From about late 2007-2008, conventional mortgage insurance became too costly because of mortgage insurance companies insuring the sub-prime loans that subsequently went bad.  The alternative for borrowers who didn’t have a 20% down payment was an FHA loan.  The downside to the FHA loan was that there was an upfront mortgage insurance premium and a monthly mortgage insurance premium.  However, it was by far the cheaper option for borrowers looking to purchase a home with a limited down payment.  It also helped those looking to refinance to take equity out of their home that may have lost value.  Quite frankly, it was the loan option that made the most sense for borrowers.

Fast forward to 2011 and mortgage insurance companies have come back into the picture, making conventional loans with less than 20% down an excellent alternative to an FHA loan.  For households with joint incomes in excess of $100,000, a conventional mortgage with a single financed mortgage insurance premium rather than a loan with a monthly mortgage insurance premium is the best option.  Mortgage insurance is tax deductible up to 100,000 for joint income households.  However, it begins to phase out by 10% for every $1,000 over 10%.

Long explanation short, if you have an FHA loan with one of the lower monthly MI premiums (say .50 or .55) and the household income is greater than $100,000, it is time to take a look refinancing into a conventional loan with a single financed mortgage insurance premium.  Right now, mortgage interest is still tax deductible for everyone.  The single financed mortgage insurance premium is a one-time mortgage insurance premium that is financed into the loan amount, thereby avoiding a monthly mortgage insurance premium.  Since the mortgage insurance premium is apart of the total loan amount it will always be deductible.

With rates as low as they are right now, take a look at your household income and your current mortgage to see if refinancing is the right choice for you.  If the household earns more than $100,000 and has an FHA loan, you are paying too much for your mortgage.

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The immediate effect and spin of this change was that the borrower was financing less.  The claim is undisputable on its own, however, if one were to look deeper at the change they would realize that while the amount they financed went down by 1.25%, their monthly obligation would increase.  For example on a 200,000 loan amount a borrowers monthly obligation would increase by approximately $45 per month. 

Well, FHA is at it again.  In a recent announcement, FHA has decided to increase the monthly mortgage insurance premium 1.15% from .90%.  Now a 200,000 loan amount carries an addition monthly payment of $42 per month above the original increase of $45.  All told, the difference between FHA financing as of April 18, 2011 versus FHA financing prior to October 4, 2010 is $87 per month.  Additionally, since Congress granted the authority to FHA to increase their premiums to 1.55% you can guarantee that it will hit mark sooner rather than later. 

What does this mean for the consumer?  Well, it shrinks the borrower pool because it makes it harder to qualify because of the increased debt service.  It also makes a FHA loan a lot less desirable when compared to conventional financing with mortgage insurance.  It is my belief that FHA is doing exactly what conventional mortgage insurance companies did immediately following the subprime fallout: they are increasing their premiums significantly enough to reduce their market share.  FHA guarantees too many loans right now and these mortgage insurance increases are designed to reduce that portfolio.

In no way does this mean that a FHA loan is a bad loan or if you currently have a FHA loan you should get out of it.  It is/was a great loan product that now has competition from conventional mortgage insurance.  For the past 8-10 months I’ve been telling my borrowers, if they qualify, that a conventional loan with mortgage insurance is the far cheaper option and better loan product.  The same 200,000 loan amount would require a 5% down payment and eliminates a monthly mortgage insurance premium with a single financed premium of 1.75% of the loan amount. 

Compare it this way:

• Conventional Loan (Single Financed MI premium):     1225.07/mo
• FHA Loan Prior to April 18, 2011:                                        1367.54/mo
• FHA Loan After April 18, 2011:                                              1409.62/mo

The conventional mortgage insurance option wins out in every way possible with the exception that you are required to put an additional 1.5% of the purchase price down.  After April 18th, that $3,000.00 difference in down payment is made up after 16 months of payments in a conventional loan.

For some companies it will be business as usual and the MI increases for FHA will be passed along to the consumer, unless you are with a company like Assured Mortgage Bankers Corp who has the expertise and product knowledge to put you in a loan product that best suits YOUR needs.

During this time, home purchases weren’t as abundant but that seems to be changing in the past month.  Home prices are still low and even though interest rates have back off the the lowest levels they saw in October and November 2010, they are still historically low.  A well-qualified borrower can still get a rate below 5%. 

I’m hoping to update this blog more frequently than I did in 2010 with mortgage-related news.  There are several changes coming on April 1st, 2011 that will affect both borrowers and mortgage professionals that I will more than likely discuss here.

Don’t forget to check our website for daily updated rates and full applications.  I look forward to a healthy and prosperous 2011!

