Tag Archives: Federal Housing Administration

FHA’s $16.3B deficit raises specter of taxpayer bailout

A fund used to support the Federal Housing Administration’s single-family mortgage and reverse mortgage insurance programs ended fiscal year 2012 with a $16.3 billion deficit, according to an annual report submitted to Congress.

The shortfall raises the specter that the agency will require a taxpayer bailout next year for the first time in its 78-year history.

In order to avoid a bailout, FHA will raise annual insurance premiums, sign off on more short sales, streamline sales of foreclosed properties, offer “deeper levels” of payment relief through its loss mitigation program, expand sales of delinquent loans, and, for new loans, reverse a policy instituted in 2011 that canceled required premium payments after loans reached 78 percent of their original value.

Next year, FHA plans to raise the annual insurance premium paid by borrowers on an FHA loan by 10 basis points, or 0.1 percent, which is expected to add $13 a month to the average borrower’s monthly payments.

The agency has also vowed to expand its sales of delinquent loans under its Distressed Asset Stabilization Program, committing to sell at least 10,000 such loans per quarter over the next year. Because such sales require investor purchasers to delay foreclosures for a minimum of six months, they represent an opportunity for borrowers to possibly avoid foreclosure while reducing FHA’s costs, according to the U.S. Department of Housing and Urban Development (HUD), of which FHA is a part.

The FHA has been hard-hit by defaults from housing bubble-era loans made from 2005 and 2008, with future losses estimated at $70 billion for loans made in 2007, 2008 and 2009 alone.

The agency has taken steps to strengthen its capital reserves in recent years, including raising mortgage insurance premiums three times in 2010 and again earlier this year. The agency has also tightened credit standards and prohibited seller funding of buyer down payments, a practice the agency now estimates will cost it more than $15 billion on loans issued before 2009.

“While the loans made during this administration remain the strongest in the agency’s history, we take the findings of the independent actuary very seriously,” said FHA Acting Commissioner Carol Galante in a statement.

“We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”

In the report, the FHA said its capital reserve ratio, which measures reserves in excess of what’s needed to cover projected losses over the next 30 years, had dropped to -1.44 percent from an already slim 0.24 percent in 2011. Congress requires the agency to maintain a 2 percent ratio — a mandate the FHA now projects it will meet in 2017, up from 2014 in last year’s projections.

HUD said this year’s deficit “does not mean FHA has insufficient cash to pay insurance claims, a current operating deficit, or will need to immediately draw funds from the Treasury.” The deficit, calculated by an independent actuary, also does not take into account an estimated $11 billion in capital accumulation expected by the end of fiscal year 2013.

“Coupled with the $11 billion in additional capital from expected new insurance guarantee volumes in fiscal year 2013, we believe it is possible to return the (fund’s) capital ratio to a positive level within the year, and reduce the likelihood that FHA will need to call upon the Treasury for any special assistance this fiscal year,” wrote HUD Secretary Shaun Donovan in the report.

Whether FHA actually ends up needing a bailout will be determined not by this report, but by a valuation of the fund made for the president’s budget proposal for fiscal year 2014 to be released in February. A final decision on whether to draw funds for FHA from the U.S. Treasury will be made in September.

This year’s report projections are less sanguine than last year’s because of changes in its economic modeling, lower interest rates that have spurred refinancings and yielded lower premiums, and lower expectations for home prices, which turned around later than projected this year. Appreciation estimates do not include home price improvements since June.

The Center for American Progress (CAP), which describes itself as a nonpartisan research and educational institute, said the news was “almost inevitable” after the FHA stepped in after the housing bubble burst and private capital fled the housing market.

“By living up to its congressional mandate to provide support to the housing market in hard times, the Federal Housing Administration not only funded home loans for 7 million families, but prevented even more catastrophic home price declines,” said Julia Gordon, CAP’s director of housing finance and policy, in a statement. “Such declines could have cost 3 million additional jobs and sent our economy spiraling into a double-dip recession.”

Gordon noted that FHA still has more than $30 billion to settle claims, but federal budgeting rules require the agency to hold enough capital to cover all claims over the next 30 years.

Debra Still, chairman of the Mortgage Bankers Association, agreed that FHA plays a crucial role in today’s market, particularly since the agency is nearly the sole backer of credit for first-time buyers with less than 20 percent down payments.

