Mortgages And More

HUD HOMES

In the last couple of years, foreclosure stories and statistics have dominated the news.  The heart-wrencing stories of what homeowners have gone through and losses they have sustained brough about a kind of hysteria.  This hysteria of fearing what could happen if you financed a home has prevented some from getting out there and making that purchase of a lifetime.  And yet, what the general public doesn't know, but needs to be aware of, is that these foreclosures have presented an opportunity for more homeownership with more security.

Homes that were insured by FHA, foreclosed upon and now owned by HUD are HUD REO's.  At last count in Brevard County, there were 6,885 HUD REO properties.  These homes are put back on the market for resale and can be purchased and financed through HUD's $100 down payment program.

In a nutshell, here are the features: 

•  Primary residence only
•  Appraisal provided by HUD
•  LTV with Upfront MIP cannot exceed 102.05%
•  Lender must pass clear title on HUD Repo (Final title is not required)
•  Repair escrow allowed with LTV not exceeding 110%.

How can  you find a HUD REO?  Go to HUD HOMES to find the list of available homes in your area.

When buying a HUD HOME (REO), watch out for the following 4 costly mistakes:

• Taxes: Most people over pay on the transfer taxes of their foreclosure purchase.  Most government foreclosures are exempt from paying transfer taxes.  Also, watch out for property taxes.  Although, the purchase price of the home may be low, the taxes could be more than you can afford.
• Over Bidding: HUD sets the price based on the appraised value.  If you bid over the asking price, the existing appraisal cannot be used, and a new appraisal is needed, at your cost. 
• Not Getting the Most Out of a Home Inspection:  Make sure to get a home inspection.  This will let you know what sort of repairs will be required and if you are getting in over your head.
• Not Maximizing Your Investment:  The Federal Government will allow you to include most planned repairs into the mortgage amount.  This leaves your money where it belongs...in your pocket.  So, make out a list of what yo want repairs before your home inspector arrives at the home.  Then present him with the list so that the list can be annotated by the Home Inspector.  You can then bring the list to HUD and show that HUD has under reported the problems with the home.  This can increase the loan amount slightly, but the the home will be in the condition that you prefer.

Not all lenders will finance HUD HOMES.  Hamilton Group Funding will not only do the financing for the borrower, but will walk you through the program.  Contact me for details.

New Licensing Requirements

Wow! Not only was 2010 a rough year for all American, bt it was extremely tiresome for the housing industry.  On the real estae side, short sales and REO's became the sale of the day.  Though time consuming and often disappointing, they became the trend in sales.  Real estate and mortgage professionals alike have adjoined themselves to the political arena as never before.  Our national lobbyists have had to fight to stave off laws that could directly harm our livelihoods. The words, "transparency", usually only spoken by government officials, has had a tremendous impact on our industry with more and more disclosures being presented to the consumer either in the form of a new Florida Bar contract or the new 4-page Good Faith Estimate.  It is still up for debate whether the new forms are providing clarity to the consumer or confusing the consumer more.

New licensing regulations for the mortgage professional began with the SAFE ACT in 2008.  The enactment of the SAFE ACT required a new licensing process - no more renewals in 2010.  Mortgage professionals have had to re-apply for licensing.  There are two types of mortgage professionals now.  Those who are employed by the bank, and those who are employed by non-depository institution, such as mortgage companies. Although our functions are the same, there is a big difference between a licensed mortgage loan originator and a registered loan officer at a bank.

Licensed Mortgage Loan Office

Pass national licensing test

Pass state licensing test

Criminal background check

Fingerprinted

Credit report analyzed annually

Listed on a national website for consumers to review

Registered Mortgage Loan Originator (Bank employee)

Routine background check - by the bank they work for

Listed on a national website for consumers to review

Only mortgage originators who have an NMLS number can do business. Therefore, be sure the originator you are working with has a number.

