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(via HUD)

New FHA Mortgagee Letter:

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D.C. 20410-8000

OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER

January 22, 2010

MORTGAGEE LETTER 2010-04

TO: ALL FHA-APPROVED MORTGAGEES

ALL HUD-APPROVED HOUSING COUNSELING AGENCIES

SUBJECT: Loss Mitigation for Imminent Default

The Helping Families Save Their Home Act of 2009 expanded the authority to use FHA Loss Mitigation to assist defaulted FHA borrowers avoid foreclosure to include those mortgagors facing ”imminent default” as defined by the Secretary. The purpose of this Mortgagee Letter is to define imminent default and provide guidance to FHA-Approved servicers on how to assist those FHA borrowers. At this time FHA is limiting the loss mitigation options that may be used to assist borrowers facing imminent default to forbearance and FHA-HAMP. The guidance provided in this Mortgagee Letter is effective immediately…

To read this mortgagee letters and any attachments in their entirety, please visit: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/ view the 2010 letters and click on the letter of your choice. Mortgagee Letters from previous years can be found on the same page.

Mortgage market is currently down 12 bps this morning, and equity markets are picking up the losses from last week.

Existing Home Sales report came in around 16% lower in December at 5.45M, a lot lower than the 6M expected.

The main thing in the news today is Ben Bernanke and his chances of a second term. From the way it looks, he will be reconfirmed as the Fed Chairman.

Tomorrow we have the Consumer Confidence report which should have some impact on rates, so I’d recommend floating any rate locks at the moment until tomorrow.

Long, but very helpful…

Increases in FHA UFMIP, monthly MI factor, and reductions in seller paid closing costs
I’m sure you’ve heard through the grapevine all the recent changes that are going to be implemented with FHA loans. Basically now, regardless of consumers’ credit score and down payment, people will start seeing an increase in the amount that they are going to finance (UFMIP). About a year ago, the higher the score, the less UFMIP they would have to pay (risk-based adjustments), but not now.

Another thing that may sway less “qualified buyers” in the door is the reduction in seller contributions. More often times than not, 6% was WAY more than enough needed to help a buyer absorb and finance some of the costs, but just like everything in the mortgage industry, a few bad apples spoil it for all. Mortgage lenders were jacking up fees, telling Realtors, “Yo we need that full 6% if you wanna close this deal!” and look where we’re at now.

RESPA
With all these new RESPA laws that have started off the year with a BANG, what is happening is a huge staffing spike for mortgage companies. Mortgage lenders are creating compliance departments so they don’t get wacked by RESPA, and title companies are having a complete overhaul of their title software to stay in compliance as well. Who do you think is going to be picking up the tab for this? Consumers.

Feds Purchase Program
So now everything is going pretty damn good with rates, and I’d think you’d agree. Well a major reason rates are so low is because the economy is still in the dumps and the Fed is buying up MBS (Mortgage Backed Securities). MBS is what control mortgage rates in case you didn’t know. Well this is not going to go on forever, and what is going to happen is the Fed is going to stop buying pools of BILLIONS OF DOLLARS of these securities? This week, the Fed’s buying was $0.4BB less than previous weeks, so we are already starting to see the reduction of their commitment and investment towards the MBS market.

Equity Markets
The stock market has been on a downward spiral for a long enough time already. People have been watching their money go “bye-bye” for the last few years, but signs of a market recovery are already on the horizon.

Usually when equity market’s do bad, mortgage rates do good, and vice versa.

The reason behind this is that money managers either invest in stocks or bonds. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

The same applies for stocks. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise.

Bottom Line for 2010 - be prepared for higher mortgage costs.

Yesterday was a pretty big day, and this morning even more.

The DOW is currently down about 133 points, and while several economic reports are out, the biggest one is, again, the Jobless Claims is in at 482k, that is the largest jump in claims in the past 8 months – a pretty big figure.

What does this mean for rates? Well, at the moment, we’re up about 25 bps so you should see a little drop – I’d say about .125% or so.

Remember- Economy bad, rates good.

