

O’Brien said, “As far as I am concerned, this is what these banks have been doing for years. Make no mistake, MERS and its member-banks are taking people’s homes using fraudulent documents and that is something we do not do in America.” In addition, O’Brien is zeroing in on the major foreclosure law firms that he believes have acted as a co-conspirator in flooding the registries of deeds with these fraudulent instruments.

“These attorneys should know better. They have acted as co-conspirators in perpetrating this fraud. I am sending a letter to the Massachusetts Board of Bar Overseers asking that they conduct an independent investigation into the activities of these firms. Unlike our Massachusetts Attorney General Martha Coakley, I understand that there are other Attorneys General and other public officials across the country who would like nothing better than to sweep this matter under the rug and grant these lenders, loan servicing companies and their foreclosure-mill attorneys immunity for the damage that they have caused, not only to our
economy but to people’s property rights. They would be willing to accept pennies on the dollar, a slap on the wrist, and a promise to never do it again.

“If that should happen, it would be the biggest sellout of the American People that I have ever seen. It would send the wrong message that the big boys can get away with anything. As I have been saying all along, they may think they are too big to fail, but as far as I am concerned, they are not to big to go to jail. The top officials at MERS, its member-banks, servicers and foreclosure-mill attorneys must be prosecuted and held accountable for their fraudulent schemes that brought profits to their institutions by cutting corners, circumventing land recordation systems through fraud, uttering and forgery.”

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“If somebody wants to buy a house,” he told CNN’s Piers Morgan, “it’s virtually impossible to get the money from a bank. And it’s — even if they have good credit. Even when mortgages are coming due, and people that have been paying a mortgage for 10 and 15 and 20 years, they can’t get money or they can’t get an extension from a bank. So the banks are really not behaving properly, that can I tell you.”

Really? I’d argue that mortgages today are widely available, as millions of people in just the past year can attest.

For instance, the National Association of Realtors says existing home sales were running at an annual rate of 4.97 million units in October — that’s up 13.5 percent from a year ago. If people can’t get mortgages then how are they buying homes? Yes, some buyers pay cash — 29 percent — but that means 71 percent got financing when they bought and 71 percent of 4.97 million existing home sales tells us that 3.5 million existing home transactions involved a mortgage.

Of course, people use mortgage money not only to buy real estate but also to refinance. The Veterans Administration, as one example, reports in fiscal 2011 that the government guaranteed 357,600 VA loans, including 186,600 purchase money mortgages and 171,000 refinances. Obviously, for these folks, mortgages were not “virtually impossible” to get, they are instead entirely accessible.

The same is true with FHA loans. In fiscal 2011 the government insured 777,521 purchase money mortgages and 420,561 loans to refinance, a total of 1,271,211 FHA loans.

Not everyone got an FHA loan. But roughly four out of five applicants did. There were 1,603,669 FHA mortgage applications in fiscal 2011, meaning 332,458 did not go through. But in any year some portion of all loans applications are declined or withdrawn, often for reasons which have nothing to do with the financing — think of a home with a structural problem or title issue.

And surely the mortgage business is not so bad for mortgage bankers. The Mortgage Bankers Association reports that “independent mortgage banks and subsidiaries made an average profit of $1,263 on each loan they originated in the third quarter of 2011, up from $575 per loan in the second quarter of 2011.”

In addition, said the MBA, “average production volume was $237 million per company (or 1,114 loans per company) in the third quarter of 2011, up from $174 million per company (or 866 loans per company) in the second quarter of 2011.”

You have to ask: If mortgages are “virtually impossible” to get then why have origination profits more than doubled? Why are originations up?

Loan Rates

It’s hardly a tough time to get a mortgage because home prices are about 19.1 percent lower nationwide than in April 2007 and mortgage rates are in the dumper. In recent weeks Freddie Mac has reported that both fixed rate mortgages and ARMs have been at record lows.

NAR says that as a result of falling home prices and low mortgage rates that affordability is at its highest and best level in years — something that could not happen without the ready availability of FHA, VA and conventional mortgage financing.

For background and more information, see Four Foreclosure Financing Myths on RealtyTrac.com.