Maybe some of the changes of 2010 were needed, or maybe our government was merely grasping at straws as a rescue attempt for our industry.  Nonetheless, the changes are here and how we do business must also change.  As my granddaughter recently observed, "We tend to change at the peak of destruction.  When our life or livelihood is threatened, we change."  And as you know, change did come in the form of regulations and new guidelines.  Rather than fight the change, perhaps a better approach would be to embrace the nuances of our industry.  Mortgage Brokers of the past are now Licensed Mortgage Loan Originators, which adds a level of professionalism that may have been absent in the past.  This is the time to preserve homeownership and the housing industry.  The formula for succeeding in 2011 is to be aware of the continual shifts and prepare our clients for not only what will be, but all that may be.  New changes will come, and when they do, I will be here with Hamilton Funding Group, Inc to walk you through them.

Stop Complaining!  Understand the Loan Process

Have lender's tightened credit guidelines, making it difficult for even "vanila" buyers to finance a home?  From my perspective , I have to say, "No."  It seems to me they are running a tighter ship.  And, isn't this what we wanted any way to get our economy back on track?  I don't know about you, but I welcome having the foreclosure rate decrease.  The mortgage industry became diseased with senseless loans ... nonsense loans ... anyone-can-get-a-loans; and although the remedy leaves a bad taste in the mouth, it may be just what the doctor ordered to get our economy back to smooth sailing.  Between the automated underwriting system (AUS) and the extra, lender-specific guidelines (overlays), there is no question that our borrowers have proven beyond a shadow of a doubt that they deserve to be at the closing table.

Even if the medicine cures, there are alway side effects.  Having a tighter ship means longer turn times in underwriting.  The 48 hour approvals are a luxury of the past.  Although the AUS of FNMA and FHLMC are used as stepping stones, the underwriter has to review each document thoroughly, making sure each loan package is acceptable for purchase by an investor in the secondary market.  A loan package today must not only make sense, but there must be no unanswered questions. Overtime income shown on a pay stub and clarified on the IR W-2 Form with reported income being greater than the guaranteed salary requires additional proof that the overtime will continue; deposits in a bank account greater than the paycheck require explanations and paper trails; a two-year landlord history is expected in order to use rental income for qualifying purposes; a cell phone used for a business needs to listed in the phone book; and anything out of the ordinary makes for a borderline loan even if the consumer has high credit scores.

As a result of this magnifying glass approved to underwriting, more time is spent on each file, and thus the underwriting delays. We, who are in the mortgage industry, are becoming attuned to the longer than usual turn times and what appears to be excessive documentation; but the borrowers, realtors and sellers, who are just now feeling the effects, hardly understand.  It is human nature to base the present on past experience, so for a borrower who has been through the loan process previously, he is horrified at the requests made of him now.  For the most part, the borrower is honest and truthful, so when asked to provide more and more documentation to prove what he thinks has already been proven, he feels his dignity and integrity have been attacked. 

Realtors and sellers are asking, "And we need an extension to the contract because....?" The implication, of course, is that some are not doing their job.  In years past, accusations such as this could be made with some truth behind it, but now it's a totally joint effort on the part of all parties, as well as understanding the loan process as a whole.  I am a firm believe that knowledge is power, thus knowing the loan process and all the tasks and restraints involved may help the public to not take documentation requests personal, to be more prepared to apply for a mortgage loan, or to sell a home, or to educate the seller in the process.

Added to the longer underwriting times are the time restraints dictated by Truth-in-Lending laws.  Lenders have three days from the date of application to deliver the Good Faith Estimate and Truth-in-Lending disclosure, which is nothing new, but, what is new is that buyers have 10 days in which to accept the proposed estimate. Appraisals cannot be ordered until 7 days after the date of application. And even after the "clear to close" is received, redisclosures are sent out giving the borrower another 3 days to agree to the terms prior to closing.  And if the borrower requests it, the closing statement must be given to the borrower for review 24 hours before closing.  These are all time delays, but the end result is an educated borrower.

