FHA Reduces Monthly Mortgage Insurance

FHA DROPS Monthly Mortgage Insurance For First Time Since 2001!

There is good news for the housing market and for buyers, as the FHA is lowering its annual MIP (monthly mortgage insurance premiums) by 50 basis points (0.50%) on all new loans, which will drop the monthly FHA insurance from 1.35% to .85% of the loan balance for any buyer who puts down the minimum of 3.5%.

For example, on a $400k loan, the monthly MIP drops from $450 a month to $283, savings of $167 a month.

3% Down Conventional: Your Top Questions Answered

Freddie Mac launched their Home Possible Advantage^SM, a new affordable mortgage with a down payment option as low as 3%. Here are the answers to your top questions:

Who is this mortgage for?
The Home Possible Advantage mortgage is for low and moderate-income borrowers with limited savings, including first-time homebuyers.

What do I need to qualify for it?
Generally, you need to meet minimum credit requirements, earn no more than 100% of your area median income and have the funds to meet the down payment requirements and closing costs. First-time homebuyers must participate in an acceptable borrower education program, like Freddie Mac’s CreditSmart.

Can I use gift funds as my down payment?
Yes, the 3% down payment can come from a number of sources, including personal funds, gift funds.

Will I have to pay private mortgage insurance (PMI) on Home Possible Advantage mortgage? How much will this add to my payment?
Yes, like all conventional, conforming mortgages backed by Freddie Mac, loans without at least a 20% down payment require some form of credit enhancement or insurance, usually in the form of PMI. This serves as an added insurance policy that protects the lender/investor if you are unable to pay your mortgage.

The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $40 and $80 per month for every $100,000 borrowed.  And, once you’ve built equity of at least 20% in your home, making the amount you owe on your mortgage 80% or less of its value, you can cancel your PMI and remove that added expense from your monthly payment.

Can I use it to refinance my current mortgage?
Yes, Home Possible Advantage mortgages can be used for a “no cash out” refinance of an existing mortgage. It’s available in 15 year, 20 year, and 30-year fixed-rate terms.

Why is Home Possible Advantage different than the low down payment mortgages of the past?
The keys to responsible lending are responsible underwriting and product design, designed Home Possible Advantage with the appropriate credit underwriting requirements for today’s market. Home Possible Advantage has tougher credit standards than low down payment mortgages of the past, including lower DTI ratios, fixed-rate terms and requires full documentation, owner-occupation and housing counseling.

Where can I get more information on Home Possible Advantage?
Visit freddiemac.com or contact me with any questions.

What other options are available to me if I don’t qualify for a Home Possible Advantage mortgage?
You have a number of choices even if you don’t have a 20% down payment – a growing number of today’s buyers are putting down between 5 and 10%. Take advantage of today’s historically low mortgage rates and affordable home prices in many parts of the country.

CALHFA CHDAP Down Payment Assistance Program Reduces DTI to 43%

The California Housing Finance Agency (CalHFA) significantly revised their guidelines to reduce how much a first time home buyer can qualify for when using their 3% California Homebuyer’s Downpayment Assistance Program (CHDAP).

CalHFA has recently reduced the max DTI from 45% to 43%.  What does this mean to you as a borrower?  If you qualified for a $350,000 Purchase Price at 45% DTI, you would now be reduced to a $330,000 Purchase Price at 43% DTI.  That’s a big deal, especially if you are a higher purchase price.

Borrower Eligibility

Borrower Requirements

Each loan program that CalHFA offers to homebuyers can have different criteria for income limits, minimum credit scores, citizenship etc. To learn about specific requirements and benefits for each program, review the program descriptions on the Loan Programs tab.

Visit our Mortgage & Eligibility Calculators section to assist you in estimating your monthly payments, how much you can afford, and which CalHFA programs you may be eligible for.

In general these are borrower eligibility requirements for all CalHFA programs:

• You must be a U.S. citizen, permanent resident or other qualified alien.
• You will need to meet credit, income limits and loan requirements of the CalHFA-approved lender and the mortgage insurer.
• You will need to live in the home you are purchasing for the entire term of the loan, or until the home is sold or refinanced.
• CalHFA borrowers must complete homebuyer education counseling and obtain a certificate of completion through an eligible homebuyer counseling organization.
• CalHFA’s down payment programs CHDAP, ECTP and MCC require you to be a first-time homebuyer. See the definition of a first-time homebuyer.