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Does this change make a lot of sense? No. Is this change the law of the land? Yes.

Let’s see what happened.

Mortgage loan limits were raised substantially in 2008. It was thought that higher limits will would help revive high-cost real estate markets in big cities and along the cost. After three years it became obvious that higher loan limits helped few but created additional risk for lenders and mortgage insurance programs, such as the FHA.

To solve the risk problem, Congress agreed to lower mortgage loan rates as of October 1, 2011. The rates were lowered and the world did not collapse. Indeed, the National Association of Realtors reported that in October existing home sales ROSE despite the lower loan limits.

With everything working well Congress naturally decided to raise FHA and conventional loan limits back to the pre-October 2011 levels. The new legislation passed with huge majorities in the Senate (60-39) and the House (298-121).

However, when the legislation got into a conference committee — representatives from both houses who are supposed to work out any conflicts in the two pieces of legislation — a strange thing happened: FHA conforming loan limits went up for two years and conventional loan limits remained stuck.

Always Smaller

It used to be FHA loans were always smaller than conventional loans for a very simple reason: FHA loans could be no larger than 87 percent of the conventional loan limit. So, if the conventional loan limit was $300,000 the largest FHA mortgage could only be $261,000 in the lower 48 states.

Now we have a situation where FHA mortgages can be bigger in high-cost areas than conventional loans. This is remarkable given how some lenders have worried that the FHA program will be over-utilized or that it allegedly will need billions of dollars in taxpayer bailout money. (See: Will The FHA Go Bankrupt?)

Also, some conservatives object to the FHA because it sells mortgage insurance, something the private sector also sells.

So, where do we stand with loan limits as of November 19, 2011? Here we go:

How Mortgage Limits Vary

There are several types of mortgage loan limits. Generally, most borrowers need to look at the limits for conventional, FHA and VA loans to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.

Conventional Loans

As of October 1, 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, loan limits depend on; one, whether the property is in a general or high cost area; two, whether the property is within the lower 48 states; and, three, whether the property located in Alaska, Hawaii, Guam and the U.S Virgin Islands.

In general terms, the October 2011 loan limits for a single-family home range from $417,000 to $625,500 in the 48 continental states. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

VA Loans

After October 1, 2011 the Department of Veterans Affairs (VA) will use the same loan limits as before. There are no changes. As the VA explains:

“The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.”

Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2011 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets, active-duty personnel, and members of the National Guard and Reserve:

• Qualified individuals can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.
• Individuals on active duty have strong protections preventing foreclosure under the Servicemembers Civil Relief Act (SCRA).

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or you reside in Alaska, Guam, Hawaii, and the Virgin Islands.

As of November 18, 2011 and through 2013 the FHA 203(b) loan limits look like this:

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the FHA Loan Limits Page

Also, HUD has a list of Areas at Ceilings and Above and Areas Between Floor and Ceiling.

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) will remain at $625,500. HUD, in 2010, introduced the HECM Saver program as an alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.

A Brief History

Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.

The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.

Until September 30, 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extended the maximum loan limits first established in 2008.

On November 18, 2011 the President signed H.R. 2112: The Consolidated and Further Continuing Appropriations Act, 2012. This legislation increased the FHA loan limit.

A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.

Copyright 2011 OurBroker.com. All Rights Reserved

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FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The paper, written by Joseph Gyourko, a professor of real estate and finance at the Wharton School of Business at the University of Pennsylvania, says that while the FHA has not required a taxpayer bailout for more than 75 years it’s “highly likely” that public funds will now be needed.

The report, Is FHA the Next Housing Bailout? was commissioned by the conservative American Enterprise Institute. The study explains that the FHA is required to keep a reserve equal to 2 percent of its outstanding loans but that the federal program is now far below that level.

The FHA, says Gyourko, “presently is in violation of this capital guideline, as there were $879.875 billion in outstanding insured mortgage balances at the end of fiscal year 2010, so that the capital ratio was only 0.59% of outstanding insurance-in-force.”