Since preparation and education is so important in obtaining a mortgage loan, I have prepared a 5 minute cartoon which will show you the steps involved in processing a home loan.  Please click the link below and watch, "There's No Place Like Home".

http://goanimate.com/movie/0sS3CwLRgnmg?utm_source=linkshare

 Benefits for Members of the Military and Certain Other Federal Employees

Members of the military and certain federal employees serving outside the US have an extra year to qualify for the first time homebuyer tax credit.  According to an article from the IRS, http://www.irs.gov/newsroom/article/0,,id=215594,00.html, to be eligible for the tax credit, members of the unformed services, members of the Foreign Service and employees of the intelligence community if they have served outside the United States for at least 90 days during the period beginning December 31st, 2008, and ending before May 1, 2010.

The eligible taxpayer must sign a binding contract to buy a principal residence on or before April 30, 2011 and closed on the purchase by June 30, 2011. 

With the new Short Sale guidelines coming out April 5th, 2010 and the announcement of the HAMP Improvements, I have been getting numerous calls asking who are the participants of HAMP.  Great question?

If a lender signed up with HAMP, they are obligated to participate in the Short Sale program which:

• Has the seller approved for a short sale prior to the home going on the market
• Establishes the value, thus minimum purchase price of the property prior to being placed on the market
• Limits to servicer to making a yes or no decision on the purchase offer
• And gives monetary incentives to servicer, seller, and investor who is willing to help with any second liens.

On the same token, any lender who participates with HAMP is obligated to participate in the NEW HAMP Improvements:

• Temporary assistance for unemployed homeowners why they search for re-employment - mortgage payments are reduced to affordable level for a minimum of three months, and up to 6 months for some borrowers.
• Requirement to consider alternative modification approach that emphasizes principal write-down for eligible HAMP borrowers who own more than 115th of current appraised home.
• Expansion of HAMP to include homeowners with FHA loans.
• Double the relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000.

The HAMP Participant list as of March 10th, 2010 is posted on the website of The Law Offices of Charles Restrepo, Esq, PA.  If your lender/servicer is on the list, you may be eligible for the new programs. 

Purchase a Home With A Reverse Mortgage?

Recent changes by Congress to the FHA-insured Reverse Mortgage program allow seniors to buy a home with a Reverse Mortgage - with no credit score requirement or income verification. 

Although this sounds too good to be true, Americans 62+ can now use the equity from the sale of their previous home or other cash or savings to move into a different home - just with a single down payment.  You will never have to make another mortgage payment as long as you occupy the home and pay your taxes and insurance.  Imagine the financial independence you can achieve by eliminating your mortgage payment once and for all.  Best of all, if the untapped equity in your home increases over time, you or your heirs will "own" that equity...not the bank!

So what is a Purchase Reverse Mortgage?  Simply put, a purchase reverse mortgage is the opposite of a traditional mortgage.  Instead of making payments to the lender, the payments come out of the equity in the property at the time of purchase.  Nothing is free, so there is an interest rate tied to the mortgage.  As time goes by the mortgage will increase according to the interest rate.  When the home is sold, either by you or your heirs, the balance of the mortgage must then be paid.  If for some reason, the value of the property, at the time of sale, is less than what is owed on the mortgage, the property can be sold for the value only, and the remaining balance of the mortgage is completely forgiven.  That's right, completely forgiven!

Down payment for the purchase is determined by the purchaser's age, interesst rates, and the lesser of the value, purchase price or the FHA-insurance national lending limit - current at $625,000.

Eligibility Requirements:

• All title holders must be 62 or more
• Purchaed home must be the principal residence
• Purchased home must meet HUD's minimum property standards and be either a single-family residence, a 1-4 unit dwelling, certain condo, or an eligible manufactured home
• Down payment must be from a qualifying source
• You must complete a HUD-approved counseling session

Benefits:

• Eliminate the mortgage payment for as long as you live in the home
• No income verification or credit score requirement
• You keep the title to the home
• The remaining equity goes to you or your heirs once sold - not the bank
• No prepayment penalty
• FHA-insured
• Loan is non-recourse

Bottom-line:  A Reverse Mortgage is a financial tool that provides security.

