Currently, FHA represents the majority of purchase loans in the US. According to the HUD/FHA guidelines the eligibility for the seasoning (the “waiting time”) of a foreclosure before an individual can purchase again is 3 years. 2 years for a chapter 7 bankruptcy and 1 year for a chapter 13 bankruptcy with proof of on time payments to the trustee. Over the last few months I have received significant amounts of emails and calls asking “when can I buy gain?”.

At first the idea of a defaulted home owner buying another property seemed outlandish but when we go back and realize that the main reason that the cycle started was due to a sub prime mortgages that after a 2 year teaser rate became impossible to pay back at rates close to or, in some cases, above 10%. Fast forward 3 years and here we are in a completely different environment with rates at historical lows of 5% for a 30 year fixed. Home values have decreased across the country and some markets are down 25%. Granted that the aggressive underwriting guidelines are gone for forgettable future  and now the pendulum has moved almost to much in the other direction there will be a true opportunity for the hard working American that has not lost sight of the dream of owning a home.

Although the unemployment rate represents a HUGE issue for the overall economy it may not be the case for the housing market. If we do the math and subtract the current 11% in California versus the +/-4.5% that we had, before the economy took a nose dive, that only eliminates an additional 5% of the general population but with home ownership at historical lows of 64.5% that number truly eliminates less than 2% of the former homeowners.

We all know that price is the point at which the supply curve meets the demand. The fact is that under normal circumstances the largest portion of the population that becomes “new homeowners” are couples that have recently gotten married or had a baby. That population has not gone away. There are just as many people getting married and having kids in 2010 as there were in 2007. One last potential increase in demand is the possibility of our troops coming home and obtaining financing via the VA system. If we add all these factors together the outlook may not be as bleak some economist have already predicted further declines for the remainder of the year.

Could we have seen the worst of the housing market in our lifetimes and face greener pastures? I sure hope so.

Today I get a frantic email from my borrower that closed escrow and recorded January 22nd stating that she gave the key and instructions to the contractor to get into the home to do some work. When the contractor got there they found that the lock was changed and there was a sheet of paper on the window labeled “Notice of Trustee’s Sale”, dated 2/1/2010.

I immediately called the listing agent to find out what was going on. Unfortunately, the agents response was to point the finger at me for not being able to close the loan within the necessary time, 2 weeks, on an FHA loan. They were not able to get an answer from the lender for 9 months and it is my fault that I could not pull a miracle? He still assured me that it was a “typical example of the right hand not knowing what the left hand was doing”. The auction date for this property is 2/26. I sure hope that the recording takes priority over the banks intentions.

Doing my best to console the buyer but this is definitely a first for me. If this has happened to you before please share.

If we look at the latest Case Schiller report, the first thing we notice is that there was an improvement of 0.5% in home values nationwide, YTD Nov 2009. If we drill down the data it becomes quite obvious that the west led the nation with a 2.9% improvement in values.  California is one of the most badly-hammered states of the Great Recession.  My local paper, San Diego North County Times announced a 7% improvement in home values for our area. If you are familiar with North County San Diego, then you know that La Costa, La Jolla, Del Mar, and Carlsbad are generally all in the $1 million plus range.

More often than not we get multiple reports contradicting each other within minutes from the major agencies like Reuters and CNBC.  And the fact that national trends are primarily broadcast on the major news programs highlights the importance of focusing on the local numbers (see earlier post “San Diego Real Estate Outlook 2010”).  One of the best tools we have to gauge our local markets is social media. Although brilliant in its global reach, it’s also indispensable in keeping one’s pulse on the local micro-economy.  Several years ago it was paramount for the mortgage professional to be licensed in every possible state, but today I believe we need to have extraordinary knowledge of our immediate neighborhoods to succeed.  (Not to mention the nugget that 60-70% of mortgage professionals have jumped ship, which presents a huge opportunity).

Social media, having gained the momentum that it has, definitely means we are not in Kansas anymore.  One cannot prevent progress, or ignore its impact on the global, as well as the micro-economy.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

1. Get a full underwriters pre-approval for your loan. Any mortgage broker can issue a pre-qualification letter. They are truly worthless. Bank Owned Properties are managed by asset managers and they take only the offers that they feel have the best chances of closing and closing fast. When you deal with a reputable mid-sized direct lender submitting a credit package to the underwriter is a very simple process. Once you have this approval your loan can close inside of 2 weeks.
2. Go through this process so you know exactly how much home you can afford comfortably. My stomach turns when I hear borrowers asking “how much house can I afford?” The question that you need to prepared to ask is how much money can I pay every month for housing without affecting my current lifestyle.
3. Once you are pre-approved you have a greater chance to eliminate any last minute surprises. You will know exactly how much money you need to bring to the table or ask for a concession from the seller(not recommended) so the closing can go smoothly and the transaction does not fall apart in the last minute.
4. Once you start the process of the pre-approval you start to develop the relationships that will be on YOUR side through the process. The lender can recommend a Realtor or the Realtor can recommend the lender. Regardless of which one happens first, the Realtor should have the insight to have you pre-approved first.
5. Most bank owned properties will require you that you get pre-qualified by the lender that foreclosed on the property.  Don’t let anybody bully you into using their lender. Once you have an underwriter’s pre-approval you can prove your income and credit worthiness. Shop, shop and shop for the individuals that give you the highest degree of confidence in achieving your goals. Buying a home is a big investment driven by emotions. Once you see the house that looks like the dream home, you will do everything in your power to try to get it. This is not the best way to shop for your home. Talk with several Lenders and choose the one that YOU feel most comfortable with.