Below is the Bulletin from CalHFA.

Click to access 2014-17.pdf

 

Qualified Mortgage & Ability to Repay Rule

Beginning January 10, 2014, the new Qualified Mortgage (QM) and Ability to Repay (ATR) regulations/rule will take effect.  The QM rule will largely determine the underwriting standards that the majority of lenders will use to qualify prospective borrowers.

Borrowers will still be able to get a private loan as long as the loan does not have risky features and the borrower’s total debt to income (DTI) isn’t over 43%.  This means that a borrower’s total debt expense (including total mortgage payment) does not exceed 43% of their gross income (before taxes are withheld).  These loans will still receive the QM safe harbor protections.

Highlighted below are some of the issues contained in the QM rule.  There are many more provisions that may affect the cost or access to credit.

The QM rule does require numerous items to be considered in fees and points when determining for purposes of meeting the three percent cap.  It establishes circumstances when all or part of appraisal fees will be included and there will be times when private mortgage insurance will be included (but not FHA and other government guarantee or insurance fees). Below are some of the elements of the rule that H.R. 1077 seeks to change:

• Affiliate fees and points still count towards 3% cap, disadvantaging firms with affiliates and reducing consumer choice.
• Escrow for property insurance still counts toward the 3% cap when affiliates are involved in the transaction and it still remains unclear whether escrow for taxes is in or out when affiliates are involved though the indication is the CFPB would not count them.
• The CFPB has asked for more information about possible double-counting of Origination Compensation.  They recognize the harm of double-counting but apparently view the fees and points cap as a total compensation limit.  In other words, they seem to want to count all revenues from both consumers and secondary market participants toward the 3 percent cap or find a way to account for all of this under the 3 percent cap at least with regard to the loan officer’s compensation.  This could have serious potential to affect quality of service and access to credit depending on how it comes out because it will restrict how much and the manner in which loan officers and mortgage brokers can be compensated beyond loan officer compensation rules.  It would also affect the bottom line on mortgage transactions.
• Finally, the Bureau is planning on counting “Loan Level Price Adjustments” (LLPAs) toward the cap on fees and points.  These adjustments are made by the GSEs to increase the price of loans with low down payments, borrowers with lower credit scores, or both.  In some cases, the LLPA can be as much as three points alone.  If counted towards fees and points, fewer borrowers would qualify for QM loans.

Make sure you are working with a loan officer who is aware of the new rules and is calculating your income correctly paying close attention to the DTI.   Realtor should make their sellers aware of these changes and NOT to except an offer without seeing a DU/LP Approval to see the DTI.

Please contact me if interested or with any questions.                                                                                                                                              

HUD ANNOUNCES NEW FHA LOAN LIMITS TO TAKE EFFECT JANUARY 1, 2014

 

The Department of Housing and Urban Development (HUD) announced that it will implement new FHA single-family loan limits on January 1, 2014, as specified by the Housing and Economic Recovery Act of 2008 (HERA).

“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.”

The current standard loan limit for areas where housing costs are relatively low will remain unchanged at $271,050.  The new national-ceiling loan limit for the very highest cost areas will be reduced from $729,750 to $625,500.  Areas are eligible for FHA loan limits above the national standard limit, and up to the national ceiling level, based on median area home prices.

The mortgage loan limits for FHA-insured reverse mortgages will remain unchanged. The FHA reverse-mortgage product, known as the Home Equity Conversion Mortgage (HECM), will continue to have a maximum claim amount of $625,500, with actual loan limits based on property value, borrower age, and current interest rates. Reverse mortgages allow homeowners age 62 and older to age in place by borrowing against the value of their homes without any requirements for monthly payments; no repayment is required as long as a homeowner lives in the home. The reverse mortgage is repaid, with interest, when the homeowner leaves the home.

Weekly Market Review

The economic growth data released this week was mostly stronger than expected, which normally would push mortgage rates higher. After a large increase last week following strong Employment data, however, rates instead recovered some ground and ended the week a little lower.