January 1st, 2010 RESPA implemented the new 4-page Good Faith Estimate. But is it an Estimate or a Guarantee?

Page 1 defines the mortgage loan:

• Whether the rate is floating or locked,
• When the GFE will expire (10 business days from creation,
• If the rate is locked and when the lock expires,
• How many days before settlement the rate must be locked, and
• The terms of the loan:
  • If the payment can increase, and if so, how often and how much over the life of the loan,
  • If there is a prepayment penalty and the maximum amount
  • If the loan is a balloon, and if so, when it is due.

Also on page 1 is an escrow disclosure section:  The PITI (principal, insurance, taxes and insurance) payment is revealed as well as whether or not the borrower has a choice of paying the taxes and insurance directly or having them escrowed within the payment.

And lastly, the 1st page gives a summary of the settlement charges. 

As I said, Page 1 is informative and clearly defines the mortgage.  If the borrower does not understand the mortgage after reviewing this page, the borrower needs to stop here, and get more clarification.

Page 2 is divided into two sections:  A & B

• Section A is Your Adjusted Origination Charges.  Notice the title does not include the word ESTIMATE. Why? Because these charges can only change if the loan amount changes, or if the buyer did not provide accurate information to the lender or there is new information which would affect the costs, or, because of an act of God, such a natural disaster, or war.  These are called Changed Circumstances.  If there are no Changed Circumstances, the Adjusted Origination Charges cannot change.  In essence, the lender cannot charge any more for the loan than initially quoted in this section. The origination fees are guaranteed.
• Section B contains a list of all the other settlement service charges, such as the appraisal, credit report, and tax service fees, flood certification, title services, and services that the borrower can shop for such as termite inspection, survey, roof inspection, etc.  In Section B all charges may increase by an aggregate of 10%.  However, those services which the borrower may shop for are not included in the 10% if the borrower selects a servicer who is not on the lender's provider list.  Escrow deposit, interest charges and homeowner's insurance, which are disclosed near the bottom of this section, can change to an unlimited amount.  There is no cap. Finally, the  bottom line is an addition of the Adjusted Origination Charges and Other Settlement services.

After reviewing this page, the borrower will know all the charges associated with the mortgage loan. There is no guess work here. Mortgage Originators and Settlement Agents must be precise when presenting costs to the borrower.

Page 3 - This is the page I really like.  The 1st section explains to the borrower what charges can change, which ones cannot, and if they can change, by how much.

There is a trade off table which summarizes the GFE:  loan amount, interest rate, monthly payment, and estimated settlelment charges. The form explains that if the borrower chooses the same loan amount with lower settlement charges, then the interest rate will be higher. And, conversely, if the borrower chooses a lower interest rate, the settlement charges will be higher.

The bottom section of this page reiterates the terms of the mortgage and the total settlement charges to enable the borrower to compare this loan to other loans.  As a mortgage broker, I give the comparisons from different lenders to my borrowers.

Page 4 is a Settlement Services Provider Statement. This is a list of service providers, their charges, the company information, on what line the charge will appear on the Settlement Statement, and whether the borrower may have the choice of selecting the servicer.

Once a credit application with the financing property address has been received by the originator, the originator has 3 days in which to present the GFE to the borrower.  The Borrower than has 10 business days to accept the GFE by signing and returning the form.  This is important because after 10 days, the GFE will expire. 

As part of the Respa Reform, this new Good Faith Estimate was developed to not only inform the borrower, but hold the originator accountable for what is disclosed.  As a Guaranteed Fee Explanation, no one may arbitrarily make changes to the figures, thus the borrower should not expect an increase in costs at the closing table, nor claim to have never been properly informed. This is only a guess, but I would imagine the redundancy in the form is to drive home to the borrower that this is what his mortgage is all about.  The major flaw I see in the new Respa Form is the lack of disclosure of what the borrower needs to bring to the closing table.  The settlement fees quoted are all the fees whether buyer or seller or paying them.  As an added service and convenience, many of us give the borrower a copy of our worksheet which does spell out the borrower's costs.

