Get In, While the Getting's Good (and lock the door behind you!)

Today's market for home lending is one full of opportunities and obstacles. Mortgage interest rates are not far off from all-time lows (mostly around 5% or below at time of this post). Home prices are attractive and arguably at their low point. HOWEVER....

Lenders and mortgage insurance companies have been tightening their guidelines, making it harder for consumers to take advantage of these low rates and prices. It seems every week a new restriction or extra cost is announced.

Here is what we know is coming around the bend:

- a .25% increase in the FHA Annual M.I. Premium. This increase in your mortgage insurance will increase your payment and reduce your buying power. FHA Case numbers assigned 4/18, or after, will be subjected to this higher premium. Payments would increase by over $41 on a $200,000 loan.

- changes to loan officer compensation. There is still, with just a couple of weeks to go before this rule takes effect, much debate on how this will impact "pricing" for the consumer. What we do know is that it will reduce the consumer's choices and that lenders will be increasing their margins to cover the potential costs that they've not been able to measure under these new compensation rules.

- higher rates. OK. I don't own a crystal ball or know how to use one but all the forecasts are for higher rates. As the economy shows a sign of recovery, the Fed will be forced to raise their rates. Money will flow toward the stock market and out of the bond market requiring lower bond prices and thus higher mortgage rates. The question is only "when and how high"?

So we know about those changes. Here are some changes that are rumored to happen in the months ahead:

- FHA to increase down payment requirements from 3.5% to five or even ten percent.

- Conventional loans to restrict Loan-to-Values on refinances and purchases (even more than they already have)

- higher credit score requirements (does anyone remember when you didn't even need a credit score for a FHA loan?)

- Fannie Mae and Freddie Mac to be disolved. The uncertainty of how the market will function with these insuring agencies is ominous. It could foster competition from private investors but will likely suggest more risk which translates into higher rates or even more restrictive underwriting.


But here is the thing. In spite of all this doom and gloom, people will still buy houses and they will obtain mortgages to pay for them. And there will be loan officers to guide them through the process. Now, more than ever, consumers need a knowledgeable and trustworthy loan officer to help them navigate their way through this crazy world of mortgage lending.

My message today is one of urgency. If you, or someone you know, is in the market for a home or considering a change to your current mortgage, then please contact me today as I strongly believe you'll have more attractive options now than you will later.

FHA Extends Suspension of Anti-Flipping Rule

FHA announced that the suspension of the Anti-Flipping Rule has been extended through January 2012.

This means that homebuyers using FHA financing to purchase a home will be allowed to use this financing on homes that are being flipped (technically speaking: bought, renovated and sold within 90 days).

This is great news as it allows that excess inventory of homes on the market that need some TLC (some more than others) can be renovated and sold to a larger pool of buyers.

All sides win:

- seller wins because investors are more willing to buy
- buyer wins because they have newly renovated homes to choose from, which they can use the popular FHA financing toward (only 3.5% down payment required)
- community wins because delapitated homes are being fixed up
- homeowners in the area win because it gets the extra supply of homes off the market, which will help home values
- FHA and mortgage lenders win because these loans are performing well
- Realtors win because they have better products for their clients and they continue to have access to the loan program that allows the buyers to close on these homes


It is refreshing to have good news come from HUD and FHA.

Should you or someone you know be considering purchasing a home for renovation or if you are looking for one of these renovated homes, please contact me for more information.

And read this article from the LA Times for more insight into this rule.

http://articles.latimes.com/2011/jan/16/business/la-fi-harney-20110116

Why Can't I Get That Rate?

"Why can't I get that rate?"

Unfortunately, we may hear this question more frequently in the coming months. Fannie Mae and Freddie Mac have recently announced changes to their "Loan-Level Price Adjustments". This risk-based pricing model has been around for awhile but the GSEs are about to take it to another level.

Lenders publish rate sheets daily (often multiple times a day). When a loan officer is pricing a loan for a client they have to take into consideration other factors such as credit score, Loan-to-Value, loan purpose, property type, etc. Each of these factors can effect the pricing, and usually in a negative way.

For example, someone with a 700 credit score wishes to refinance their primary residence at a loan amount that leaves them with 20% equity. Not only are they paying off their current mortgage, but they are also accessing another $20,000 for some home improvements (thus making this a "cash-out" refinance).

Let's add up the pricing adjustments on this 30 year fixed mortgage: First, there is a hit to the price of 1.000% for having a score of 700 (which isn't all that bad, by the way) and because it is a cash-out refinance there is another hit of .75%. Now, if the home happens to be in an "adverse market" there is another hit of .25% to the price.

Now thankfully these adjustments are not to the "rate", however this 2% in price adjustments can easily increase the available rate by .375%. On a $200,000 loan that extra .375% costs the homeowner an extra $44.57 per month. Over thirty years that is an extra $16,045!!!

Even a borrower with an 800 score and 20% equity gets hit with a .25% price adjustment. That is just plain unfair.

Unfortunately Fannie and Freddie have taken a model that is supposed to reward quality (low-risk) borrowers and made it one that punishes ALL borrowers but only punishes the best borrowers a little.

Homeowners and prospective homebuyers must make sure that a qualified loan officer provides an accurate rate quote based on all of the qualifying criteria BEFORE committing to the borrowing process. I always review several options to insure that the best financing is made available.

At Home Lending Source, we've not yet imposed these new pricing adjustments but they certainly will be in effect by April 1. Rates are still very attractive so I recommend calling NOW to research your best options tailored specifically to your situation.

You can read more about LLPAs here:
http://themortgagebuzz.com/2011/01/06/