A plan to jump-start housing
By Jack Guttentag
Inman News™
Share This Editor's note: This is the third in a three-part series.
Previous articles in this series argued that, absent a liberalization of Fannie Mae and Freddie Mac lending terms, a second round of home-price declines was very likely. Renewed price declines would have a devastating effect on homeowners and the economy, and would also increase Fannie and Freddie losses on both old and new loans.
This makes the liberalization of lending terms a requirement of responsible conservatorship.
The changes needed include a rollback of risk-based price adjustments to where they were before the financial crisis, and relaxation of misguided underwriting rules.
Previous articles focused on the need to modify rigid affordability rules, eliminate income documentation requirements for sterling borrowers, and eliminate the requirement for property appraisals on purchase transactions. This article identifies a few more.
Liberalize lending terms and remove restrictions on loans to investors
Investors buy houses to resell or to rent rather than to occupy. During the go-go years, investors bought houses to resell at a profit, and in the current depressed market they are buying houses either to sell or to rent until the market improves.
Laurie Goodman has shown how important investors are to restoring a supply-and-demand balance in the current market. The problem is that there are fewer investor loans now, when we need them, than there were before the crisis -- when we didn't need them.
The major barrier to additional home purchases by investors is the onerous rules imposed on investor loans by Fannie Mae and Freddie Mac. In September 2006, Fannie Mae charged 1.5 to 2.5 points extra if the borrower was an investor rather than an occupant, and investor loans could be up to 90 percent of property value. Today, the price increment is 1.75 to 3.75 points, and the maximum loan is 85 percent of property value.
Fannie and Freddie also limit the number of loans that any one investor can have to four, with up to 10 allowed under more restrictive lending terms. This restriction has the effect of limiting the home investor market to small players.
The higher prices, lower maximum loan-to-value ratios, and limits on the number of loans an investor can have are all counterproductive in the current environment. Investor activity would be stimulated if 90 percent loans were available at a 1 point price increment and limits on loan numbers were eliminated. When home prices start rising by more than 3 percent a year, the old rules could be reimposed.
Eliminate LTV and appraisal requirements on HARP loans
The Home Affordable Refinance Program (HARP) was designed to make refinance possible for underwater borrowers who are current on their payments and whose loans are owned by Fannie or Freddie. A major problem with the program is a maximum loan-to-value ratio (LTV) of 125 percent, which cuts out a sizable segment of the potential market for no good reason.
I can see why the agencies might have limited the program to borrowers with LTVs above 125 percent. The net loss to the agencies from refinancing is lower for high-LTV loans than for lower-LTV loans because high-LTV loans are more likely to default and lower interest rates will prevent some of these defaults.
The loss to the agencies from refinancing underwater mortgages is the interest loss on loans that would have remained in good standing had the refinance not occurred. This loss is not related to the LTV. The benefit to the agencies is the loss avoided on loans that would have defaulted but don't because of the rate reduction. This benefit is larger for higher-LTV loans, which are more likely to default.
By scrapping the LTV maximum in the HARP program, the agencies would also be eliminating the need for appraisals, which would simplify the program and expedite the implementation.
Concluding comment
There are many more changes in Fannie and Freddie rules that would help to generate increased housing demand, but my internal editor says that more examples are not needed. The overriding need is recognition by the agencies and its conservator that assets are not conserved by acting as if Fannie and Freddie are small lenders with no power to affect the market.
These entities are a major part of the market, and their assets are best conserved by policies that convert the currently anemic market into a healthy one. Once that principle is accepted, I will be happy to flesh out the list, and so will many others.
The author, Jack Jack Guttentag, is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
Showing posts with label South Jersery mortgage loans. Show all posts
Showing posts with label South Jersery mortgage loans. Show all posts
Wednesday, October 19, 2011
Thursday, January 13, 2011
HUD Condo Guideline Extension Could Translate to Increased Condo Sales
Buyers interested in purchasing condominiums with an FHA loan may already know that the condo development must be on the FHA approved list. In order for the condo development to be on the list, the development must meet certain HUD guidelines.
Recently, HUD released Mortgagee Letter 2011-03, which extends the temporary guidance for condominium rules through June 30, 2011. These temporary guidance changes increase the chances for a condo development to be approved.