We may not all like the new 2010 Good Faith Estimate or Guaranteed Fee Explanation, but we have to abide by the law.  This is now the universal form used by bankers and broker alike.  So, let's make the best of it and deal with it. 

Friday, November 5, 2009, President Obama signed the amendment to the Tax Credit which extends the $8,000 tax credit to first time homebuyers from November 30th, 2009 to April 30th, 2010.  This new amendment also allows for homeowners who have owned their current home for at least 5 years and are looking to relocate to received a tax credit of up to $6,500.  Income limits have also been increased from $75,000 annually for a single buyer to $125,000, and from $125,000 for a couple to $225,000.  There is also a tiered credit for income over the prescibed limits. 

FIRST TIME BUYERS, SECOND TIME BUYERS, THIRD TIME BUYERS, THIS IS THE TIME TO BUY! 

This new legislation will allow more people to purchase a home and help stop the continued downward spiral in housing prices caused by the foreclosure crisis.  As for critics who think the extension of the tax credit will cause more debt for our country.  When President Obama signed the tax credit extension into law, he stressed that this measure is "revenue neutral and will not increase the deficit". 

For information on how to apply for the tax credit, visit the National Association of Realtors website: http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit

As always, if you have any questions or would like to be pre-qualified for a mortgage, please contact me at sublette.trish@gmail.com or call me at 321-543-4517.  I am always happy to read your comments.  Just click "comments" and leave me a message.

 

Tax Credit Not Just For First Time Home Buyers

The Tax Credit debate is heating up and we could see some kind of extension fast.  Senator Harry Reid and Senator Isakson each had their own proposals, but the Senators compromised and agreed to extend the Homebuyer Tax Credit into 2010.

The current Tax Credit is for First Time Homebuyers.  This new amendment will include repeat buyers who have owned their homes for at least 5 years. These repeat buyers will be eligible for a tax credit up to $6,500.  The First Time Homebuyers will have a tax credit up to $8,000 and cannot have owned a home for the past 3 years.

Income Limits for the Tax Credit will also increase with the new amendment.  For both first timers and seasoned homebuyers, an individual cannot earn an annual income greater than $125,000, and a couple's income cannot be more than $225,000.

The extension will allow homebuyers to sign contracts no later than the end of April and they must close by the end of June

One the Homebuyer Tax Credit reaches the floor of the senate in the form of an amendment to legislation, passage is expected to be easy.  The amendment may reach the President's desk as early as next week.   

I recently read an article on what economists are saying about our nation's economic recovery.  There appears to be quite an array of opinions - however, the consensus is that this recover is unlike any other.  Historically, every recession is different in its own way, but recoveries are normally all alike.  This recovery is an exception.

"In previous recessions, with stimulus programs in housing underway, a little more confidence is created, banks start to lend more, consumers start to borrow more," says Barbara Marcin, a portfolio Manager with GAMECO Investors. 

Though housing may be showing signs of stabilizing recently, and housing starts (new and existing home sales) have bragged of 3 consdecutive months of gains, we are basically back to where we were 6 months ago.  New home sales are still one-half of what they were in 2007. Retail sales are at 2005 levels.  

The consumer should be at the leading edge of recovery, but unemployment and debt hovers over. In past recoveries, personal consumption was close to or surpassed the general economic growth rate.  In this recovery, it appears consumers will have to make the adjustments - save more and consumption will grow gradually.

Rather than a national economic recovery - this is an individual recovery with our own families.  Many of us have already begun by eliminating unnecessary expenses, such as 2000 television channels, being smarter shoppers through comparison shopping and avoiding impulse shopping.  If we didn't need it yesterday, do we really need it today? How about paying cash for things instead of using credit cards, and eliminating unnecessary driving - run errands all in one trip.

As our family's financial situation improves and we obtain more discretionary income, we will be able to spend again, and our national economy will grow.

Think about it.  We can all cut costs and get this economy moving.  Besides, what choice do we have?

