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The FHA 90-Day Seasoning Rule on Hiatus March 1, 2010

"Success seems to be largely a matter of hanging on after others have let go." -William Feather

The FHA 90-Day Seasoning Rule on Hiatus: What It Means to Investors & First Time Buyers That Want to Buy their Rehabbed Homes. 
 
By now you’ve probably heard that in an effort to reduce the number of foreclosed homes on the market, the Federal Housing Authority (FHA), part of the U.S. Department of Housing and Urban Development (HUD), has suspended its regulation, sometimes referred to as “title seasoning,” requiring investors to own a property for 90 days before re-selling it. The suspension, which went into effect February 1, will remain in effect for one year. Until then, investors are free to sell to FHA buyers almost immediately after renovations are completed.
 
Does this mean that unscrupulous investors can start coming out of the woodwork again?
 
The 90-day requirement was enacted to reign in “flippers” who bought fixer-uppers and quickly sold them to unwitting buyers at inflated prices without making substantive repairs. To protect borrowers and make sellers more accountable this time around, the FHA has put additional regulations in place:

1. The seller must hold title to, and be the property’s owner of record, at the time of contract. 

2. The property cannot have been “flipped” within the past 12 months.

3. The property must be marketed openly and fairly in MLS, auction, for sale by owner and/or developer, with no “inside deals” or special arrangements such as contract assignments.

4. If the sale price is 20% or more above the acquisition cost, a red flag goes up. Investorrequired to document all repairs, the lender will require a copy of the structural inspection, and the sale price must be justified by two lender-selected appraisers. 
 
5. The FHA has not determined whether these regulations will continue once the 90-day rule is reinstated next year.
 
In the past a buyer would typically explore other options before settling on FHA financing. But today, FHA lending makes up the lion’s share of mortgages being obtained by buyers who need low down payments or have credit scores under 700. It should not be construed that, as some have suggested, FHA loans are the new “sub-prime.” The FHA is extremely stringent in its underwriting requirements because they are insuring the loan will be paid as agreed. Further, the FHA plans to increase its upfront mortgage insurance premium from 1.75% to 2.25% on April 5, which should help weed out some under-qualified buyers.
 
Whether the seasoning waiver will help the market as a whole is a matter for debate. There is no question, however, that professional investors and rehabbers are grateful for the opportunity to reduce their carrying costs and start moving properties more quickly. And the waiver will give FHA borrowers broader access to homeownership and help move foreclosed properties off the market, which will benefit blighted communities. Developments like these are something we can all be grateful for.
 
 All transactions must be arms-length, with no conflicts of interest among the buyer, seller or anyone else involved in the transaction.
 
 
The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.

All our best for the upcoming week.

@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team -  (704) 366-7711

Todd Croy - NMLO license #91428

Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings


 


USDA May Run Out of Money By the End of April 2010 March 11, 2010

Please contact your congressional representative and have them help us get more funds for the USDA program.  You can find your representatives at: 

https://writerep.house.gov/writerep/welcome.shtml and http://www.senate.gov/general/contact_information/senators_cfm.cfm?State=NC or http://www.senate.gov/general/contact_information/senators_cfm.cfm?State=SC

The attached note is from our head of operations.  We your help in getting the message out to our congressmen about the importance of getting funding for this program.

As many of you know, we have received the email below from USDA regarding program funding. Due to the fact that Rural Housing will no longer issue conditional commitments "subject to receipt of appropriated funds", when the money is gone, we will not be able to continue the program, as our investors will be unable to purchase.

It is imperative that we all email our congressmen and women, and our senators, making them aware of the need for appropriation of these funds. When emailing, please reference the need for funding for the USDA Section 502 Guaranteed Rural Housing program.

It is also important that we educate our Realtors and builders and encourage them to contact their representatives in Washington.

If funds are not appropriated before the end of April (or before if it runs out sooner), we will no longer be able to offer the USDA program.?

