Spring 2010 FHA Changes : Higher Fees, Bigger Downpayments, And More Mortgage Insurance

Life as an FHA borrower is getting tougher.

In an effort to shore up its flailing balance sheet and dwindling capital reserves, the Federal Housing Authority is rolling out sweeping financial changes. FHA borrowers have to look better on paper and be better credit risks.

Mortgage insurance premiums are rising, too.

Changes Effective April 5, 2010
In its official announcement, the FHA said its trying to better position itself to "manage its risk while continuing to support the nation’s housing market".

The changes are effective with case numbers assigned starting April 5, 2010.

One widely speculated change wasn't made -- the increase of the FHA minimum downpayment. Homebuyers in California and elsewhere can still buy with just 3.5 percent down. However, the group did roll out a number of other changes, including:

•An increase in Upfront MIP from 1.75 percent to 2.25 percent
•A reduction in maximum seller contributions from 6 percent to 3 percent
•A Congressional request to increase monthly mortgage insurance premiums
Furthermore, the FHA's new guidelines institute a minimum FICO requirement of 580 to make the minimum 3.5% downpayment, requiring 10 percent for any applicant whose credit score falls below that level.

2010: The Year Of Investor Overlays

But, just because the FHA allows 580 FICOs, banks don't have to allow it.

The official term here is "investor overlay". It's when that banks use Federal Housing Authority guidelines as a starting point for their own set of underwriting rules which are often more strict.

And banks have a good reason for making investor overlays.

In January, the FHA subpoenaed 15 lenders -- including the well-respected 1st Advantage Mortgage in Lombard, Illinois -- because of abnormally-high FHA default rates. The act was a shot across the bow, it appears, because more lenders have been shut down since.

The FHA made a loan performance benchmark and if a bank's defaults exceed the mean by x number of sigmas, said bank loses its FHA license. Period.

Expect FHA investor overlays to be a running theme of 2010.

A Mortgage Denial May Not Be Permanent

Guidelines will vary from bank-to-bank as lenders take a more active role in managing their originated mortgages. What gets FHA-approved Bank of America, for example, may not be FHA-approved at Wells Fargo.

Many FHA loans will be denied in 2010 simply because the applicant applied at the wrong bank.

If your mortgage has been denied or you just want to have the best chance of being approved possible, call or send me an email with some notes on your situation. I'm a HUD-approved lender and work with the nation's largest investors as an approved conduit.

In other words, apply once and you'll be automatically aligned with the bank with the best pricing plus least amount of overlays. That's what I do for you as your Mortgage Planner.


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John Payne is an active loan officer. Reach John via email at John@JPMortgageLoans.com or call 800.259.3424 or 510.799.1400.

Mortgage Rate Change Faster Than Freddie Mac Can Report It!

People search for mortgage rates on Google. That's not news. They type in something like "California mortgage rates" and then comb through the results in search of "today's rate".

Except Google doesn't give rates. Google gives links.

Links to random websites or elaborate sieves meant to capture eyeballs and generate applications. The problem is, most people shopping for rates just want information -- they don't want to be sold something. Not yet, at least.

You can't window shop for mortgages on Google

You can't window shop Google for mortgage rates and it's frustrating. This is because searching for a mortgage isn't like searching for a book. You can't eliminate the information asymmetry inherent in mortgages; know the price before you step in the store, so to speak. You really can't know if you're getting the "guaranteed lowest rate".

In the mortgage markets, prices are elusive.

However, in doing the research, people learn a lot about mortgages.

•They learn that mortgage rates are based on mortgage-backed bonds and not the 10-year Treasury Note
•They learn how changes in the Fed Funds Rate change mortgage rates
•They learn that mortgage rates are as ever-changing as stock prices
Beyond that, though, it's an information abyss.

Freddie Mac's weekly survey is instantly out-of-date

When you're looking for mortgage rates, there's no crawler on Bloomberg; no ticker on Google Finance; no section in the newspaper. Sooner or later, therefore, everyone trips into the Freddie Mac Primary Mortgage Market Survey. It's one of the most widely-circulated mortgage rate surveys in the country.

Published since 1971, the Freddie Mac survey is the basis for national mortgage rate news, and for Home Affordability studies, and for congressional research, and about anything else mortgage-rate related. The study is flawed in a big way, however. Huge.

The problem is in the survey's methodology.

According to Freddie Mac, Primary Mortgage Market Survey results are collected Monday through Wednesday, then published to the public Thursday. By design, therefore, the survey lumps mortgage market activity spread across 3 days into 1 single point of data.

Survey results are skewed, therefore, based on the when survey responders get back to Freddie Mac.

Last week, this point was painfully clear. Mortgage rates were down Tuesday morning, but rode the rocket higher Wednesday and Thursday. It was the worst week for mortgage rates since late-December, actually. And Freddie Mac missed it -- its survey was compiled before rates went bad.