As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping teetering buyers take the plunge and purchase a home.  The $8000 tax credit, however, is only collectible at tax time after the purchase is made. Indeed, this is a great incentive for people who have the resources to save their down payment money.  But, for those whose income provides for them to live pay check to pay check (the vast majority), the tax credit is just a carrot that they will never reach.  

In efforts to further stimulate the economy, it was announced May 20th that the US Department of Housing and Urban Development is working on a plan that will allow FHA approved lenders to provide buyers with the tax credit cash up front. Thus, the tax credit funds will be used at closing on their home as the down payment.

Although details of the plan have yet to be revealed, the plan could be modeled after programs that are currently in place in Colorado, Missouri, New Jersey, Pennyslvania, Tennessee and Washington. These states credit "bridge loans" that allow buyers to borrow against the $8000 tax credit and then repay it with their tax refunds.

For example, if modeled after Missouri's plan, the first state to instill such initiative, borrowers can access $6,750 of the $8,000 credit for the down payments.   At closing, the borrower signs their first mortage, plus a second mortgage issued by the state.  The second mortgage is $6,750, with a $350 set-up fee.  No interest is charged if the debt is repaid by June, 2010. If the borrower does not pay off the note, it becomes a 10-year fixed rate mortgage with an interest rate one-half percentage point above that of their first mortgage.  For instance, borrowers paying 5% on their first mortgages would be charged 5.5% on the second.

2009-03-11

 Home Affordable Refinance Program

The goal of the Home Affordable Refinance Program is to allow homeowners who because of past guidelines could not refinance to lower their payments to a more affordable level.  This program will begin April 4, 2009. In my last post, I promised to give you the nitty gritty of the Home Affordable Refinance Program. So, here it is.

Loan to Value:The previous guideline required the new mortgage to be no higher than 80% of the current value. This program allows for a loan to value of 105% of the current appraised value.  This 105% may include the principal balance, closing costs and prepaid expenses.  This new mortgage may not include a 2nd mortgage. Also, a new 2nd mortgage cannot be created, thus if the 105% is not enough to pay off the current mortgage and finance closing costs and prepaid, do not attempt to obtain a 2nd mortgage to pay for those items. Although a new 2nd mortgage is prohibited, if a current 2nd mortgage exists, this mortage can be resubordinated.    The 105% loan to value is only for the 1st mortgage.  There is no cap on the total loan to value which would inclue the 1st and the 2nd mortgage. 

Eligibility:  The current loan must have been in effect prior to 3/1/2009 and must be a Fannie Mae or a Freddie Mac loan.  To determine this either contact your lender or contact Fannie Mae at 800-7FANNIE or 800-FREDDIE between the housrs of 8am and 8pm EST.  You can also contact them online to request the information at:  www.fanniemae.com/homeaffordable or www.freddiemac.com/avoidforeclosure/. You can also email Fannie Mae at Resource_center@fanniemae.com.

Other eligibility criteria:  The borrower on the new mortgage must be on the existing mortgage.  New borrowers may be added providing the existing borrowers are retained. 

Property Eligibility:  The property may be owner occupied (1-4 units), a second home or investment property.  It can be a single family dwelling, 1-4 units, condo, PUD, cooperative or manufactured housing. No hotel/motels are allowed.

Appraisal Requirements: Automated underwriting (DU) will determine if the property requires an appraisal, and if so if a full appraisal or drive-up is needed.  In certain cases, the appraisal will be waived. If the lender determines that an appraisal is warranted and DU has waived the appraisal required, the lender may obtain an appraisal at the lender's expense.