This week’s economic data continued to demonstrate improvement in the economy. February Retail Sales jumped 1.1%, which was far above expectations. Retail Sales are closely watched because they account for roughly 70% of economic activity. There has been concern that higher payroll taxes and rising gas prices will slow consumer spending, but there have been few signs of this so far. February Industrial Production showed stronger than expected gains as well, and Capacity Utilization rose to the highest level since March 2008. Weekly Jobless Claims dropped sharply, and Continued Claims declined to the lowest level since the middle of 2008. This kind of strong economic growth should support continued improvement in the housing market.

The headline monthly inflation reports reflected large increases due to rising gas prices, but core levels remained well within the Fed’s comfort zone. The February Consumer Price Index (CPI) rose 0.7% from January. By contrast, Core CPI, which excludes food and energy, increased just 0.2%. Fed officials prefer to look at core readings of inflation, which exclude the most volatile components and present a better indication of long-term trends. According to the Fed statement, core inflation levels below 2.5% do not pressure the Fed to scale back its bond purchase program, which has helped keep mortgage rates low. This month, Core CPI was 2.0% higher than one year ago, while the Core Producer Price Index (PPI) was even lower at 1.7%.

The big story next week will be Wednesday’s Fed meeting. Investors will be interested in the Fed’s reaction to the recent strong economic data and whether it will affect monetary policy. The most significant economic data will be the housing reports. Housing Starts will be released on Tuesday, and Existing Home Sales will come out on Thursday. Leading Indicators and Philly Fed will also be released on Thursday. Budget talks also may be an influence on mortgage rates next week, as legislation is needed to fund the federal government past March 27.

Home Sales Increase to Near Two Year Highs

Contracts to purchase previously owned homes increased solidly to a near two-year high in March, suggesting the spring selling season got off to a firmer start and offering hopes of a pickup in housing.

The National Association of Realtors said on Thursday its Pending Home Sales Index, based on contracts signed in March, jumped 4.1 percent to 101.4, the highest level since April 2010.

March’s strong rise in signed contracts pointed to a pick up in home resales after they stumbled in the past two months.

“First quarter sales closings were the highest first quarter sales in five years. The latest contract signing activity suggests the second quarter will be equally good,” said Lawrence Yun, chief NAR economist.

Signed contracts were up 12.8 percent in the 12 months to March.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) lost just -1 basis point from last Friday to the prior Friday which caused mortgage rates to move sideways.   The highest rates of the week were on Wednesday and the lowest rates of the week were on Monday.  MBS traded in a very narrow range all week as we had a mixed bag of economic news.  Durable Goods Orders, New Home Sales, Initial Jobless Claims and the 1st quarter GDP were all worse than expected and provided some support for bonds. But Consumer Sentiment, Pending Home Sales and Fed action were negative for bonds and kept a cap on any material gains.   The Federal Reserve Open Market Committee (FOMC, aka “The Fed”) left their key interest rate alone and basically made a carbon copy of their last policy statement.  They basically told the market that there was no need for any additional stimulative measures at this time, nor do their projections show that further easing would be needed in the future. However, if the economy did turn from its current positive direction they are prepared to step in.

What to Watch Out For This Week:

The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.

Date	Time (ET)	Economic Release	Estimate	Prior
30-Apr	8:30 AM	Personal Income	0.20%	0.20%
30-Apr	8:30 AM	Personal Spending	0.50%	0.80%
30-Apr	8:30 AM	PCE Prices – Core	0.20%	0.10%
30-Apr	9:45 AM	Chicago PMI	60	62.2
1-May	10:00 AM	ISM Index	53	53.4
1-May	10:00 AM	Construction Spending	0.50%	-1.10%
1-May	2:00 PM	Auto Sales	5.4M	5.1M
1-May	2:00 PM	Truck Sales	5.7M	5.7M
2-May	7:00 AM	MBA Mortgage Index	NA	-3.80%
2-May	8:15 AM	ADP Employment Change	170K	209K
2-May	10:00 AM	Factory Orders	-1.80%	1.30%
2-May	10:30 AM	Crude Inventories	NA	3.978M
3-May	7:30 AM	Challenger Job Cuts	NA	-8.80%
3-May	8:30 AM	Initial Claims	375K	388K
3-May	8:30 AM	Continuing Claims	3300K	3315K
3-May	8:30 AM	Productivity-Prel	-0.60%	0.90%
3-May	8:30 AM	Unit Labor Costs	3.00%	2.80%
3-May	10:00 AM	ISM Services	55.5	56
4-May	8:30 AM	Nonfarm Payrolls	162K	120K
4-May	8:30 AM	Nonfarm Private Payrolls	167K	121K
4-May	8:30 AM	Unemployment Rate	8.20%	8.20%
4-May	8:30 AM	Hourly Earnings	0.20%	0.20%
4-May	8:30 AM	Average Workweek	34.5	34.5