During the housing boom there weren’t many homebuyers getting FHA financing because mortgage insurance was a bad word.  Why pay mortgage insurance if you could just do an 80/20?  Or a 80/10/10?  FHA gained a foothold after many of those mortgages were subprime loans and borrowers could still get attractive interest rates on 30 year fixed rate loans with low or no credit scores.  Once the Federal government said mortgage insurance was tax deductible for borrowers, only then did people start moving away from 1st and 2nd mortgage combos. 

While this isn’t a proposed change by FHA that will go into effect shortly, it is something that bears watching to see how things play out.  An increase like that would push people back to conventional mortgage insurance and take away a lot of the market share FHA currently holds.  Now, I don’t think this would be a bad thing for FHA since they hold a large part of recent mortgages.

In New Jersey and actually all over the country we have a mortgage insurance provider doesn’t have a declining market provision.  This means that a person can purchase a home with 5% down and get a single financed premium that if they have a credit score of at least 720 would be the same upfront percentage as a FHA loan, but without the monthly mortgage insurance expense. 

Maxine Waters and Congress want rates to stay low, but would allow legislation that could potentially increase the FHA monthly MIP to 1.55%, somehow I don’t understand how this helps borrowers.  On a $200,000 loan, their monthly payment would increase by about $165/month.  I think this is another case in a long line of examples where government has a disconnect with the real world.

Many people who once were sitting on the fence about whether to purchase a home have taken advantage of this credit in the past two years.  Right now, it does not look like the Federal Government has decided to extend this tax credit again to keep the vulnerable housing market afloat. 

Economists and traders are worried that there is a possibility of a “double-dip” recession.  While there may be once the tax credit expires I believe there are a few things working in our favor for an economic recovery, albeit slow. 

1. Interest rates should stay at historic lows and the FED seems willing to keep the federal funds rate somewhere between 0-.25%.  There isn’t an overriding concern over inflation which would spur the FED to start raising the funds rate.
2. While the FED has stopped buying Mortgage Backed Securities (MBS), rates have stayed in a narrow range where most borrowers with good credit can obtain an interest rate somewhere in the high 4 – low 5% range.
3. Home prices have stabilized and are now at a point where affordability is coming close to meeting borrower demand.  I see a lot of home purchases in the $200,000 to $225,000 price range. 

Even after the tax credit expires, it is still a great time to purchase a house or refinance your existing home because interest rates are still extremely low.  If you are thinking of doing something to your house or moving within the next 5-7 years, adjustable rate mortgages are EXTREMELY attractive.  Rates are probably a full point to a point and a quarter better than 30 year fixed rate loans. 

Hopefully, the economic recovery will continue and people will continue to take advantage of low interest rates and affordable home prices.  The biggest contribution to an economic recovery will be job creation.  Hopefully, companies continue to hire and create new jobs for Americans and we can all be on the way to a strong economic recovery.

According to what I’ve read in the news and have seen on the TV, this investigation has been on-going for about two years or so prior to the SEC bringing charges against Goldman.  On Friday, the market kept improving and improving.  I wasn’t really sure why because I was busy with clients and getting packages ready for closings, but then I saw this news break.  The market rallied on this new financial mess and it looked like the market was poised to continue to rally into this week as the charges and investigation unfolded over the weekend. 

So far, interest rates have remained flat largely due to improving economic indicators.  The economy has been showing signs of improvement recently and rates have inched higher in relation to the news. 

The Goldman Sachs investigation bears watching and I will probably have more commentary as it unfolds further.

I’m fine with this.  They are called PUBLIC records for a reason, they are available to the public.  So therefore, anyone accessing public records can view recorded deeds, mortgages, notices of lis pendes, etc.  They can then take this information and produce general offers to potential clients.  However, the ads have to comply with REG Z and Truth-in-Lending.  This is where a lot of these places have fallen short. 

In past few years we have thought about working with these companies because the ads they put out (they come in the form of mailers with important notice slapped all over it or it looks like something official from the government) look pretty good.  They are done in a way that, if the consumer opens it, they should entice them to at least think about the offer and then hopefully call.  However, a lot of the tactics used fall under the category of “deceptive or misleading” which is a clear violation of New Jersey and most federal regulations on advertising.

What really got me about this particular ad FHA Loan Acceptance Notice, was the fact that it had a list of all my debt (albeit misplaced and misrepresented) and my credit score!  It also clearly states on this form that they received the data from Equifax Credit Bureau.  I’m sorry, but I don’t remember Equifax Credit Bureau calling me up or sending me an authorization form to pull my credit.  I gave the authorization to Assured Mortgage Bankers Corp, not Equifax.  In my opinion, this is a clear violation of not only my privacy, but rights as a consumer. 