Documentation Requirements: 

•  
  • Mortgage Application - 1003
  • Tri-merged credit report
  • If Salaried/Bonus/Overtime - 1 current paystub & a verbal verification of employment
  • If Self-employed/Commissioned - 1 years federal income tax return

Additional Facts: 

•  
  • There is no minimum credit score, however credit must meet guidelines for mortgage delinquency, bankruptcy and foreclosure policies.  The credit report is obtained for pricing purposes.  Credit worthiness is based on mortgage payment history.
  • There is no seasoning requirement on how long the home has been owned.
  • Multiple mortgages are allowed - no limit.
  • The new mortgage is a rate and term mortgage, therefore, cash back is minimal - 2% of the loan amount or $2,000, whichever is less.
  • The new mortgage may be 30 years, 40 years or an adjustable rate mortgage with a fixed payment for at least 5 years.
  • If the new mortgage is greater than 80% of the current value, mortgage insurance will be applied, unless the current mortgage had mortgage insurance which has terminated. 
  • Current reverse mortgages, 2nd mortgages and government loans are not eligiblefor this program.

Comments: The Affordable Housing Refinance Program is a step for many in the right direction.  Benefit testing will be done to ensure that either the new mortgae has reduced monthly payments or, at least, is a more stable product.  Please bear in mind that it is imperative that the homeowner continues to make the monthly payment on time up until closing of the new transaction.  The underwriter may require up to closing information on the payment history. 

One last item: The homeowner does not have to refinance with their current lender.  This is a Fannie Mae product, and as such, any lender who participates may assist in the refinancing.  So, contact me and let's see what we can do to help you take advantage of the lower interest rates. Don't wait until April 4th. Let's get started today.

Making Homes Affordable - That is the aim of the Obama Administration's Program. This plan is estimated to offer assistance to as many as 7 to 9 million homeowners.

So much news has been put out across the wires that it can be confusing.  As one person emailed me, “I have heard that the program will only help those who are not delinquent on their payments, yet, someone else told me it is to help those who are behind.”  Well, the truth is that the program is designed to help both.

The Making Home Affordable Program is broken down into 3 components:

1. Home Affordable Refinance Program for responsible homeowners suffering from falling home prices (decline in value)
2. A comprehensive $75 Billion Home Affordable Modification Program
3. Support Low Mortgage Rates by strengthening confidence in Fannie Mae and Freddie Mac

Each component deserves a blog of its own, but I want to get this important news out as quickly as possible. 

Home Affordable Refinance Program

This program is aimed at helping homeowners whose mortgage is higher than their property’s value. Rather than the normal 80% of the current value being financed, this program will allow up to 105% of the current value.  The current mortgage, closing costs, prepaid taxes and insurance and any discount points associated with the financing may be financed in the new mortgage, as long as the total loan amount does not exceed the 105%. 

Eligibility requirements include being current on the mortgage, living in the subject property, and having sufficient income to make the new payment. 

As in all new programs, guidelines are constantly adjusting. This program is no exception.  Since the details of this program were published by the US Treasury Dept, Fannie has already enhanced this refinance program.  I will publish the enhancements in my next blog.

Home Affordable Modification Program

The goal of this modification program is to reduce the amount homeowners owe per month in order to prevent foreclosure and to stabilize communities.  I have broken this program down into 5 parts.

1. The lender is to bring down the monthly payments so that they are no greater than 38% of the homeowner's gross income. The key here is that although the monthly payment is 38% of the homeowner’s income, the homeowner will only be charged a payment of 31% of the monthly income.
2. The US Treasury Dept. will pay the difference between the payment at 38% of the money income and the 31% of the monthly income that the homeowner pays.
3. The 31% payment is the modified payment which will be in place for 5 years.  After 5 years, there is be a gradual increase in the payment of 1%  until the payment reaching the conforming rate in place at the time of the modification.
4. To reach the target interest rate the payments will be reduced down to an interest rate of 2%.  If the debt to income is still over 31%, the term of the mortgage loan may be extended to 40 years or the lender may do a forbearance of principal at no interest until the payment is at the 31% target.  Lenders may also reduce the principal balance.
5. In the case where there is a second mortgage, second lien holders are encouraged to extinguish the second lien.