What Professor Gyourko has documented is not the breakdown of the FHA but rather the failure to adequately regulate the mortgage marketplace. Let me explain why:

To start, the latest annual report from HUD says the FHA’s reserve — the Mutual Mortgage Insurance (MMI) Fund — could do better but it’s actually increasing in size.

“FHA’s total liquid assets (cash plus investments) grew by $800 million since last year, to $33.7 billion,” says the government. “That amount is $1.9 billion higher than at the end of FY 2009, and is also $7.7 billion higher than was predicted last year by the independent actuaries.”

Politics

The debate over the FHA’s financial status is curious. The Wall Street Journal shows the story under the category of “politics” and that’s right.

Something which is also right is the reaction of the Mortgage Bankers Association.

“It is clear,” says MBA Chairman Michael W. Young, “that the persistent troubles in the economy and real estate markets are continuing to impact FHA’s financial reserves, and given FHA’s mission of providing access to mortgage credit to lower income and first time homebuyers, it should be of little surprise that its reserves are being stressed.”

Housing Realities

In other words, it’s not the FHA program which is faulty, it’s the fact that the FHA program reflects the housing market.

The FHA insures mortgages. With FHA insurance borrowers can put down less money. In return for insurance the FHA charges a premium — generally 1 percent up front at closing and 1.15 percent annually on the unpaid balance. The mortgage insurance premium (MIP) paid by borrowers goes into a reserve — the Mutual Mortgage Insurance (MMI) Fund

When there’s a claim — when someone is foreclosed — the FHA pays off the lender. The money to make the payment comes from the reserve fund.

Today claims are larger than in the past for a very simple reason: Home values are falling. The government says home values nationwide are down 19.1 percent below the April 2007 peak and roughly the same as the February 2004 index level. If home values were steady or rising, claims would be far smaller and many could actually be paid off by simply selling the properties with no financial loss to the FHA reserve fund.

Why are home prices down? Because millions of “nontraditional” loans such as option ARMs were made by private-sector lenders, mortgages which were often originated with little or nothing down, no-doc loan applications and terms which assured that payments would soar. Meanwhile, the FHA, VA, credit unions and community banks kept their standards in place and did right by their borrowers and investors.

Further Steps

The FHA has taken several steps to better its financial position. It has gotten rid of seller-assisted down payments, raised the required down payment and changed the insurance premium schedule.

But the FHA can’t change a housing market which remains polluted with toxic mortgages, robo-signed foreclosure affidavits and electronically-traded mortgage notes which can’t be found. If it turns out that the FHA does need taxpayer help, it will be another example of collateral damage, a by-product of the vast mortgage scams which have undermined the housing market and the economy.

Despite the financial assault on borrowers and taxpayers it may well turn out that the FHA reserves will continue to increase.

“Barring a further significant downturn in home prices,” reports the government, “the MMI Fund will start to rebuild capital in 2012, and return to a level of two percent by 2014.”

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Note: This material is now out of date. Please go to: FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick.

Before looking at the numbers let’s make three quick points:

First, the October 1st loan limits will continue only until December 31, 2011. As of January 1, 2012 it’s possible that we could have new loan limits or they might stay the same. At this moment there’s a political fight in Washington brewing over the issue.

Second, most borrowers need far less than the mortgage loan limits for FHA, VA and conventional mortgages. For instance, in a low cost area the maximum conventional loan amount will be $417,000. According to the National Association of Realtors the typical home sold for just $174,000 in July 2011.

Third, the new is the same as the old. The limits which started October 1, 2011 are the same limits we had in place before July 1, 2007.

How Mortgage Limits Vary

There are several types of mortgage loan limits. Generally, most borrowers need to look at the limits for conventional, FHA and VA loans to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.

Conventional Loans

As of October 1, 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, loan limits depend on; one, whether the property is in a general or high cost area; two, whether the property is within the lower 48 states; and, three, whether the property located in Alaska, Hawaii, Guam and the U.S Virgin Islands.

In general terms, the October 2011 loan limits for a single-family home range from $417,000 to $625,500 in the 48 continental states. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

VA Loans

After October 1, 2011 the Department of Veterans Affairs (VA) will use the same loan limits as before. There are no changes. As the VA explains:

“The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.

Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2011 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets, active-duty personnel, and members of the National Guard and Reserve:

• Qualified individuals can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.
• Individuals on active duty have strong protections preventing foreclosure under the Servicemembers Civil Relief Act (SCRA).

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or in Alaska, Guam, Hawaii, and the Virgin Islands.

As of October 1, 2011 the FHA 203(b) loan limits look like this:

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the FHA Loan Limits Page

Also, HUD has a list of Areas at Ceilings and Above and Areas Between Floor and Ceiling.

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) will remain at $625,500. HUD, in 2010, introduced the HECM Saver program as an alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.

A Brief History

Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.

The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.

Until September 30, 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extended the maximum loan limits first established in 2008.

A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.

Copyright 2012 OurBroker.com. All Rights Reserved

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New FHA, VA and Conventional Mortgage Loan Limits is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The alleged culprit in this matter is the Dodd-Frank Wall Street Reform and Consumer Protection Act. Having failed to prevent its passage, the lending industry is now trying to undo it piece by piece.

So what’s the big deal?

Wall Street reform establishes conditions under which lenders can be sued by borrowers. However, the law also says if lenders play by the rules they are protected against such suits if they make loans inside the safe harbor specifically created by the new rules.

The Safe Harbor

Loans inside the safe harbor are called qualified residential mortgages or QRMs. Despite claims that borrowers will soon only be able to finance with at least 20 percent down, the QRM rules say exactly the opposite.

To understand why you need to know which mortgages are inside the safe harbor. These loans include:

1. FHA loans with 3.5 percent down.
2. VA loans with as little as nothing down.
3. Conventional loans with as little as 5 percent down; that is, loans sold to Fannie Mae and Freddie Mac.
4. Portfolio loans, mortgages originated and held by lenders.

Not only will there be some loans available with little down under Wall Street reform, MOST loans — about 80 percent — will be available with little down. How do we know? Laurie Goodman with the Amherst Securities Group has testified before Congress that in total our mortgages are worth $10.6 trillion. Of these, $5.4 trillion are insured by Fannie Mae, Freddie Mac or Ginnie Mae and another $3 trillion are in lender portfolios.

Lender Reserves

The problem for lenders concerns the 20 percent of all loans outside the safe harbor. When high-risk loans are made outside the safe harbor lenders must set aside 5 percent of the loan amount as a reserve. Money in a reserve generates less income then would otherwise be possible, and that’s a huge issue for lenders.

In essence, lenders want the right to make high-risk, high-profit loans with little or no reserve set-aside. That requires changing the rules under Wall Street reform so that more financing will be available without the possibility of borrower suits or that irritating 5 percent set-aside. This can be done by gutting Wall Street reform or by changing the definition of a QRM to the point where virtually all mortgages are within the safe harbor, including whatever high-cost financial swill lenders can dream up.

So the next time someone wails and moans about the “new” 20-percent down requirement for mortgages you can safely say there’s good news: Such fears are unjustified because huge numbers of loans with little down are available under Wall Street reform. You might also mention that the real issue is lender profits and the right to make high-risk mortgages.

You know, like the toxic mortgages at the heart of the financial meltdown, lower home values and massive numbers of foreclosures. Loans that for the moment do not meet QRM standards. The very loans that generated vast profits for big banks and brokerages and huge executive bonuses for top corporate leaders. And for you, what did you get?

Why You WON’T Need a 20% Down Payment For a Mortgage Loan is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 20 percent, 20%, 5 percent, 5%, conventional, Dodd-Frank, down, downpayment, FHA, payment, QRM, qualified mortgage, qualified residential mortgage, requirement, reserve, VA, Wall Street Reform

Residual income is a big one.

This is a unique credit and underwriting guideline that applies only to VA loans.

At the outset, it’s important to differentiate residual income from a debt-to-income ratio. Unlike conventional lenders, VA lenders are only concerned with the “back end” ratio, which considers total monthly debt and income. The DTI ratio standard for VA loans is currently 41 percent.

But DTI ratios take a back seat to residual income in the world of VA loans.

So what is residual income?