“These buyers are a necessary support for the housing market. While there is near-unanimous agreement that FHA’s role in the single-family housing market today is too large, we must remember that the housing market would be far worse off, today and in the future, without FHA,” Still said in a statement.

She added that MBA stands ready to work with policymakers to protect the fund and enable FHA to continue to perform its mission in the single-family market. She cautioned, however, that “ensuring the right balance” in forthcoming regulations defining rules for a qualified mortgage (QM) and a qualified residential mortgage (QRM) were important for future credit availability.

QM would establish standards for borrowers’ “ability to pay” the mortgages they seek, while QRM would establish certain baseline standards for safe underwriting and require lenders to retain a 5 percent minimum ongoing stake in any loans they originate that don’t meet QRM requirements.

“For example, a final QM rule could drive an even higher share of the single-family market to FHA if it is not carefully crafted to protect consumers while ensuring the availability of credit from private sources,” Still said.

“More broadly, the best medicine for FHA is a steadily growing housing market with stable home price appreciation, a less likely outcome if the rules cause lenders to increase cost or tighten qualification requirements for borrowers.”

The regulations are under the aegis of the Consumer Financial Protection Bureau (CFPB), which postponed action on both rules in June after protests from Realtors, builders, banks, unions and consumer groups. Under Dodd-Frank, the CFPB is required to issue the qualified mortgage rule by Jan. 21, 2013.

The FHA has repeatedly said it will not require a taxpayer bailout. The National Association of Realtors has supported that stance, and urged Congress not to take steps that might discourage homebuyers, such as raising FHA minimum down payment requirements.

Earlier this year, the FHA got some breathing room after receiving a one-time payment of almost $1 billion from a $25 billion national mortgage settlement with the nation’s five biggest loan servicers.

The government has since sued one of the loan servicers, Wells Fargo, for “hundreds of millions of dollars” due to alleged “reckless origination and underwriting of its retail FHA loans over the course of more than four years, from May 2001 through October 2005.” The bank claims that the lawsuit violates the terms of the $25 billion settlement and has asked a federal judge to throw the case out.         

Slap on the Wrist? Now is Your Chance President Obama!

Wells Fargo’s Discrimination During the Housing Boom

Wells Fargo, one of the top five banks in the nation, has agreed to pay a settlement of $175M for DISCRIMINATION against Black and Hispanic borrowers during the housing boom, according to the Justice Department yesterday. Is this a slap on the wrist or a fair settlement? FAIR? Please spare me!!

If approved by a federal judge, this would make this the second highest settlement in residential “fair lending”. An investigation by the civil rights division of the justice department found that brokers working with Wells Fargo charged higher fees to more than 30,000 minority borrowers. I believe this number is less than 50% accurate, given the sweeping numbers of sales back in the boom market. Then the same bank also steered 4,000 borrowers into sub-prime mortgages from 2004 to 2009, the announcement said, which to me seems grossly miscalculated. Where these numbers are created is never disclosed, causing me to believe they are not absolutely correct. When will the big banks stop misleading us?

This is the worst criminal racial profiling in our American society and the Federal judge who will approve this settlement amount should be unseated from the seat of majesty. This bank should pay dearly–a minimum of a $1B fine! Now, with the news from Bank of America, illegal foreclosures from the now JP Morgan Chase trading fiasco loss originally tabbed at $2B, now over $4B! When will it stop?: CEO Jamie Dimon offered an apology and closed the division, while four employees resigned–the one who collected a $15M salary last year, no doubt, profited dramatically in the scam. What does this mean to us middle-class Americans less than 4 years after the 2008 financial crisis caused by the largest banks and now a new alarm sounding that latest actions are compromising the integrity of the US financial system? Find your exact rights with your specific institution, speak with an attorney if you were foreclosed on or did a short sale, and choose wisely who you or your loved ones bank with. Until Americans take the bull by the horns and stop doing business with these people, will our future and our children’s future by secure?

President Obama has made some blunders. Regardless of if our country be better off with him or without him in the future; he can act now to make a change for the future. The good people out there still struggling to keep their home or who already lost their home due to gross mistakes by these banks, should be given special incentives to make restitution. The laws protecting Americans from having to sell their homes expire at the end of the year and need to be extended now. Come on; step up NOW, Mr. President!!

2012 could be record year for short sales

2012 is on track to become a record year for short sales, according to a report from foreclosure data aggregator RealtyTrac.