For Further Clarification here is an example:

Current Mortgage - $200,000

Gross Monthly Income - $3,500

38% of $3,500 = $1,330

31% of $3,500 = $1,085 – Maximum Monthly Payment

At 2% interest rate for 30 years, the principal and interest payment is $739.00. This leaves $346 for taxes and insurance.  Since the 38% payment is $1330, the US Treasury pays the lender $245.00 ($1,330-$1,085)

If the combined payment of principal and interest, plus taxes and insurance, and possibly mortgage insurance is greater than the $1,085 limit, the lender may provide a 40 year term, lowering the payment.  Bear in mind, too, that if you qualify at a higher rate, say 4%, you will start at 4%.

With this example, the principal and interest payment will remain fixed for 5 years.  At the end of the 60^th  month, the rate will gradually increase in 1% increments until the interest rate is at the current conforming rate which today is 5%.

Although, this program’s goal to help struggling homeowners, anyone can apply through their current lender.  A word of caution, though:  Just because the program can help you and just because you qualify, does not mean that you lender is a participant in the Affordable Loan Modification program.  In order for the lender to receive TARP money (Bailout Money) the lender must participate in this program.

An important point to remember is that this is a NO COST TO THE BORROWER modification.  In addition, the homeowner does not need to be late to apply.  Let me repeat.  Although the program is aimed at helping those behind in their payments, those who are making their payments, but struggling to do so, may qualify.  

Ok, I know this is a lot to digest, so if you have any questions, you can always give me a call or shoot me an email at tsublette@mortgagecrafters.net.  Your first step in helping yourself is to call your lender.  I would be happy to hear how your lender responds.

My Gosh!  My head is in a whirlwind!  First came the Economic Stimulus Plan for 2009; and right behind it came the Homeowner Affordability and Stability Plan.  Is help on its way?  I think so.  The news for homeowners and soon-to-be homeowners is promising.  So, get your documents ready because now is the time to either refinance or purchase a home.

The $787 Billion stimulus bill is made up of tax cuts and spending programs aimed at, just as the name of the name of the plan implies, stimulating the US economy. One of the major benefits of the plan is a tax credit for new homebuyers. According to the plan, first-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for a tax credit of $8,000 or 10% of the value of the home, whichever is lower. Therefore, if the home you purchase is valued at least $80,000 you will eligible for the $8,000 tax credit.  If the home is valued less than $80,000, the tax credit will be 10% of the value of the home.

The $8,000 tax credit is a true tax credit. It's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability. In other words, the $8,000 is not subtracted from your income before taxes are applied. Instead, the tax credit is deducted from taxes due.  So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

The tax credit is applicable to any home that will be used as a principle residence. Qualifying "homes" include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured homes and houseboats used for principle residence also qualify. The only catch is that buyers will have to repay the credit if they sell their homes within three years.

The Homeowner Affordability and Stability Plan is twofold:

This plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. Many of the plan's details are still being worked out and will not be announced until March 4. Here is an overview of the plan's main components.

Refinancing Initiative

For those whose homes are in an “upside down” position, meaning the mortgage balance is more than the current property value, refinancing the mortgage may be possible. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, "responsible" homeowners, those that have been making their payments, but are struggling to do so, can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date--including what, if any, credit score requirements will be included.

Stability Initiative

The stability initiative aims at providing help to individual families, as well as entire neighborhoods, by helping reduce foreclosures and stabilize home prices. Remember that a foreclosure in the neighborhood affects everyone – prices go down, property values are reduced.

This plan is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly. The goal of this initiative is simple: "reduce the amount homeowners owe per month to affordable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31% of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with the Treasury Department sharing in the costs.

An important part is that homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

This initiative also includes a number of additional elements and incentives, including an extra incentive for borrowers to keep paying on time. The initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

In a nutshell, we should all have hope of a recovery.  This recession has been hard on all Americans.  I truly believe that the first step out of this recession is the stabilization of the housing market.  We would be silly not to take advantage of these soon to be available programs.  March 4^th is just a few days away, so pay close attention to news broadcasts and to my blog.  I will keep you posted as to what steps to take.  In the meantime, gather your documents together – 30 days of paystubs, the last 2 years of W-2’s, and 2 months of bank statements (all pages).  If self-employed, you will need the last 2 years of tax returns (all pages).