Essentially, it’s how much money is left over each month after borrowers cover major expenses, from housing and taxes to debt payments. That remainder is meant for things like groceries, health care, gas and all the other trappings of consumer and family life. The VA wants to ensure that a veteran has enough money left over to take care of regular household and family needs.

Prospective borrowers have to meet a specific residual income threshold, which varies depending on family size and geography. Here’s the VA’s table for residual income:

For example, an Ohio family of four must have at least $1,003 left over each month after paying their major obligations. The residual income levels are a bit higher in the Northeast and the West, each of which has a higher cost of living.

There’s also a direct link between residual income and debt-to-income ratios, one that’s geared toward protecting veterans from becoming financially overleveraged.

While DTI ratio and residual income are separate standards, they are connected in a key way: A prospective borrower whose DTI is greater than 41 percent has to meet a higher threshold when it comes to residual income. In those cases, the borrower’s residual income must exceed the regional requirement by at least 20 percent.

So, returning to the Ohio example, a family of four with a DTI above 41 percent would need a residual income of at least $1,203 in order to satisfy the VA.

Neither residual income nor a high DTI are supposed to automatically trigger loan approval or rejection. But prospective borrowers who can’t meet the residual income requirements will be hard-pressed to secure a VA loan.

And that’s actually a good thing. Standards like this are one of the main reasons VA loans have thrived in the face of foreclosure. It’s an additional layer of scrutiny and protection that helps ensure military borrowers have the ability to meet their financial obligations when it comes to buying a home.

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About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

How VA’s Residual Income Factor Keeps Vets Out of Foreclosure is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: back, back end, conventional, debt-to-income, front, front end, income, loan, mortgage, qualify, ratio, residual, VA

The question is fairly straight-forward: What’s a safe mortgage? There must soon be an official definition to comply with Wall Street reform measures passed last summer.

The Wall Street Reform Act tells us that government regulators must define something called a qualified residential mortgage or QRM. Lenders who sell QRMs are largely immune from borrower lawsuits and, no less important, they can readily sell those loans in the secondary market to mortgage investors.

So what’s a QRM?

• In basic terms it pretty much looks like the definition will include conventional, FHA and VA mortgages with three or fewer points or other charges.
• Such loans will be originated with fully-documented loan applications which include income and employment verifications.
• In theory prepayment penalties will be allowed for QRMs — in practice FHA and VA loans do not permit prepayment penalties while prepayment penalties are rare for conventional loans.
• Loans which are not QRMs will expose lenders to substantial liability and also require that they retain in reserve an amount equal to not less than 5 percent of the loan amount.

We know what FHA and VA loans are because program guidelines define such mortgages in endless detail. But what about a conventional loan?

We typically define a conventional mortgage as financing with 20 percent down made to borrowers with a given credit profile. Borrowers who do not have 20 percent down can still get a mortgage but they must purchase private mortgage insurance (MI).

But is 20 percent really the right number?

For instance, if we said that a conventional loan requires just 10 percent down then both borrowers and lenders would be thrilled — borrowers because they could buy real estate with less down and not need MI, lenders because there would be more loans to sell to investors.

Or, we could say that a conventional loan that requires 30 percent down. This would create a super-safe mortgage but require far more borrowers to finance with MI because they won’t have enough cash to meet the new down payment requirement. In effect, with more needed up front both mortgage volume and real estate sales would decline while rates would increase.

The Wall Street Strategy

Don’t be surprised if some big lenders want to define a conventional mortgage as financing with 25 or 30 percent down. Why? Because stiffer loan terms could then be blamed on Wall Street reform, still another way to gather public support for repeal.

But wouldn’t higher down payments hurt mortgage activity? Yes — but big banks and brokerages are now so large that mortgages are just a small portion of their business activities. Losing a little on mortgage revenue would be a small and short-term price to pay in exchange for an end to Wall Street reform. And if community lenders and credit unions get hurt that just means increased market share for huge banks.

Will “safe” QRM mortgages raise loan rates? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: conventional, FHA, loan, MI, mortgage, prepayment penalty, private mortgage insurance, QRM, qualified residential mortgage, reform, The Consumer Financial Protection Burea, VA, Wall Street