So, Freddie Mac reported 30-year fixed mortgage rates down by 0.04% from the week prior. Real mortgage pricing, however, showed rates up three-eighths.

A workaround : How to find actual mortgage rates online

What's a rate shopper to do? Well, for one, stop looking for rates on Google. Consider giving applications to a handful of Certified Mortgage Cocahes (CMC) and let them track your rates for you. A CMC can (and will) tell you about your real-time pricing if you ask.

Remember that mortgage rates change all day long. A quote issued in the morning won't be valid in the afternoon. You have to stay on your toes if you want be ahead of market changes and lock the best possible rate.

In California or anywhere else.

(Image adapted from Freddie Mac)


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John Payne is an active Certified Mortgage Coach. Reach John via email at John@JPMortgageLoans.com or call 510-799-1400 or toll free 800-259-3424.

Buying REO? Keep An Eye On Foreclosures Per Capita.

Foreclosure-related filings topped 300,000 last month, bringing the 12-month total to somewhere near 1.4 million nationwide. Some states, of course, are more foreclosure-heavy than others.

According to RealtyTrac, the state of Nevada keeps its title as Foreclosure Central with a foreclosure rate 4 times the national average. Arizona, California and Florida aren't far behind.



In fact, the country's foreclosure activity is so heavily concentrated that a full 40 states fall below the national foreclosure average. That's a fascinating statistic and puts some perspective on the "foreclosure crisis" we keep hearing about. Clearly, foreclosures are a local phenomenon.

Oh, and they're selling like hotcakes, too. Distressed homes now account for 1/3 of all home resales. The good news is that buying a foreclosure in California or anywhere else has never been simpler. Because foreclosures are big business now, a cottage industry has spawned and reliable foreclosure data is available 24/7.

These 3 websites are a good place to start. Each offers a free, 7-day pass and that's usually enough to help you scout the market.

1.RealtyTrac.com offers free access to foreclosure listings
2.Foreclosure.com offers free access to foreclosure listings
3.HUDForeclosed.com offers free access to foreclosure listings

Then, when you see something you like, talk to your real estate agent about it. Negotiating for a bank-owned home is different from negotiating for a "regular" home. You're going to want somebody experienced on your side.

High foreclosure levels have led to interesting buying opportunities. Do your search and see what comes up for you locally. Then, when you're ready for your pre-approval letter, call or send me an email.

I'm experienced with short sales and REOs and will arrange for your mortgage.

My rates are very good and I close loans quickly.


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John Payne is an active Certified Mortgage Planner. Reach John via email at John@JPMortgageLoans.com or call toll-free to 800-259-3424.

What is the difference between getting a mortgage on-line vs. a comprehensive, long term mortgage plan?

We all purchase things online. Books, clothing, music, movies, appliances and even new cars are purchased online by consumers today. People have become comfortable with the internet and its ability to provide solid information. The success of internet purchasing has made many people, probably including yourself, comfortable with purchasing over the web.

However, think about the concept of buying a used car, sight unseen, online.
Think about the idea of buying a house for your family to live in, exclusively online.
Now think about the idea of getting your mortgage online and you have an idea of the pitfalls you face.

There are many challenges associated with securing your mortgage online.
Products that allow for successful online shopping share some common characteristics:
• They are commodities, every seller has the same price!
• There is one price. Meaning there are few options or upgrades to impact pricing.

Products that are inherently disadvantaged to being purchased online also have common threads…
• Each one is individual. Cars are a great example of this.
• Nobody wants to buy without the right feel. Houses and cars are both signs of this.
• Everything seems negotiable.
• Many moving pieces make it impossible to compare apples to apples.

The stakes are higher when the consumer tries to purchase online…
• Buying the wrong used car can have you paying endlessly for repairs instead of driving.
• Buying the wrong home online is not likely to happen for most.
• But, what if you get the wrong loan online?

1. You could pay thousands more in “hidden costs at the closing table.
2. You may not get the right loan for your situation and get stuck paying tens of thousands more over the time you live in the home.
3. In a worst case scenario, you may not get an explanation of the terms of your loan and could potentially have terms in it that could lead to foreclosure down the road.

Using a professional mortgage consultant, like a Certified Mortgage Coach or Mortgage Planner can help you make the best decision about your mortgage and the future of your family’s finances.

One of the processes I provide for my client is called the Total Cost Analysis. This analysis requires a few pieces of information from you and the process takes less than 10 minutes. Once complete you will have the numbers for three or four options for mortgages in this market. These numbers allow you to make the mortgage decision thoroughly informed and allow you to be objective with the results.

John is an active Certified Mortgage Coach and Mortgage Planner. You may contact John at (510) 799-1400 or toll free (800) 259-3424 or email John@JPMortgageLoans.com