Sales of U.S. homes in the foreclosure process, typically short sales, rose 33 percent year over year, to 35,000, in January. A total of 32 states saw annual increases in short sales, and 12 states saw more short sales than REO (real estate owned) sales.

The short-sale increase comes after three years of declines following the inauguration of “a new presidential administration with a new approach to the foreclosure problem,” wrote Daren Blomquist, RealtyTrac’s vice president and author of the report.

“Short sales have long held great promise as a market-based solution to the nation’s foreclosure problem, but short sales transactions over the past three years have actually declined after peaking in the first quarter of 2009,” Blomquist said in a statement.

“January foreclosure sales numbers, along with first-quarter foreclosure activity, strongly indicate that downward trend is ending, and we believe 2012 could be a record year for short sales.”

Several states saw triple- or double-digit yearly jumps in short sales in January, including Georgia (up 113 percent), Michigan (90 percent), California (52 percent), Texas (48 percent), Arizona (44 percent), Nevada (36 percent), and Florida (20 percent).

Although REOs continue to outnumber short sales nationwide, there were only 2,600 more REO sales than short sales in January. Nearly a quarter of states had more short sales than REO sales, including Utah, California, Arizona, Florida, Indiana, Colorado, New York and New Jersey, according to the report.

Six out of the 10 states with the highest share of short sales in January were in the West.

Of the 50 largest U.S. metro areas, nine out of the 10 metros with the highest share of short sales in January were in the West, six of them in California.

Even as short sales increase, the prices buyers pay for them have decreased. In fourth-quarter 2011, a pre-foreclosure property sold for an average $184,221, down 11.3 percent from fourth-quarter 2010. In January, such a property sold for $174,120, down 10 percent year over year.

Short sales are also selling for bigger discounts when compared to the average sales prices of nondistressed homes. Short-sale buyers received an average 21 percent discount in January, up from an average discount of 17 percent the year before. RealtyTrac does not take into account property condition or size when calculating discounts for distressed properties.

Short sales in Massachusetts, Missouri and California saw the biggest discounts in January.

Short-sale timelines appear to be getting shorter. After peaking at 318 days in third-quarter 2011, the average number of days it took for a property to go from the start of the foreclosure process to its sale as a pre-foreclosure was 306 days in the first quarter, slightly down from 308 days in the fourth quarter.’

Although foreclosure starts — either default notices or scheduled foreclosure auctions, depending on the state — were down 11 percent from the previous year in March, last month also saw the third straight monthly rise in foreclosure starts.

There are nearly 3.5 million delinquent borrowers nationwide; 41 percent of those borrowers are seriously delinquent and therefore at high risk for entering the foreclosure process and becoming short sales, RealtyTrac said.

Another, bigger potential pool of short-sellers are borrowers with underwater mortgages. More than 12.5 million borrowers owe at least 25 percent more on their mortgage than their home is worth.

“Even if these homeowners aren’t struggling to make mortgage payments and therefore are at low risk for foreclosure, if they need to sell sometime in the next five years it’s likely they’ll need to sell via short sale,” the report said.

Among lenders and loan servicers, Bank of America had the highest short-sale volume in January, followed by Chase and Wells Fargo.

PNC Financial saw the biggest annual jump in short sales, followed by the Federal Housing Administration, Fannie Mae and Freddie Mac combined.

Those three government-backed entities also had the lowest average short-sale prices in January, the biggest declines in average sales price for short sales, the lowest number of average days to sale, and the biggest decrease in time to sell.

More mortgage relief from the White House – but congressional ‘ok’ doubtful

Mortgage reliefAn summary update (by CAR.org) on the mortgage relief plan by the federal government, covering an article by The Mercury News:

In his State of the Union Address, President Obama laid out a plan to help responsible borrowers and support a housing market recovery. Details of that plan were released yesterday. However, funding for the proposed program must be approved by Congress, lowering the possibility that it will be implemented quickly. Making sense of the story:

  • Operated by the Federal Housing Administration, the plan would allow underwater homeowners to refinance into cheaper federally insured loans. Borrowers with good credit who are current on their loan payments are eligible.
  • The measure also streamlines the process of refinancing an underwater mortgage, eliminating the need for an appraisal or submitting a new tax return.
  • To qualify, borrowers must be current on their mortgage, have a minimum credit score of 580, and must be refinancing a loan on a single-family owner-occupied principal residence.
  • Lenders only need to confirm that the borrower is employed. Loans that are more than 140 percent of the home value probably would not qualify until banks wrote down part of the balance.
  • Congress must approve $5 billion to $10 billion in funding, leading housing experts to praise the plan’s objectives with skepticism of it passing this year.

