The VA guaranteed nearly 360,000 loans last year, a 14-percent increase from FY10. Since FY07, the number of VA loan guaranties has surged an astounding 168 percent. At the same time, these no-down payment loans have been the safest mortgage products on the market for the better part of three years, according to data from the Mortgage Bankers Association.

“The continued strong performance and high volume of VA loans are a testament to the importance of VA’s home loan program and a tribute to the skilled VA professionals who help homeowners in financial trouble keep their homes,” said Secretary of Veterans Affairs Eric K. Shinseki.

Significant Gains

The sustained growth of VA loans comes as lenders have tightened requirements in the wake of the subprime mortgage meltdown. The program features more flexible credit and underwriting criteria than other loan programs. But far and away the most attractive benefit is 100-percent financing. About 9 in 10 VA borrowers purchase a home with no money down, and sellers often pick up most or all of the veteran’s closing costs.

For VA borrowers, who on average have less than $7,000 in assets, that kind of financial boost is tough to find anywhere else. While FHA loans continue to dominate the overall mortgage environment, even that program’s minimum 3.5-percent down payment can prove challenging for veterans and active service members.

Surprising Security

What’s perhaps even more surprising is the VA loan program’s track record in terms of foreclosure and delinquency. Talk of borrowers needing more “skin in the game” has ebbed some recently, but it’s still a common refrain in industry and legislative circles. Granted, VA loans constitute a small slice of the mortgage market, but these no-down payment loans are turning the “skin in the game” argument on its ear.

The VA’s rates for foreclosure and serious delinquency have been the lowest of all loan types, including prime loans, for the last 14 quarters and 11 quarters, respectively, according to the delinquency survey conducted by the Mortgage Bankers Association.

Much of that success stems from the agency’s commitment to keeping veterans in their homes. The VA incentivizes lenders and servicers to work with borrowers to avoid foreclosure and provides individualized help and assistance to homeowners on the edge. The VA also uses some credit and underwriting standards, in particular its residual income requirement, that help lenders assess an applicant’s true ability to handle the financial burden.

But VA borrowers themselves deserve part of the credit, too.

With interest rates still hovering near record lows, not to mention thousands of soldiers set to return home from Iraq and Afghanistan, the VA loan program is likely to see continued growth through FY12 and beyond.

___________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, from Lenderama and Bigger Pockets to the Huffington Post and Motley Fool. A former newspaper and magazine writer, he is also content director for a leading VA lender.

VA Loan Volume Surges, Remains Safest Mortgage Option is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 2011, active-duty, air force, army, benefits, borrower, coast guard, down payment, finance, homeownership, loan, loan limits, marines, military, mortgage, navy, overseas, refinance, unused, VA, vet, veterans

“The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments are listed at $820,000 to $3 million,” says Bloomberg. (See: Manhattan Luxury Condos Try FHA Backing in `Game Changer’, August 13, 2010)

Alas, the Bloomberg report seems to have set off some concern.

“Yes, ladies and gentlemen,” says Tyler Durden at ZeroHedge.com, “the FHA is now insuring purchases of ultra luxury appartment by the ultra rich, affording what is essentially a no money down ‘NINJA/subprime-like’ creep up into the most expensive properties in the world, entirely on the backs of the US middle class. If that ‘uber-wealthy’ don’t blow up the FHA, and the $7 trillion in GSE debt, nothing will.” (See: Rick Santelli Goes Nuts In A “Top 3″ Rant Protesting (What Else) Endless Subsidies And Fed Meddling, August 13, 2010)

The New York Post tells us “the development features an outdoor movie theater, panoramic city views, apartments valued between $820,000 and $3 million — and, thanks to the government, the ability to land a mortgage with less than a $100,000 deposit.” (See: Luxury ‘$uite’ deals, Feds back condo mortgages for wealthy, August 14, 2010)

Golly, FHA loans for the super-rich sure sound like a horrid bit of financing. Unless, after all, you consider the entire story.

Cash Up Front

It turns out that for 2010 the FHA higher cost loan limit in the continental United States is $729,750. That means if you have property in what is defined as a “higher cost” area of the contiguous 48 states you can get an FHA mortgage for the aforementioned $729,750.

For most of us $729,750 is a big number. For a property that sold for $729,750 a purchaser would need $25,541.25 at closing just for the 3.5 percent FHA down payment. Closing costs are extra.

But, you’ll notice that Bloomberg did not say any of the luxury units actually sell for $729,750. They sell for more, from $820,000 to $3 million.

This is where the FHA gets sticky. You see the FHA has a thing about real estate purchases which are above the loan limit. The deal is this: when you buy with FHA financing you’re not allowed to have a simultaneous second loan unless it comes from a governmental agency. You have to pay any additional value above the mortgage in cash.

One of the caveats here is that after the property has been settled the FHA buyer/borrower can then get a second loan such as a home equity line of credit (HELOC). This is usually not a consideration with a property where someone put down 3.5%, but it’s a real possibility when the cash down is significant. Of course, when there’s a second loan the FHA mortgage remains in first place which means if there’s a foreclosure the proceeds from the sale of the property must be used to completely satisfy the first loan holder before the second lender gets a dime.