According to this form, I can consolidate all of my debt (including my student loan which is at about 2.5% and my car payment that is a 5 year loan) and save almost $3500 a month!  Who wouldn’t want to do this!!!! 

I felt violated.  I immediately brought this into the office and scanned it in and emailed it to an attorney I know who is a member of the Mortgage Bankers Association and teaches an ethics course for the pre-licensing requirements.  The attorney called early this morning and we both laughed about how blatantly misleading and deceptive this was, while being appalled that a credit bureau would sell my information to anyone.

I guess the message in all of this is to be careful of offers like this.  You know the old axiom, “what is too good to be true, usually is?”  Well this is case-in-point right here.  My house would need to appraise for $463,690.00 and if these idiots would have even attempted a zillow.com search they would have found that my home value is just a tad under that mark.  Additionally, why would I take a student loan at an insanely low-interest rate, a 15 year loan and a 5 year loan and repay it over 30 years giving the bank hundreds of thousands of dollars in interest?

The main culprit here isn’t the mortgage company that sent me this solicitation, it is the credit bureau.  You trust your mortgage company not to share sensitive material with people who aren’t associated with the transaction and most don’t.  However, what control do they have when the credit bureau shares your information?  How can they pull your credit without permission directly from you? 

Maybe someone in the finance industry needs to create an independent score model that can be sold to Fannie, Freddie and Ginnie Mae as an acceptable alternative to Equifax, Transunion and Experian so at least bankers and brokers know that their clients aren’t being sold over and over and over.

Check out www.optoutprescreen.com… just a note though about this website is that it is something sponsored by Equifax, TransUnion and Experian and may not stop THEM from sharing your information.

On purchases the funding fee breaks down as follows:

The funding fee is a lot like the Upfront Mortgage Insurance Premium with a FHA loan.  The new upfront premium on a FHA is 2.25%, so if you are a first time buyer and a veteran it is a great option.  You will pay less of a funding fee, therefore finance less and not have a monthly mortgage insurance premium. 

For example a $200,000 VA loan versus a $200,000 FHA loan would look like this:

VA (first time use, no down payment)  200,000.00 x 102.15% = 204,300.00 total loan amount and zero monthly mortgage insurance

FHA (assume base loan amount is 200,000 after 3.5% down payment) 200,000 x 102.25% = 204,500.00 total loan amount. 

Although it is only $200.00 less of the total amount financed you will save about $93/mo in a monthly mortgage insurance premium that will not go away for a least 5 years.  At a minimum, you will pay about $5,600.00 over the 5 year period in mortgage insurance.

We’ve specialized in offering these government loans for the past 12 years.  VA Loans, FHA Loans and USDA Loans are all excellent government loans.  They provide borrowers with low down payment options and extend homeownership to a large section of the population.

An added benefit is that yours truly does Veteran’s Administration Loans (VA Loans).  The VA allows borrowers to finance 100% of the property’s value and there is no monthly mortgage insurance.  So, you can put nothing down on the house and receive an $8,000.00 credit from the government.  Sounds like a good deal to me!

Here is the information from the IRS (www.irs.gov)

Additionally, there are new benefits for members of the military and certain other federal employees:

• Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

• In many cases, the credit repayment (recapture) requirement is waived for members of the uniformed services, members of the Foreign Service and employees of the intelligence community. This relief applies where a home is sold or stops being the taxpayer’s principal residence after Dec. 31, 2008, in connection with government orders received by the individual (or the individual’s spouse) for qualified official extended duty service. The credit is still allowable even if this happens during the year of purchase. Qualified official extended duty is any period of extended duty while serving at a place of duty at least 50 miles away from the taxpayer’s principal residence (whether inside or outside the U.S.) or while residing under government orders in government quarters. Extended duty is defined as any period of duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

Question and Answer

Q. Are both spouses required to be overseas for the requisite time period in order to qualify for the 2011 extension to claim the credit?  

A. Only one spouse must be overseas on official extended duty for the requisite amount of time for either spouse to be eligible for the 2011 extension of time to purchase a principal residence and claim the credit. 

If you live in Alabama, Arizona, Connecticut, Delaware, Iowa, Massachusetts, Maryland, Maine, Michigan, Nebraska, New Jersey, New York, Rhode Island, South Carolina, Tennessee, Virginia or West Virginia I can provide you with the financing you need to purchase a new home. 

Check us out on the web at www.assuredmortgages.com or give us a call toll-free at 888-834-7021.