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

Looking to FHA for your next mortgage? Get a move on! Although you have until Friday, April 2, 2010 to get your application in, Friday is Good Friday and most banks will be closed.

Your true FHA deadline is Thursday, April 1.

Guidelines Change In 3 Days

To shore up its balance sheet and dwindling capital reserves, the Federal Housing Authority is rolling out sweeping financial changes. Starting next week, FHA borrowers must look better on paper and to be better credit risks.

Mortgage insurance premiums are rising, too.

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 start with case numbers assigned on or after Monday, April 5, 2010.

Reviewing The FHA Mortgage Changes

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 plan to reduce maximum seller contributions from 6 to 3 percent by summer
•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 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 -- none where from Calfornia-- 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.

Your FHA Mortgage Denial May Be Reversible

Starting immediately, FHA mortgage guidelines will vary from bank-to-bank as lenders get more active about their originated mortgages. Going forward, what gets FHA-approved at Bank of America, for example, may not be FHA-approved at Wells Fargo.

FHA loans will now be denied 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 am a FHA approved Mortgage Broker and work with several HUD-approved lenders.

In other words, apply once and I'll automatically align with the best pricing and fewest overlays. Click here to email me about getting started.


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John Payne is an active loan officer. Email John@JohnPayneLending.com or call 510-799-1400 or 800.259.3424.

Say Good-Bye To Histroical Low Mortgage Rates

Mortgage rates tend to climb with the mercury. It's been the case in each of the last 4 years. As spring months turn into summer, the average 30-year fixed mortgage rate rises.

This year should be no different.

The Environment Is Ripe For Rates To Rise

With mortgage rates artificially suppressed and U.S. inflation expectations at a minimum, the current mortgage rate environment is extremely consumer-friendly. Few people expected 5.000 percent rates to be available this late into a recovery.

But with the economy showing signs that recovery is sustainable, pressure is on for rates to rise.

•Retail Sales data shows consumers are out spending again
•Job growth gets closer to net positive, month-by-month
•Home values have stopped falling, and, in some markets, are rebounding

Each of these factors draws money out of the relative safety of the bond market and into the riskier world of stocks.

Furthermore, the price of gas is rising. It's up 20 cents per gallon in the last 30 days. No doubt you've noticed. Rising gas prices are inflationary and when gas prices rise, we find that mortgage rates are usually right behind.

The Fed's Buyback Program Ends 7 Days From Now

There's another reason for rates to rise this season, too. It's the Federal Reserve's mortgage buyback program.

More specifically, its pending ending.

The Fed's buyback program was, by most accounts, a success. Rates are an estimated one percent lower than they would have been without the Fed's intervention, and the rate drop happened without much disruption in day-to-day mortgage market trading.

However, the Fed's program ends next week. March 31, to be exact. And when the Fed leaves the market, there's going to have to be someone to pick up the slack demand or else mortgage rates will have nowhere to go but up. This is because mortgage rates move opposite of mortgage bond prices.

Yields rise as a result.

Beware Of Inflation

Inflation expectations are low for now, but that can change quickly. It only takes a series of strong economic data to make Wall Street question what's really ahead for the U.S. consumer. Inflation is the enemy of mortgage rates and its presence makes rates rise.

Therefore, use the mortgage rate chart to your advantage. You can see what's happened to mortgage rates in each of the last 4 summers -- 2010 should follow suit. And when the mortgage market turns for the worse, it's going to turn quick. Be ready for it.

Get Locked In March Or April

Email me anytime and we can talk about your mortgage situation -- purchase or refinance. You don't need to lock a rate today -- you just need to be ready to get it done because when it's time, it's time. As soon as you notice rates are higher, it'll probably be too late to do anything about it.


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John Payne is an active Mortgage Planner. Email John@JohnPayneLending.com or call 510-799-1400 or 800-259-3424.

February 2010: California Leads the Nation in Foreclosure Activity

Foreclosure-related filings topped 300,000 last month, according to foreclosure-tracking firm RealtyTrac.

Nationwide, 1 in every 418 households was served some form of foreclosure notice but -- as always -- foreclosures are more common in some areas than others.

In February 2010, 4 states accounted for more than half of the country's foreclosure-related activity:

•California : 22.2 percent
•Florida : 17.5 percent
•Michigan : 6.5 percent
•Illinois : 5.6 percent

Combined, these four states represent 56% of foreclosures but just 25% of the population. Clearly, foreclosures are a local phenomenon.

They're also the spring season's biggest story.

