A Little Fed and a lot of FHA

I heard the Tavern on the Green in Central Park is or has just closed. Here is a picture I took while there last September. Many people remember this place by the manicured animal shapes like this one.

The Fed says that the Fed’s Mortgage Backed Securities purchase program (see previous post), will end March 31st.  Overall this news was taken bad as rates got a little worse yesterday.

Also in a previous post, I commented on FHA changes.  Well it looks like the date for the increase in up front mortgage insurance (UFMIP) is April 5th.  The increase, just days after the Fed stops buying MBS’s, takes the UFMIP from 1.75% of the loan amount to 2.25%.  If you look at a $300,000 purchase price, and use FHA with the minimum 3.5% down, after April 5th your UFMIP will be $1,582 higher!  This is can be a problem for a lot of people.  I know, because I see how people struggle to save just enough for a down payment and closing costs.

It is true that UFMIP can be, and usually is financed into the loan amount, how ever that means higher payments.  While the impact to payments is low, those buyers who are already on the border for qualifying will be affected.

At some point the cap for seller credits will come into play as well.  Currently a seller can credit 6%, but FHA will shrink that to 3% sometime soon.

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Thank you,
Matt Steinmetz
Envoy Mortgage- Voted Top 25 Tech Savvy Lenders by Mortgage Technology Magazine

2151-A2 Salvio St.
Concord, CA 94520
Phone 925-671-9501 x119
Fax 925-940-9639

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Information about the $8,000 First Time Buyer Tax Credit
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FHA Making Changes

Currently when someone purchases a home using a FHA loan, they are required to pay an upfront mortgage insurance premium.  This fee can be paid or financed, and is currently at 1.75% of the loan amount.  FHA will be increasing this premium up to 2.25% of the loan amount.

In an effort to have purchasers put more skin in the game, many ideas were discussed, including raising the down payment minimum from 3.5% to 5 %.  It would appear the insurance premium was the victor instead…  For now!

Other changes include limiting seller concessions, like paying closing costs to 3% instead of the current 6%.  Once again requiring more skin in the game from the buyer.

The reason for these changes?  FHA has become so popular over the last year that it insures thousands of loans per day.  With that it’s foreclosure rate has increased, which means its insurance payouts have also increased.  Not to mention that there are minimum requirements for reserves as compared to the amount of insurance FHA issues.  The FHA has been said to have fallen below these requirements and needs cash.

In addition, FHA will attempt to hold lenders more accountable by reporting each lenders FHA performance rating to the public.  The belief is that a borrower will want to go through a lender with a positive rating.

These changes will leave many borrowers out of the market, as they will not be able to save for the additional insurance premium and additional 3% in closing costs, that can now be paid by the seller.

Whether you believe this is a bad idea, since some would be home buyers will be left out, or a good idea, as it keeps FHA in a good position for future use, this is the reality of changes to come.

I did not see a specific date as of yet, but read “this summer” in one article.

Click here to go to the FHA site and read the press release.

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Thank you,
Matt Steinmetz

Envoy Mortgage- Voted Top 25 Tech Savvy Lenders by Mortgage Technology Magazine
2151-A2 Salvio St.
Concord, CA 94520

Phone 925-671-9501 x119
msteinmetz@envoymtg.com

Learn When to Pay Points
Information about the $8,000 First Time Buyer Tax Credit
Information about the $10,000 New Home Tax Credit in CA
Apply for a loan online

FHA* VA * CALPERS * CALVET * FHA 203K Rehabilitation Loans * Energy Efficient Mortgages

2010 Prices to fall 5-10%

Just a quick note

From what I’ve been reading, the experts believe that foreclosures and short sales will continue to drag house values down by about 5-10% in 2010.  Some areas have begun to creep up in values due to low supply and high demand, though the belief is that supply will be on the rise this year.

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Fed Getting out of the Market

Only 12 weeks remaining of the Fed MBS purchasing program.  I’ve blogged this before but let’s recap.

The fed planned to spend 1.25 trillion dollars buying mortgage backed securities, which are really just bundles of loans, like yours, that are sold on a secondary market, like stocks and bonds.  They have spent over 1 trillion and with only 12 weeks remaining will be winding down this program.  Why should you care?

Since the secondary market is like any other and responds to supply and demand, when there is less demand, investors will need to be enticed to buy.  How do you do that?  With larger returns.  In this case returns are created by the interest rates, so you can see that higher rates will be needed.  This is of course passed on to the consumer, meaning home loan rates are expected to go up. 

If you or anyone you know has been on the fence, to buy or refinance, time is running out.  We may or may not see one more dip before the 12 weeks is up, but rest assured that unless the Fed extends the program, rates will go up.

Couple higher rates with foreclosures and short sales, we can expect a slight loss in the (small) gains we saw late last year in housing prices.  As rates go up the buyers lose purchasing power and are less likely to buy higher priced homes. 

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Thank you,
Matt Steinmetz
Envoy Mortgage- Voted Top 25 Tech Savvy Lenders by Mortgage Technology Magazine
2151-A2 Salvio St.
Concord, CA 94520
Phone 925-671-9501 x119

Learn When to Pay Points
Information about the $8,000 First Time Buyer Tax Credit
Information about the $10,000 New Home Tax Credit in CA
Apply for a loan online

FHA* VA * CALPERS * CALVET * FHA 203K Rehabilitation Loans * Energy Efficient Mortgages