The great news is that the latest announcements by FHA and HUD regarding flipping properties will only accelerate the process of the cash investors running out of funds. THE GAME HAS CHANGED. DO NOT LOSE YOUR PATIENCE NOW. The credits for first time home buyers is still in effect and the rates are still at historical lows. Find a lender you trust and get an “full underwriter’s pre-approval”. If they refuse, call around or me and I will be happy to guide you in the right direction.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

In December HUD (Housing and Urban Development), the agency that oversees the underwriting of FHA loans, had warned that these changes were on the way for “risk-based pricing”.  In other words, the riskier the borrower the more expensive the loan and/or the higher the interest rate.  The second announcement was leaked last Friday, January 15th, imposing a one-year moratorium on the FHA guideline that previously had prevented investors from flipping homes to FHA borrowers within the first 90 days of ownership.  Prior to this announcement investors were only able to sell these homes via Conventional, VA or private funds (cash).

1) Risk Based Pricing:  To sum up the ‘Mortgagee letter 2010-02′ published by HUD, this change represents an increase of 0.5% of the loan amount to the Up Front Private Mortgage Insurance Premiums on all FHA loans.  As an example, under the old plan, for a loan amount of $300,000 the consumer had to buy a mortgage insurance policy of $5,250 to insure the loan against default.  After April 5th 2010, the same policy will go up to $6,750. That is an increase of about 29%.  The explanation is simple.  After the demise of the Sub-prime era, FHA became the only lending source for buyers that had less than perfect credit, and also only required a 3.5% down payment.  This provides home buyers the option of having very little “skin in the game”.  In 2007 FHA loans represented less than 5% of all the loans originated in the US.  In 2008 these loans began to gain popularity and in 2009 they represented the majority (80%+) of the loans for first time home buyers.  My bet is that even with the increase in the Mortgage Insurance Premium, these loans will not lose ANY of their current popularity.

2) The second change, designed to allow quicker foreclosure resale’s, may have a very significant effect on our overall economy.  If you are a first time home buyer, I don’t need to tell you how frustrating and lengthy the process you have to go through in order to get an offer accepted, especially if your financing includes an FHA loan.  It feels at times as if the money to purchase the property is not green.  By placing a moratorium on the 90 day waiting rule to flip a property, we might be giving the first time home buyer a fair shot to get an offer to buy a home accepted.  Investors need to unload these properties as quickly as possible.  The rule specifies that as long as the profit from the resale is 20% or less no further action is required.  However, if the profit is higher than 20%, the seller must provide proof of the improvements made to the property to substantiate the higher price.  In addition, most lenders will require a second appraisal to make sure the buyer is not paying above-market pricing, and the lender is not getting into a negative-equity position.

The silver lining of these changes is this:   the increase in PMI will offset losses already incurred by HUD, and not decrease the volume of FHA borrowers.  The lifting of the 90-day rule gives FHA borrowers a better chance of being able to buy a rehabbed home.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

1. Changes are effective for case numbers assigned on or after April 15th, 2010.
2. New upfront mortgage insurance premium (UFMIP) will be 2.25% for all purchase and refinance loans. The premium for H4H and HECM is 2.0%.
3. This change applies to all standard FHA Single Family Programs except the following: Title I, Section 247-Hawaiian Homelands, Section 248-Indian Reservations, Section 223e-Declining Neighborhoods or Section 238c-Military Impact areas in Georgia and New York
4. Annual premiums will not change at this time
5. There will be no discount on the UFMIP for first-time homebuyers with pre-purchase counseling.

In 1965 the Department of Housing and Urban Development (HUD) was formed.  Within HUD operates the Federal Housing Administration (FHA), which has the primary responsibility for administering the government home loan insurance program. This program allows a first time home buyer  who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA who insures the loan for the lender.The most popular FHA home loan program for a first time home buyer is by far is the 203(b).  This is your standard fixed rate loan for 1-4 family owner occupied houses and only requires a minimum of 3% from the borrower.  This loan also permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.The main advantage to a FHA home loan is that the credit criteria for a first time borrower are not as strict as Conventional Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC). Someone who may have had a few credit problems or no traditional credit should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller or lender must pay for part of the “traditional” closing costs (called non-allowable costs) while a borrower’s allowable costs can partially be wrapped into the loan. The monthly mortgage insurance premium is cheaper for an FHA loan verses a conventional loan with 3% down.  Finally, FHA loans may may require less income to qualify as they will exceed the Conventional debt ratios of 28/36% as their standard is 29/41%.  To learn more about debt ratios, please see the income section.Many people make the mistake and assume that FHA loans are only available for first time home buyers.  This is not true.  FHA loans are available to anyone, whether your first or fifth home and can be used to purchase a home or refinance a home.  If refinancing a home the current loan DOES NOT have to be an FHA loan.

FHA adjustable rate mortgage (FHA 251)

FHA Hybrid Adjustable Rate Loans

FHA 2-1 buydown (FHA 203b, Not Allowed on FHA 251)

Energy Efficient Mortgages Program