Mortgagee Letter 2011-03 extends and clarifies temporary guidance announced in Mortgagee Letter 2009-46 A. The temporary guidance:
Recently, HUD released Mortgagee Letter 2011-03, which extends the temporary guidance for condominium rules through June 30, 2011. These temporary guidance changes increase the chances for a condo development to be approved.
Mortgagee Letter 2011-03 extends and clarifies temporary guidance announced in Mortgagee Letter 2009-46 A. The temporary guidance:
- Increases Federal Housing Administration (FHA) concentration requirements to 50 percent,
- Requires 50 percent of units in a project to be owner-occupied but vacant and REO property are not considered in the calculation of the owner-occupancy percentage,
- Reduces the pre-sale requirement to 30 percent,
- All projects in Florida are required to be reviewed under the HUD Review and Approval Process (HRAP), and
- The Spot Loan Approval Process was eliminated on February 1, 2010, for all FHA case number assignments on or after February 1, 2010 and is not extended.
The temporary guidance is effective for all FHA case numbers assigned through June 30, 2011, excluding spot loans.
As the number of REO condo units increases, vacant and REO units may adversly affect condo developments ability to meet the owner- occupied percentage. This change alone, may keep more develpments on the list for FHA financed loans. That could translate to more homes being sold in condo developments as many Buyers utilitze FHA loans which require only 3.5% downpayment for property purchases.
Looking to Buy or Sell?
Call Clara 856-264-1058
Monday, April 26, 2010
New Short Sale Rules
New rules are in place for sellers in regards to short sales. A short sale is when the bank accepts less than what is owed on the property for sale. Below are the basic guidelines:
1. In order for the bank to accept a short sale Sellers must NOT qualify for a loan modification under the Home Affordable Mortgage Program or be unable to afford the modification.
2. The bank will set an acceptable value of the home upfront, based on an appraisal or broker’s price opinion.
3. Lenders must approve or deny a purchase offer within 10 days of it being submitted.
4. Once the bank approves a home for short sale, sellers may stop paying all related mortgage payments, and unpaid mortgage debt will be forgiven. These mortgage payments will not be shown as late on credit reports.
5. At closing, sellers are entitled to as much as $1,500 from the government to cover relocation expenses.
1. In order for the bank to accept a short sale Sellers must NOT qualify for a loan modification under the Home Affordable Mortgage Program or be unable to afford the modification.
2. The bank will set an acceptable value of the home upfront, based on an appraisal or broker’s price opinion.
3. Lenders must approve or deny a purchase offer within 10 days of it being submitted.
4. Once the bank approves a home for short sale, sellers may stop paying all related mortgage payments, and unpaid mortgage debt will be forgiven. These mortgage payments will not be shown as late on credit reports.
5. At closing, sellers are entitled to as much as $1,500 from the government to cover relocation expenses.
Thinking of Selling or Buying?
CALL CLARA for all your real estate needs
856-264-1058
Friday, January 1, 2010
Show Me the Money - Step One to Home Ownership
Its 2010! A New Year and a New OPPORTUNITY to determine what kind of real estate investment works best for you! You resolved to make a new start to purchase property and become part of the 70% of American households that are homeowners.
Homeownership definitely has its advantages. It is an opportunity to build wealth through home equity and appreciation; it provides tax benefits and it makes you the final decision maker and “ruler of the castle” for the property you live in. This STEPS TO HOME OWNERSHIP series will provide some information that will help you determine if now is the time for you to purchase a home or stay a renter.
Step One: Finances – Show me the Money!
To purchase a home you need cash or a mortgage loan. Cash can be sitting in your bank account, in a line of credit, or in a financial security that can be liquidated or borrowed against. As a potential buyer you can also borrow money from financial institutions or private investors to fund the purchase of the property. Given all the recent defaults in the mortgage market, lenders are now being more responsible to potential buyers by sticking to more consistent standards in qualifying potential home buyers and disclosing costs associated with getting a loan to purchase a home.