Because foreclosures and other "distressed" homes tend to sell at a discount, they now account for 38 of all home resales. This is up from 33 percent in the month prior.

For first-time homebuyers, move-up homebuyers, and even for investors with more than 4 properties, buying foreclosures in California has never been easier.

Foreclosures are big business and new listings are available 24/7.

My clients have told me these 3 websites, in particular, are a good place to start for foreclosures, if that's what interests you. Each site offers a free, 7-day pass and that's usually enough to help you scout the market for something worth buying.

1.RealtyTrac 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, or ask me for a referral by email to a skilled foreclosure-specializing agent. 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 me and I'll take care of you. I'm experienced with short sales and REOs and would be happy arrange for your mortgage.

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John Payne is an active loan officer. Email John@JPMortgageLoans.com or call 510.799.1400 or 800.259.3424.

How to Shop For Mortgages and Keep Your Credit Scores High

Credit scoring is a huge part of the mortgage world.

A given credit score can mean the difference between a 5 percent rate and a 6 percent rate; a conventional mortgage and an FHA mortgage; an underwriting approval and an underwriting denial.

And yet, there's a persistent belief among Americans that "having your credit checked" is a bad thing.

In some instances, yes. In most instances, though, no.

See, not all credit applications are created equal. At least, not in the eyes of the bureaus.

A formal credit pull by a mortgage company is treated differently from applying to get 10% off at Target. To understand why, let's start with some credit scoring basics.

Credit Inquiries Are A Formal Process

A "credit inquiry" is a formal request to review a person's credit report.

Credit inquires are grouped with other traits into a credit-scoring category called "New Credit". New Credit represents 10 percent of a person's complete credit score. On the scale of 300-850, therefore, credit inquiries represent a tiny portion of a maximum of 85 points to a FICO.

There are many times of credit inquiries, but really only 4 of the set can impact a person's credit score:

1. A credit check for a mortgage loan
2. A credit check for an auto loan
3. A credit check for a credit card application
4. A credit check for a store credit card, or consumer loan

These 4 types are singled out because, in each case, the inquiry is made by the applicant in order to get access to more debt. Because extra debt increases the probability of default, credit inquiries can sometimes foreshadow trouble.

Even then, however, the risk of default varies by application type.

For example, credit card applications can be more damaging to a credit score than a mortgage application. This is because credit card debts tend to revolve higher over time versus a mortgage which eventually pays down to $0.

So, all things equal, a credit card application will harm your credit score more than an application for a home loan.

A Credit Inquiry Lowers Your FICO By 5 Points

When compared to the other credit scoring elements, Credit Inquiries is a relative nothing.

In the official FICO scoring model, Payment History and Credit Utilization account for 65% of a score, combined, and the amount of time during which you've had credit to your name accounts for 15%. These three areas are over-weighted because the bureaus are more concerned with what you've already done with your credit versus what you might do with more of it.

Your credit past is the best clue to your credit future and it's one of two reasons why it's okay to give your social security number to as many lenders as you want. The impact of a credit inquiry is tiny next to the value of being a Model Credit Citizen.

A mortgage credit inquiry is estimated to lower a credit score by just 5 points.

Unfortunately, we'll never know for sure because the very act of examining the credit score causes it to move. In Physics, this is called the Heisenberg Principle. On MTV, it's called The Jersey Shore Syndrome. Put a camera on something, and it changes.

The Credit Bureaus Don't Hit Your FICO Twice

The second reason you should shop around with lenders is that -- unlike applying for multiple credit cards -- applying for multiple mortgages won't count as multiple, consumer-initiated inquiries. This is a common thing.

You might apply for 5 credit cards and use them all. You're not going to be approved for 5 mortgages.

As such, the credit bureaus have made it a formal policy to permit "rate shopping". Talk to as many lenders as you want in a 14-day time frame; have your credit checked as often as you'd like; compare rates and fees. All of the inquiries will be lumped into a single application.

It's good for you and it's good for the bureaus. Your credit scores stay high and TransUnion, Equifax and Experian collect more fees from the banks.

Advice From The Credit Bureaus On Getting Low Rates

To promote rate shopping and to lessen The Fear of Credit Inquiry, the people behind the FICO brand spell out for you the best way to get the best mortgage rates possible:

1. If you want the best rate, you should "shop around"
2. Limit rate shopping to 14-day timespan to keep your credit scores high
3. Mortgage lenders can't give accurate rate quotes without a credit score so give up your social security number

Metaphorically, not letting your lender see your FICO is like not letting your doctor check your blood pressure. You'll get a diagnosis when the appointment is over -- it just might not be the right one.