Bundles of Money Down

So, let’s take a look at those luxury units in Manhattan — or anywhere else. Buy one for $820,000 with 3.5 percent down and you’ll need $28,700 at settlement plus closing costs. Oh, but wait, the FHA loan limit is $729,750 so you’ll actually need $90,250 in cash for the closing down payment. That’s 11 percent down — more than three times the usual FHA down payment requirement.

As to the $3,000,000 unit the math looks like this: $729,750 in financing means the buyer will need an additional $2,270,250 in cash at settlement — plus closing costs. That’s a deal with 76 percent down and virtually no risk for the lender.

Or the FHA.

Should The FHA Insure Luxury Condo Loans? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: cash, condo, down payment, FHA, HELOC, higer cost, home equity line of credit, lien, loan, loan limit, loan-to-value, LTV, mortgage, second, simultaneous, unit

However, there are situations where owners run into tough times because of the loss of a job, divorce, an accident or medical costs. In such cases there are always nearby friendly hard-money lenders to provide the financing you need — at a cost.

Hard Money Loans

To understand how hard money financing works lets take an example where owner Wilson needs to refinance.

The Wilson property is worth $300,000 and Wilson has $160,000 in equity and $140,000 remaining on the mortgage. With a job and good credit Wilson can refinance the property with a new $210,000 loan at 5 percent plus 1 point in today’s market.

A point is worth 1 percent of the loan balance and is paid or credited at closing. In this case Wilson deducts the point (1 percent of the amount borrowed or $2,100 in this case) from the loan amount leaving $207,900 before closing costs and the repayment of the current loan. After paying off the existing loan of $140,000, Wilson has $67,900 before closing expenses.

Wilson now has a $210,000 mortgage at 5 percent interest. Paid with a 30-year schedule, the monthly cost for principal and interest is $1,127.33

But let’s say times have gotten tough for Wilson. His employer of 20 years has gone bankrupt and his medical insurance lapsed just before he was diagnosed with a disease that will cost $40,000 to treat. His credit is shot and his savings are gone.

Tough Terms

Filling this void are hard money (HM) lenders, sometimes described as lenders, individuals or investment groups. They will loan money but under different and, er, unique terms. In this case they might make a loan equal to 60 percent of the property or $180,000. Seen the other way, they want Wilson to have 40 percent equity. In a strong market HM lenders might accept 25 percent equity, while in slow markets they might only finance properties with 50 percent equity.

In addition, the interest rate will be 15 percent. There will be 5 points at closing.

HM lenders don’t care about income, they care about equity and the value of the property. In this example it’s the 40 percent equity that’s central to the transaction. If Wilson does not make his payments, the HM lender will swoop in and take the property through foreclosure.

At closing Wilson is set to receive $180,000 less 5 points. That means Wilson is actually getting $171,000 — the points are equal to $9,000 up front. Wilson uses his loan to pay off his existing $140,000 mortgage and then has $31,000 remaining before closing costs.

Wilson also has a $180,000 mortgage at 15 percent interest. The monthly cost for principal and interest with a 30-year schedule is $2,276.00 — TWICE the cost of the conventional payments for a bigger loan.

Why would anyone deal with a hard money lender? Is it a foreclosure scam, the step just before losing a home? Because of poor credit the regular lending system has been cut off to Wilson — and remember that the regular mortgage system has not always been so great, think of toxic loans. In difficult circumstances desperate borrowers turn to lenders with tough terms, terms HM lenders can only get because the borrower is so needy.

Is a hard-money loan a predatory mortgage? Assuming that all terms and conditions are plainly known and understood by the borrower, and provided there are no clauses which instantly raise interest rates if a payment is missed, call the loan when a payment is late or have hidden fees and charges, then no. Rather than being predatory, a hard-money loan in the best circumstances is simply a form of financing with hard terms reflecting the borrower’s poor credit.

What’s a Hard Money Mortgage? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: credit, down payment, equity, FHA, foreclosure scam, hard money, interest, investment groups, loan, loan to own, mortgage, points, predatory, VA

At first it might seem that a purchase money mortgage was the same as any other financing but that’s not entirely true. For instance, in California a homeowner with a purchase money mortgage who is foreclosed cannot be sued by the lender to make up any losses on the loan. However, if the property has been refinanced there’s no longer a purchase money mortgage and so the protection for homeowners against deficiency judgments disappears. Notice that in our example the purchase money protection does not apply to investors and that the rules in other states are different.

Foreclosure Purchase

With foreclosures the rules to finance are simply the same — if not exactly the same — as one would find with any residential property. After all, the fact that the property was once foreclosed has nothing to do with bricks and mortar, it has very much to do with the financial capacity of the last owner — or the lack thereof.

Is the buyer an owner-occupant or an investor? If an investor you may be required to put down more and to pay a somewhat higher rate.

What’s the value of the property?

Does the purchaser have good credit?

Can the purchaser document his or her income and employment?

Cash, of course, solves all foreclosure financing problems while loans from hard money lenders with stiff rates, huge down payments and lots of points up front are not worth considering.