The three key things considered by the lender in the loan approval process are: 1) the credit score; 2) the monthly debt-to-income ratio; and 3) cash on hand or access to cash to pay costs associated with the purchase of the home. *
1. Credit Score - Many people do not have a clue of their true credit score. To purchase a home, or even to rent, a credit report is required. The lender will ask you to provide your social security number so they can pull your credit report as the beginning step in your home purchase process. If you are not seriously looking for a home and just want to know your score, you can request a free credit report once a year with no impact to your score. Unlike consumer credit inquiries, you can have your credit pulled by a financial institution multiple times in a 30 day period while you are shopping for a home loan and it will not affect your credit score.
Most lenders are looking for a credit score of at least 620 or above. If your score is below 620, it is an opportunity to see what items on your credit report require your attention to bring your score up. There are numerous free and paid credit counseling agencies that can assist in this area.
For most lenders, the credit score is the initial criteria used to determine if you will be able to move forward in the loan approval process to finance the purchase of a home.
2. Debt-to-income ratio – After the lender has pulled your credit and determined they can begin the loan process for you, they will require a loan application and various documents to verify your income. This may include 3 months of pay stubs, your last 2 years W-4s, and a list of your current credit obligations. This information is reviewed and one key area the lender is looking at is your debt-to-income ratio. Simply put it represents your monthly obligations as a percentage of your monthly income. There are many ways to approach this…but one way is taking the things that make up your mortgage payment, PITI= principal & interest, tax & insurance and dividing that by your income. If PITI/income is 45% or less, this leaves a little over half your monthly income to cover other expenses.
As a new home owner, you really don’t want to pay your monthly income for a mortgage and after other expenses, like food, water, gas/oil, electricity, phone, transportation (car note & gas), cable, internet, and entertainment….you have ZERO funds left over for things like travel, entertainment and yes emergencies. You may love the idea of owning your home, but if this percentage is too high, under current guidelines, the lender will not be able to lend you the money if your ratios are too tight.
On the flip side, the lender may approve you for a loan based on basic recurring expenses and income, but there may be other expenses like entertainment & travel which are not readily reflected. Don’t leave it all to the lender. Preparing a budget is a good step to make sure you have considered all the expenses that are important to your lifestyle when deciding the affordability factor for your new home.
3. Cash Needed to Purchase - A minimum of $2000 cash on hand is a good estimate of upfront funds to get started. These funds cover your deposit, given at the time of contract signing (please note that the deposit can range from $1000 to 10% of the purchase price); the cost of your home inspection; and the cost of your lender appraisal of the home. Let’s call these upfront costs.
Add to that your down payment. For the three most common loans expect a minimum of 0% of the purchase price for a VA loan; 3.5% for an FHA loan; and from 5%-20% for a conventional loan.
And lastly you will need money for closing costs which may include one year’s worth of home insurance, at least 3 months of taxes, title insurance, and lender fees. This can add up to 3% to 6% of the cost of the home. Your lender should provide you with a “Good Faith Estimate” of the costs to purchase a home. This estimate should be updated once you select a specific property and you know the exact taxes, insurance and title information related to the property you selected.
Finances play a key role in the purchase of a new property. The lender is the professional who will review your financial information and talk with you in detail about your purchase options, including the type of loan and the interest rate for the loan. The lender will be able to answer all the questions about your loan. The lender will also provide a preapproval letter and ultimately a loan commitment letter to your realtor. This letter lets your realtor know that you are ready to begin looking for homes in the price range determined by you and the lender.
For more information: I am your one stop shop to exploring your financing options!
Clara Lyons
I turn real estate dreams into reality – One home at a time!
856-264-1058
ClaraSellsHomes@gmail.com
*The figures quoted in this blog are estimates. The info presented is a snapshot of some factors used by lenders and is not intended to represent all the factors taken into consideration in the loan approval/credit rating process. There are a range of loan options and programs. Each financial institution reserves the right to establish financial guidelines and credit worthiness.
Homeownership definitely has its advantages. It is an opportunity to build wealth through home equity and appreciation; it provides tax benefits and it makes you the final decision maker and “ruler of the castle” for the property you live in. This STEPS TO HOME OWNERSHIP series will provide some information that will help you determine if now is the time for you to purchase a home or stay a renter.
Step One: Finances – Show me the Money!