 

 

 

Market Recap

There was a lot of daily volatility for mortgage rates this week. On Tuesday, the Fed Minutes revealed a lack of enthusiasm for further easing, and this caused mortgage rates to jump. Increased concerns about Europe then helped mortgage rates improve on Wednesday and Thursday. The net result was a small increase in rates for the week.

Shifting expectations for future Fed policy has had a large influence on MBS prices lately, and that was certainly true on Tuesday. The Minutes from the March 13 Fed meeting caused investors to lower their expectations for additional quantitative easing (QE3). The Minutes suggested that most Fed officials would support QE3 only if the economy performs much more poorly than expected. Under another round of quantitative easing, the Fed would purchase mortgage-backed securities (MBS), and the potential for added demand from the Fed makes MBS more appealing. So, when the perceived likelihood for QE3 decreases, investors sell MBS, and lower MBS prices lead to higher mortgage rates.

By contrast, increased concerns about Europe caused investors to shift funds into safer assets such as MBS, which was favorable for mortgage rates. Investors viewed weaker than expected economic growth data and rising bond yields in troubled countries such as Spain as indications that financial conditions in Europe may be getting worse. Slower economic growth tends to reduce future inflationary pressures, which also benefits mortgage rates.

Mortgage markets will close early at 12:00 et tomorrow in observance of Good Friday. The important Employment report will come out tomorrow. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Next week, Import Prices and the Fed’s Beige Book will be released on Wednesday. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Job Claims, Factory Data Suggest Recovery Picking Up Steam

Government reports on weekly jobless claims, manufacturing activity and inflation offered fresh evidence the U.S. economic recovery is picking up steam.
New U.S. claims for unemployment benefits dropped to a 3 1/2 year low last week, a government report showed on Thursday, suggesting the labor market recovery was gaining speed. Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 366,000, the Labor Department said. That was the lowest level since May 2008.

A gauge of manufacturing in New York State showed growth accelerated in December to its highest level since May as new orders improved, the New York Federal Reserve said in a report on Thursday. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. The gain in December added on to improvement last month that pulled the index out of a five-month contraction.

Wholesale prices rose a modest 0.3 percent last month, as companies paid more for such items as food and pharmaceuticals. But energy prices barely rose, keeping inflation in check.

Most economists say they think inflation has peaked and will slowly decline next year. That’s because prices for oil and many agricultural commodities have fallen from their highs this spring. Slower growth in China and a possible recession in Europe have reduced global demand for energy and other goods.
Lower price growth means consumers will have more buying power, potentially boosting consumer spending. The jump in gas and food prices earlier this year limited the ability of consumers to buy other goods, thereby slowing the economy.

Consumer spending rebounded in the July-September quarter as prices eased. The stronger spending helped increase growth to an annual rate of 2 percent from a slight 0.9 percent in the first half of the year. Economists expect consumer spending to rise again in the last three months of this year and think growth could top 3 percent. Federal Reserve policymakers, like many private economists, predict inflation will fall next year. That would give the central bank more latitude to hold down interest rates and potentially take other steps to stimulate the economy.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +67 basis points from last Friday to the prior Friday which moved mortgage rates lower. Once again, the U.S. saw much better than expected economic data.  Both the N.Y. Empire and Philly Fed manufacturing data saw big increases and the Initial Weekly Jobless Claims fell below 390K.  We also saw very tame results in both the Consumer Price Index and the Producer Price Index which point to reduced inflationary pressure.  MBS rallied in the later part of the week on the heels of to very successful U.S. Treasury auctions. Both the 10 and 30 year auctions saw very strong demand which pushed rates lower.

This was due to a growing concern that the recent agreement out of the European Summit would not be enough to stem the tide in Europe.  This concern caused investors to snap our bonds even though the interest rates and returns are very low. Foreign investors simply want a place to put their funds, knowing that they will get those funds back.