Read the full story from The Mercury News here: “More mortgage relief from the White House – but congressional ‘ok’ doubtful.”

Getting a mortgage after foreclosure

There are some additional hurdles for homeowners who have gone through a foreclosure, short sale or bankruptcy, but a little patience and some financial hard work will go a long way.

MortgagesBuying a home is a challenging goal for most hopeful homeowners. But for those who have experienced a bankruptcy, foreclosure or short sale, the hurdles are even higher.

Still, it’s not impossible to buy a home after financial difficulties, says Dan Keller, a mortgage banker with Hometown Lending in Everett, Wash. In fact, Keller says, people who have cleaned up their credit and are otherwise qualified to get a mortgage can buy a home as soon as they have outlasted a prescribed waiting period after the bankruptcy, foreclosure or short sale.

Wait a while
The waiting period can last one to seven years, says Kirk Chivas, chief operating officer at First Commerce Financial in Wixom, Mich. The one-year requirement applies to buyers who complete a Chapter 13 bankruptcy, have a spotless subsequent credit history and want to get a new loan insured by the Federal Housing Administration or guaranteed by the U.S. Department of Veterans Affairs. The seven-year requirement applies to buyers who experienced a foreclosure and want to get a new conventional loan that can be sold to Fannie Mae or Freddie Mac.

In between are a number of two-, three- and four-year timelines based on similar criteria and other factors such as whether the buyer’s previous mortgage was current at the time of a short sale or the size of the buyer’s new down payment as a percentage of the home’s purchase price.

Generally speaking, the waiting periods after a bankruptcy tend to be more black and white while the waits after a foreclosure or short sale have more gray areas, Keller says. And in some cases, a waiting period can be waived or shortened if the buyer’s bankruptcy, foreclosure or short sale was due to extenuating circumstances or a hardship beyond his control.

Technically, it is possible for a buyer whose prior loan wasn’t in default at the time of a short sale to get a new FHA-insured loan with no waiting period, Chivas says. But he adds that he’s never encountered anyone in that situation.

Clean credit
Buyers must have very clean or perfect credit histories before they can buy homes after bankruptcy, foreclosure or short sale. A slip-up as small as one late credit card payment could disqualify a post-bankruptcy buyer from some loan programs, even if the waiting period has been completed, Keller says.

“Bankruptcy is a serious word,” he says. “If you do it, it’s a get-out-jail-free card. But once you get out of bankruptcy, you need to be flawless in your credit. Don’t even drop a gum wrapper.

Credit dings can be difficult to sort out for buyers who experienced a loan modification or short sale, in part because, as Chivas says, there’s “no consistency” in how lenders report those events to the credit bureaus. Buyers should review their credit reports and correct any errors or clarify the circumstances of adverse items.

Stable employment can be a plus, too, Keller says, noting that some loan programs are more lenient than others. “If there was a gap,” he says, “it needs to be explained.”

Consult a loan pro
Given these complexities, buyers are advised to consult a loan officer or mortgage broker early on for advice that applies to their situation.

“They may think they’re fine, but if they’re not talking to a professional, their hopes can get dashed or crushed,” Chivas says. “That’s why you want to speak to someone as soon as you start dreaming it up in your head” that you want to buy a home after a bankruptcy, foreclosure or short sale.

This article is by RealEstate.MSN.com, and is viewable here: “Getting a mortgage after foreclosure.”

Factoring energy efficiency into a home’s value

Under the SAVE (Sensible Accounting to Value Energy) Act, estimated energy-consumption expenses for a house would be included as a mandatory new underwriting factor.

When you apply for a mortgage to buy a house, how often does the lender ask detailed questions about monthly energy costs or tell the appraiser to factor in the energy-efficiency features of the house when coming up with a value?

Hardly ever. That’s because the big three mortgage players — Fannie Mae, Freddie Mac and the Federal Housing Administration, which together account for more than 90% of all loan volume — typically don’t consider energy costs in underwriting. Yet utility bills can be larger annual cash drains than property taxes or insurance — key factors in standard underwriting — and can seriously affect a family’s ability to afford a house.

energy efficientA new bipartisan effort on Capitol Hill could change all this dramatically and for the first time put energy costs and savings squarely into standard mortgage underwriting equations. A bill introduced Oct. 20 would force the three mortgage giants to take account of energy costs in every loan they insure, guarantee or buy. It would also require them to instruct appraisers to adjust their property valuations upward when accurate data on energy efficiency savings are available.