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John Payne is an active Mortgage Planner. Email John@JPMortgageLoans.com or call 510-799-1400 or 800-259-3424.

2010 Conforming Loan Limits: Same As 2009, 2008, 2007 and 2006

Conforming mortgages are appropriately named; they "conform" to the mortgage underwriting guidelines of Fannie Mae or Freddie Mac. Mortgages meeting these criteria are securitized on Wall Street as mortgage-backed bonds.

Since 2007, though, as mortgage performance has weakened, Fannie and Freddie's lending standards have tightened. Today's would-be borrowers are asked to document more income, deeper reserves, and higher credit scores. One underwriting area that hasn't tightened, however, is the maximum allowable loan size.

Conforming Loan Limits Vary By Property Type

For the 5th consecutive year, the 1-unit conforming mortgage loan limit is $417,000.

As released by the Federal Housing Finance Agency, the official 2010 conforming mortgage loan size limits are, by property type:

•1-unit properties : $417,000
•2-unit properties : $533,850
•3-unit properties : $645,300
•4-unit properties : $801,950

Note, however, that maximum conforming loan limits vary by market.

Conforming Loan Limits Vary By ZIP Code

Counties in which "typical" home prices dwarf the conforming loan limits are declared "high-cost" areas. Each gets its own, individual conforming loan limit that ranges up to $729,750.

For example, a home in Denver, Colorado is capped conforming at $417,000 but a home in Snowmass, Colorado gets clearance up to $729,750. Same for Tulare, CA as compared to San Francisco, CA.

Tulare's maximum loan size is $417,000; San Francisco's is $625,500.

What To Do If Your Mortgage Is "Jumbo"

Mortgages that exceed conforming loan limits are considered "jumbo" or "super jumbo". Excellent pricing is still available, you just have to know where to look. And it's not at Fannie Mae.

There are just 197 designated high-cost areas in the U.S. -- 6% of the country. For the majority of homeowners, therefore, the 2010 conforming loan limit is $417,000.

To find your local market's loan limit and confirm it, check the Fannie Mae website.


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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 Pricing Gets Unpredictable. It's Time To Lock Your Mortgage Rate.

Mortgage rates were more volatile in February than in January, making mortgage rate shopping a little bit more difficult. Lenders averaged 1.55 rate sheets per day.

What Is A Mortgage Rate Sheet?

A rate sheet is a mortgage bank's "menu". It lists the rate-and-points combination for every product available. Some lender rate sheets are 1 page long; some are 10 pages or more. They include prices for products including:

•30-year, 20-year and 15-year fixed rate mortgages
•Short-term ARMs like 1-year and 3-year products
•Long-term ARMs like 5-year, 7-year and 10-year products
•All variations of jumbo and super jumbo mortgages
•The complete line of FHA and VA mortgages
•Loans for condotels and non-warrantable condos

Rate sheets change with the market and although last month's rate sheets were relatively change-free as compared to last summer, there were some interesting footnotes.

Under The Surface, Not So Tame

February's mortgage market could be categorized as "on edge". For the most part, rates didn't change intra-day. It was common for lenders to issue rate sheets in the morning and stick to their pricing through market close.

In February, rates held firm 13 out of 20 days -- 65% of the time. That's more than double December 2009's frequency and the highest of the last 2 years.

On days in which rates did change, though, they changed a lot. There were two days on which rates changed 3 times and one day on which rates changed 4 times.

Prior to last month, we hadn't seen a 4-sheet day since October 2009.

Mortgage Rates Will Change Rapidly In March

As the United States fortifies its economy with slow, steady growth, and as the Federal Reserve withdraws its support for mortgage markets, mortgage rates are poised
to spike. However, sporadic reports of economic weakness have undermined that eventuality.

If you've been floating a mortgage rate in 2010, you've played with fire and not been burned. Going forward, get out the turnout gear. Rates are going to rise -- and they're going to rise quickly.

Be ready for it because you won't see the rate hike in the news until it's too late. You won't see it in real-time.

But I will.

Get Rate Sheet Updates As They're Happening

As a Mortgage Planner, I track mortgage data that's unavailable to the public, and I
summarize it online via my Facebook page. I send alerts before new rate sheets come out.

Furthermore, if you're actively rate shopping in California, make sure to ask me for a real-time rate quote by email. I work for a self-funded bank and my bank's rate sheets are often cheaper as compared to my peers.


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