To purchase a home you need cash or a mortgage loan. Cash can be sitting in your bank account, in a line of credit, or in a financial security that can be liquidated or borrowed against. As a potential buyer you can also borrow money from financial institutions or private investors to fund the purchase of the property. Given all the recent defaults in the mortgage market, lenders are now being more responsible to potential buyers by sticking to more consistent standards in qualifying potential home buyers and disclosing costs associated with getting a loan to purchase a home.
The three key things considered by the lender in the loan approval process are: 1) the credit score; 2) the monthly debt-to-income ratio; and 3) cash on hand or access to cash to pay costs associated with the purchase of the home. *
1. Credit Score - Many people do not have a clue of their true credit score. To purchase a home, or even to rent, a credit report is required. The lender will ask you to provide your social security number so they can pull your credit report as the beginning step in your home purchase process. If you are not seriously looking for a home and just want to know your score, you can request a free credit report once a year with no impact to your score. Unlike consumer credit inquiries, you can have your credit pulled by a financial institution multiple times in a 30 day period while you are shopping for a home loan and it will not affect your credit score.
Most lenders are looking for a credit score of at least 620 or above. If your score is below 620, it is an opportunity to see what items on your credit report require your attention to bring your score up. There are numerous free and paid credit counseling agencies that can assist in this area.
For most lenders, the credit score is the initial criteria used to determine if you will be able to move forward in the loan approval process to finance the purchase of a home.
2. Debt-to-income ratio – After the lender has pulled your credit and determined they can begin the loan process for you, they will require a loan application and various documents to verify your income. This may include 3 months of pay stubs, your last 2 years W-4s, and a list of your current credit obligations. This information is reviewed and one key area the lender is looking at is your debt-to-income ratio. Simply put it represents your monthly obligations as a percentage of your monthly income. There are many ways to approach this…but one way is taking the things that make up your mortgage payment, PITI= principal & interest, tax & insurance and dividing that by your income. If PITI/income is 45% or less, this leaves a little over half your monthly income to cover other expenses.
As a new home owner, you really don’t want to pay your monthly income for a mortgage and after other expenses, like food, water, gas/oil, electricity, phone, transportation (car note & gas), cable, internet, and entertainment….you have ZERO funds left over for things like travel, entertainment and yes emergencies. You may love the idea of owning your home, but if this percentage is too high, under current guidelines, the lender will not be able to lend you the money if your ratios are too tight.
On the flip side, the lender may approve you for a loan based on basic recurring expenses and income, but there may be other expenses like entertainment & travel which are not readily reflected. Don’t leave it all to the lender. Preparing a budget is a good step to make sure you have considered all the expenses that are important to your lifestyle when deciding the affordability factor for your new home.
3. Cash Needed to Purchase - A minimum of $2000 cash on hand is a good estimate of upfront funds to get started. These funds cover your deposit, given at the time of contract signing (please note that the deposit can range from $1000 to 10% of the purchase price); the cost of your home inspection; and the cost of your lender appraisal of the home. Let’s call these upfront costs.
Add to that your down payment. For the three most common loans expect a minimum of 0% of the purchase price for a VA loan; 3.5% for an FHA loan; and from 5%-20% for a conventional loan.
And lastly you will need money for closing costs which may include one year’s worth of home insurance, at least 3 months of taxes, title insurance, and lender fees. This can add up to 3% to 6% of the cost of the home. Your lender should provide you with a “Good Faith Estimate” of the costs to purchase a home. This estimate should be updated once you select a specific property and you know the exact taxes, insurance and title information related to the property you selected.
Finances play a key role in the purchase of a new property. The lender is the professional who will review your financial information and talk with you in detail about your purchase options, including the type of loan and the interest rate for the loan. The lender will be able to answer all the questions about your loan. The lender will also provide a preapproval letter and ultimately a loan commitment letter to your realtor. This letter lets your realtor know that you are ready to begin looking for homes in the price range determined by you and the lender.
For more information: I am your one stop shop to exploring your financing options!
Clara Lyons
I turn real estate dreams into reality – One home at a time!
856-264-1058
ClaraSellsHomes@gmail.com
*The figures quoted in this blog are estimates. The info presented is a snapshot of some factors used by lenders and is not intended to represent all the factors taken into consideration in the loan approval/credit rating process. There are a range of loan options and programs. Each financial institution reserves the right to establish financial guidelines and credit worthiness.
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