March 10, 2010 (email from USDA)

Notice of Funding

This message is to notify you that program funding for the Single Family Housing Guaranteed Loan Program will likely be exhausted by the end of April, 2010.

Once funding is exhausted, the Agency will not issue Conditional Commitments "subject to receipt of appropriated funds." This is because it is not certain when additional funding will be available.

Limited funding may become available for disaster areas declared in 2008, or in disaster areas declared for Hurricanes Katrina and Rita. Limited funding may also become available as prior Agency commitments are de-obligated, however, such funding will be very limited.

We apologize for any inconvenience this may cause you. Should you have any questions, you may contact the Single Family Housing Guaranteed Loan Division at (202)720-1452.


@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team -  (704) 366-7711

Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings                             
 
The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.

This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 3/8 /2010


April 2nd is Deadline for Cheaper FHA loan March 15, 2010

April 2, 1010 is the deadline to get the lower FHA Up Front Mortgage Insurance (UFMIP) Premium of 1.75% for FHA.  All  new FHA case numbers assigned on Monday April 5th will increase to 2.25% from 1.75% - with the maximum FHA loan size of $303,750 in Charlotte this can mean a saving of $1518.75 if your client get's their loan in place by the deadline.  Remember the FHA case number must be assigned by Friday April 2nd to get the lower premium rate.

Economic news:  In early 2009, the Fed embarked on a $1.25 trillion mortgage-backed securities (MBS) purchase program to help keep mortgage rates low and stimulate the economy. The amount purchased varied from week to week, reaching a peak of $33.2 billion in the week of March 25, 2009. The Fed has been gradually reducing the size of its purchases at a pace consistent with a March 31 conclusion of the program, and the most recent weekly purchases have been down to around $10 billion.

As the date nears, the big question is what will happen when the MBS purchase program ends. This program is unprecedented, making the outcome difficult to predict, and forecasts vary widely. Estimates for the impact on mortgage rates from the conclusion of the program vary from an increase of one percent to no change. Those who predict higher mortgage rates point to a basic change in the fundamental supply and demand. The added demand from the Fed was widely credited with moving rates lower, and a decrease in demand would typically push rates higher. However, other economists argue that investors respond only to unexpected news. In this view, since the Fed has telegraphed the end of the program for months, there should be little reaction around March 31. The Fed itself has indicated that they expect a modest increase in mortgage rates due to the end of the program.
 
The big story this week will be Tuesday's Fed meeting. No change in the fed funds rate is expected, but any surprises in the Fed's statement could produce a large reaction. The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production, an important indicator of economic activity, will be released on Today. Housing Starts are scheduled for Tuesday. Import Prices, Leading Indicators, and Philly Fed will round out a busy week. 

@ The Valeo-Croy Team, we are here for you.
The Valeo-Croy Team -  (704) 366-7711
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings                             


Equal Housing Lender
 
 


USDA Funds Should Not Be An Issue Moving Forward March 21, 2010

Deanna and I were recently attending our annual sales meeting (Oh by the way we were awarded President's Circle status for 2009, yippee). One of our speakers was the head of the lobby group for the Mortgage Bankers Association (MBA) Mr. Brian Chappelle from Potomac Partners.  

Brian informed us that Potamac Partners called USDA about the funding of their loans and asked how its current situation is different than in years past.  The MBA & Potamac Parters were informed that nothing had changed and they expected congress to get the necessary funding dollars soon.  In fact all that had changed compared to the two past years was who wrote the memo.  This new member to the staff announced that USDA would need additional funds from congress and used poorly selected words causing a panic.  While USDA will need funds this happens annually and since I have been in the business fundings have not been delayed.

So, bottom-line to you, USDA will get appropriations to begin funding loans again soon.  Additionally, the Mortgage Bankers Association is trying to get an updated memo that lessens the "severity" of the message so key USDA servicers will re-engage in buying USDA loans.  Expect all to be business as usual very soon (keep your USDA listings).  Please do note that the USDA eligible footprint is based upon census data this will change when the 2010 census is published.  Now is a good time to buy or sell if you are USDA eligible.
 