The Treasury also  just announced next weeks auctions:

Tuesday, $44B of 2 Year Notes
Wednesday, $42B of 5 Year Notes
Thursday, $32B of 7 Year Notes

Yesterday, plastered all over the media, were the changes  in FHA financing. I don’t know about you, but I’m pretty sick and tired of all this “change” that has been going around lately.

While the majority of the details can be found on my blog, I also wanted to briefly outline them here as well.

So here’s what’s up:

1) Seller Contributions are going from 6% down to 3%.

a)     This is apparently being done to further help the consumer avoid added loan fees and inflated home prices. (I personally thought RESPA and HVCC were solving this)

2) Up Front Mortgage Insurance Premiums are being increased from 1.75% to 2.25%, and talks of the monthly mortgage insurance (currently .55%) going up as well

a)     Basically, it’s going to get a little bit more expensive for all borrowers regardless of credit score.

3) Down Payment of 10% on borrowers under a 580

a)     Now while FHA has implemented a minimum credit score of 580, that doesn’t really mean anything because all lenders these days are at least at a minimum score of a 620, so this rule won’t really affect you.

Now as for the timeframe in which these are going to be put into practice by lenders, it’s not certain yet, but I should be getting something soon, in which case, I’ll post an update on here.

If you really think about it, the only biggie here is the seller contributions. It just means that consumers are now going to need a little bit more cash available when buying homes to help cover closing costs.

Let the finger pointing begin…

(via MND)

FHA to Raise FICO Requirements, Reduce Seller Concessions, Increase Premiums and Downpayment

The Federal Housing Administration (FHA) is not, as some have claimed “the next subprime,” according to remarks prepared for presentation to congress this morning by Housing and Urban Development Secretary Shaun Donovan.

Secretary Donovan told members of the House Committee on Financial Services that FHA, in spite of actuarial reports that its secondary reserve level has fallen below the required two percent to 0.53 percent of its total insurance-in-force, is capable of withstanding the current economic downturn.  The actuary concluded Donovan said that FHA’s reserves will remain positive “under all but highly severe economic scenarios.”

He said that HUD had learned from recent history, “that the market is fragile, and we have to plan for the unexpected.  That uncertainty is complicated by an organization we inherited that, to be honest, was simply not properly managing or monitoring its risk.  Credit and risk controls were antiquated.  Enforcement was weak.  And our personnel resources and IT systems were inadequate.

“Little of this may have been obvious when FHA’s market share was 3 percent as recently as 2006.  But when our mortgage markets collapsed last fall, and homebuyers increasingly turned to the FHA for help, the potential consequences of these lapses in risk management became very clear.”

His department, he said, is in the process of drafting new policies to address the quality of FHA’s current portfolio, improve the performance of future loans, and restore the capital reserve above its mandated levels.

The agency is looking at several measures to improve the quality of its portfolio going forward.  It plans to reduce the maximum permissible seller concession from 6 percent to 3 percent because the current level exposes the FHA to excessive risk by creating incentives to inflate appraised values.  The change, he said, will bring FHA into line with industry norms and even further reductions may be considered.

The minimum borrower FICO score will be raised although the final number has not yet been determined.  The agency is studying whether new FICO minimums should be accompanied by changes in other underwriting criteria for lower down payment loans.

The up-front cash that a borrower will be required to bring to the table for an FHA-backed loan will also be increased to make sure that borrowers have “skin in the game.”  The exact way this will be accomplished is still under study.

These proposed changes, Donovan said, only require administrative decisions on the part of HUD, however, Congress will be asked to pass legislation to increase premiums.  The current up-front premium of 1.75 percent is below the statutory cap of 3 percent but the annual premium is at the maximum.  Raising premiums, he said, is the most effective means of raising capital for the reserve fund with the least impact per borrower.

Donovan said that more than 71 percent of the future losses the FHA is anticipating will come from loans already on its books, so, as MortgageNewsDaily reported on Monday, the agency is taking steps to enforce lender accountability.  Donovan said that, in addition to holding lenders responsible for their origination quality and compliance and increasing reviews of that compliance, lenders will be required to indemnify the FHA for losses resulting from their failures to meet FHA requirements and will be sanctioned nationally for any improper activities rather than through the FHA’s current policy of sanctioning individual branches.