Lastly, if you’re buying a foreclosure from a lender see if the lender will provide financing as part of the transaction. In this situation the seller and the lender are the same, so such financing can be seen as a formal and institutional owner take-back of sorts.

What’s A Foreclosure Purchase Mortgage? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: cash, down payment, FHA, foreclosure, foreclosure financing, foreclosure purchase, hard money lenders, mortgage, OurBroker.com, owner take back, purchase money mortgage, VA

How It Works

Some important points about private mortgage insurance (MI) include:

• MI companies are state regulated, not federally regulated. State regulation is very tight.
• MI companies are monoline insurance firms — that is, they only provide mortgage insurance and not coverage for cars, boats, etc.
• MI companies have serious reserves — half of every premium dollar must be set aside for 10 years. And in years when claims rise, reserve requirements increase.
• The lower the borrower’s down payment the greater the amount of coverage required by lenders. For instance, with 5 percent down a mortgage insurer would provide coverage equal to 30 percent of the mortgage amount. With 10 percent down the MI company would insure 25 percent of the loan.
• When borrowers apply for a loan with little down, the loan application must be approved both by the lender and the MI company. It is possible to have a loan application approved by the lender but not the MI company, in which case the loan will not be originated.
• More coverage, of course, means higher premiums. Less coverage means lower premiums.
• MI premiums can be paid up front in a lump sum and the payment can be added to the loan amount. In some cases MI premiums may be refundable in part when a property is sold or refinanced. Premiums, however, are usually paid monthly.
• Mortgage insurance can generally be cancelled when the loan amount has been reduced to 78 percent of the original debt.
• Private mortgage insurance is routinely referred to as PMI. The right term is MI. Why? Because there’s actually a company named the PMI Mortgage Insurance Co.

Claims

When a borrower who bought with little down defaults, the lender looks toward the insurance company to cover the loss up to the coverage limit. The claim can include not only mortgage principal but also unpaid interest, the costs of maintaining the property and legal expenses.

Claim Advances

MI companies, like any insurance companies, want to hold down losses and claims. One way that MI companies reduce losses is with claim advance programs. With a claim advance the lender receives cash from the MI company to stop a foreclosure — this can be very useful for a borrower who has generally good credit but runs into a short-term financial problem. If you have MI coverage and face foreclosure, be sure to contact your MI company and ask if help with a claim advance is possible.

Second Look Programs

The MI industry also has what’s called a second look program. It gives borrowers an additional underwriting review if they’ve been turned down for a loan modification by certain lenders. Contact your MI company if you need more information.

How To Slash MI Costs

The are a number of strategies borrowers can you to reduce MI expenses.

First, ask your settlement provider if you can qualify for a re-issue rate. This is generally available when properties have been sold during the past five or ten years.

Second, buy with more down.

Third, if possible buy with at least 20 percent down. With 20 percent down lenders do not require MI coverage.

Resources

PrivateMI.com

MI Calculators

The Value of Mortgage Insurance. (An interesting — and readable — disucssion of MI issues).

How Can We Slash Mortgage Insurance Costs? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: calculator, claim advance, cost, coverage, discount, down payment, FHA, MI, monoline, mortgage insurance, pmi, premium, private mortgage insurance, re-issue, regulation, savings, underwriting, VA

Be aware however, that in addition to the downpayment you will need additional cash funds for closing. How much you need will depend in large part on the terms of the sale agreement. Also, Congress is considering a reduction to the down payment requirement.

For specifics and details, ask for current information from lenders and brokers. Have them provide a model transaction so you can see basic costs. Ask for a good faith estimate of closing costs.

How Much Down Do I Need With FHA Financing? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: down payment, FHA

Also, under Section 222, (National Housing Act — 12. U.S.C. 1715m), the government through the Department of Commerce and the Department of Transportation would pay monthly FHA insurance premiums for Coast Guard personnel and members of the National Oceanic and Atmospheric Administration on active duty. This program, however, has now been suspended, according to HUD.

The FHA has now gone to a new downpayment schedule and it is unclear whether any benefits for VA-qualified personnel have been maintained. Please check with lenders for the latest details.

Can VA Status Help An FHA Borrower? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: down payment, FHA, VA

So, one choice is to look for financing with as little down as possible. A second choice is to look at RAM financing — a reserve account mortgage.

With a RAM loan you might get 100 percent financing. At the same time, you would deposit an asset with the lender — say the stock you do not want to sell.

The lender then holds onto the stock until the property has a certain level of equity caused by loan amortization (reducing the size of the loan through payments) and, hopefully, increasing property values. The borrower has 100 percent financing.

RAM financing raises important questions: Who gets the interest on the account? What if the value of the securities declines? What is the monthly loan payment compared with financing that requires a downpayment? When is the stock returned to the owner? Is all interest deductible? Etc.

Mortgage lenders, tax professionals, and securities brokers can provide additional information. RAM financing arrangements should be reviewed by your attorney before acceptance.

How can we come up with a real estate down payment without selling our stock? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: account, borrow, down payment, mortgage, reserve