Economic News:  There were no major surprises in the economic data or the Fed announcement last week. As a result, while volatility remained day to day, mortgage rates ended nearly unchanged for the third straight week.

As expected at its meeting on Tuesday, the Fed held the fed funds rate steady, and the accompanying statement contained few changes. The statement retained the language about the fed funds rate remaining at extremely low levels for at least several months. The Fed's assessment of the economy was a little more upbeat at this meeting, but pointed out that economic improvement will occur slowly. The Fed continued to signal that the $1.25 trillion MBS purchase program will conclude at the end of March. With less than two weeks of Fed MBS purchases remaining, investors will be watching closely to see if the Fed's exit has an impact on mortgage rates.


Last week's inflation data showed that inflation is not a concern right now. The February Core Consumer Price Index (CPI) increased at a low 1.3% annual rate. The Fed's target range is commonly believed to be a 1.5% to 2.0% annual rate. The current low inflation environment makes it easier for the Fed to continue to hold the fed funds rate low to stimulate the economy.


FHA News - Changes in Mortgage Insurance Coming March 29, 2010

Some quick reminders about changes that in affect:

1.  Self Employed Borrowers that use 2009 Income must have 2009 Tax Returns completed both personal and for their business.  We also must have IRS tax transcripts on file to close the loan.  If the returns are filed electronically this will take 2-3 weeks from that date.

2.  After this Friday the Up Front Mortgage Insurance Premium changes to 2.25% from 1.75%. Borrowers will need slightly higher income to by the same property.

3.  Other FHA changes expected later this summer is that the Up Front Mortgage Premium will drop to 1% and the monthly MI will go from .55% to .9% this will have more impact on qualifying price.

4.  There are only 24 business days to have a contract received and a loan assigned and in our system before the tax break expires.  As reported last week the Mortgage Bankers Association expects less than a 5% probability this will be extended.  Based upon the new sales report I also doubt this will happen.

5.  The good news (kind of), if the housing recovery stalls expect the return of some government stimulus.  Also expect the interest rate support from the government as well if rates climb too much from today.  Projections are for .25%-.5% increase.

Economic News:

Retail rates moved up toward the end of the week to just over 5%. Expectations for much better jobs numbers and a weak Treasury auction pushed the stock market and Treasury yields higher at mid week. There is growing sentiment that the Fed will have to sell the Mortgage backed securities (MBS) it owns which will put upward pressure on mortgage rates. Remember the Fed purchased $1.25 Trillion of these MBS and hold them on its balance sheet. 

The government has controlled the housing market for the last 18 months or so thru the GSE’s (Fannie Mae and Freddie Mac) and FHA. Collectively they own or control more than 50% of all mortgages and by some estimates 70% of mortgages done in 2009. There is increasing conversation about doing something for our national housing market the question is what and when. Do we privatize or nationalize? Do we find some sort of middle ground solution? How do we make the transition from what we have today to whatever solution is agreed upon? These are difficult decisions and ones that will impact our lives and our economy for years to come.

One of the elements of this housing reform will be the mechanism by which capital is raised. What will that process look like in the future? Clearly some portion of the funding will come from overseas investors. Perhaps the recent statements by David Stevens the FHA Commissioner will shed some light on the challenges associated with relying on foreign bankers and investors. In a recent speech Mr. Stevens said when referring to some conversations he had with international bankers about how these bankers/investors saw triple A rated securities turn to junk “We are at the point right now where no one trusts the American housing finance system”. If what he says is true one can only observe how far we have fallen in such a relatively short amount of time.

@ The Valeo-Croy Team, we are here for you.
The Valeo-Croy Team -  (704) 366-7711
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings                             


Equal Housing Lender