Titled the SAVE (Sensible Accounting to Value Energy) Act, the bill is jointly sponsored by Sens. Michael Bennet, a Democrat from Colorado, and Johnny Isakson, a Republican from Georgia. Here’s how it would work: Along with the traditional principal, interest, taxes and insurance (PITI) calculations, estimated energy-consumption expenses for the house would be included as a mandatory new underwriting factor.

For most houses that have not undergone independent energy audits, loan officers would be required to pull data either from previous utility bills — in the case of refinancings — or from a Department of Energy survey database to arrive at an estimated cost. This would then be factored into the debt-to-income ratios that lenders already use to determine whether a borrower can afford the monthly costs of the mortgage. Allowable ratios probably would be adjusted to account for the new energy/utilities component.

For houses with significant energy-efficiency improvements already built in and documented with a professional audit such as a home energy rating system study, lenders would instruct appraisers to calculate the net present value of monthly energy savings — i.e., what that stream of future savings is worth today in terms of market price — and adjust the final appraised value accordingly. This higher valuation, in turn, could be used to justify a higher mortgage amount.

For example…

Read the rest of this article is by the Los Angeles Times: “Factoring energy efficiency into a home’s value“.

Why you can’t get the lowest mortgage rates

Five reasons near-record low rates are out of reach for some

CHICAGO (MarketWatch) — Mortgage rates are near historical lows, but the rates lenders are quoting you aren’t as eye-popping as those you see in the news.

When your vacation home becomes everybody’s home

Buying a retirement or second home might sound like a great idea, until friends and family begin using your place as a crash pad. Here are tips on how to handle unexpected guests without damaging relationships.

Why is that?

First, remember that mortgage rates are moving constantly, and rate surveys are capturing rates from past points in time. For example, Freddie Mac’s weekly survey collects rate data over the course of a week. Bankrate.com’s survey collects rate data every Wednesday…By the time results are released, they’re already outdated.

There are other reasons your rate might be higher. Below are five of them.

mortgage rates1. You’re not paying points

Average rates in Freddie Mac’s survey include average discount points paid for the mortgage. But not everyone is willing to pay points.

For the week ending Oct. 27, rates on the 30-year fixed-rate mortgage averaged 4.1%, but that rate required an average 0.8 point to get it. A point is 1% of the mortgage amount, charged as prepaid interest.

Unless you’re going to live in your home for a very long time, paying points often doesn’t make sense…

2. Your borrower characteristics mean price adjustments

A credit score on the low side will prevent you from getting the lowest rates. Low levels of home equity will also mean a pricier mortgage rate.

That’s thanks to loan level price adjustments from Fannie Mae and Freddie Mac that have been making it tougher for borrowers to get the best rates for the past few years…

3. Your property type means higher rates

For condo-unit mortgages, you need a 75% loan-to-value ratio, or a 25% equity position, to get the best rates, said Christopher Randall, vice president, secondary marketing, at the Real Estate Mortgage Network, a mortgage lender.

And if your mortgage is for a vacation home or investment property, you can also expect to pay a higher rate, McBride said…

4. You don’t have recent proof of income

For the self-employed — who don’t have pay stubs as proof of recent income — the most recent tax returns are what a lender will look at before giving you a mortgage. If business has improved after your past tax return, that’s not going to be of any help as you try and get a mortgage today…

5. Your lender isn’t hurting for business

There can be a big disparity in what rates are offered from lender to lender, Findlay said. And it may have to do with how many mortgages they’ve been originating lately.

“Some that are lacking volume will tend to be more competitive,” he said. “Those that have enough volume may say we’re going to keep rates high.”

But the rate isn’t everything, Randall said. When shopping for mortgages, borrowers need to focus on comparing their monthly payments. “People are drawn to the interest rate… but you have to look deeper. Review the documentation,” Randall said.

For instance, it’s possible for someone to get an offer of a very low rate on a mortgage backed by the Federal Housing Administration — that loan also may come with a higher insurance premium, Randall said. That person may be better off taking a conventional mortgage with lower priced private mortgage insurance, even if their interest rate is a little higher, he said…

Read the article in full by going to MarketWatch.com.