The secretary reported that the anticipated changes are merely the latest in a series of improvements FHA has made to shore up its lending activities.

• In 2008, Congress put an end to the practices that led to the most troubled loans in FHA’s portfolio – so-called “Seller-Financed Downpayment Assistance” loans. Without these loans, Donovan said, the actuary reported that secondary reserves would have remained above the two percent threshold. “This year, we’ve taken several additional steps. We’ve steeply increased enforcement efforts, having suspended seven lenders, including Taylor, Bean and Whitaker and withdrawn FHA-approval for 270 others, including Lend America just this week.”

• Credit and risk controls have been tightened. Requirements for the Streamlined Refinance program have been toughened with several improvements to the appraisal process and proposing a rule to increase net worth requirements for all FHA lenders. The latter has just entered the notice and comment period.
• The agency has hired a permanent Chief Risk Officer to provide a comprehensive and thorough risk assessment and ensure that the assumptions going into the agency’s modeling reflect the most current economic conditions.
• FHA is working to increase staffing and technical capacity and upgrade our technology systems and delivered FHA’s first comprehensive technology transformation plan to Congress in September.

The Secretary detailed the active role that FHA is taking in the current housing market, insuring almost 30 percent of purchases and 20 percent of refinances in the housing market, and financing the majority of minority home purchases.  But, he said, “as important as the FHA is at this moment, I want to emphasize that the elevated role it is playing is temporary – a bridge to economic recovery helping to ensure that mortgage finance remains available until private capital returns.”

So I’m sitting here watching CNBC, and what do I hear?

FHA changes UFMIP to 2.25% and Down Payments are being increased!

If you recall, I have been writing about my outlook on FHA changes for a while now, and folks, I wasn’t that far off.

The Federal Housing Administration has been in some financial trouble due to other types of financing being unattractive, and because of all the rising defaults due to the job market, FHA’s tightening up.

Now this is going to take some time to get passed down through the funnel to the investors (banks/lenders), so I am not sure of when the changes will be effective, but take this a forewarning, and also, A HEAD START TO PREPARE. When it does go into effect, I will be the first to let you know.

In this morning’s mortgage bond market, we are up 16 bps and we’re hedged between both levels of resistance, as the FNMA 30 Year 4.5% coupon is currently being sold at $100.78.

Here are the results from today’s reports:

1. Producer Price Index (PPI)- 0.2%
2. Core Producer Price Index- 0.0%
3. ICSC-Goldman Store Sales- 2.0%
4. Housing Starts- 557K

Have a great day, and I’ll be back with any significant changes!

***Connect with me on Twitter for the most up-to-date mortgage and market updates***

Well, we had a nice run from Jan. 14-15, but rates are taking a break from getting better…at least for now.

Mortgage bonds are currently down 16 bps, and mortgage rates should open a tad higher this morning.

There are no economic reports for today, but tomorrow we got a hell of a lineup:

1. Producer Price Index (PPI)
2. Core Producer Price Index
3. ICSC-Goldman Store Sales and the
4. Housing Starts

All of these are going to have a significant impact on the mortgage bond market, and my gut feeling tells me that since we have broken (and are falling back down) from the 1st level of resistance (200 DMA), we may see an adverse effect on mortgage rates tomorrow.

Regardless of how tomorrow plays out though, the entire week is PACKED with data that can influence your mortgage and what you pay on it so make sure to follow me on Twitter or contact me for any up to the minute updates.

Have a great week!

(via dallasnews.com)

Federal investigators probing two North Texas mortgage firms

The inspector general of the U.S. Department of Housing and Urban Development announced today that it has subpoenaed records from 15 mortgage companies whose FHA-insured loans have “significant” failure rates. The group includes two companies based in North Texas: Alacrity Financial Services of Southlake and Americare Investment Group of Arlington. The probe will examine why the companies have originated so many bad loans and whether they are responsible for any wrongdoing.

The HUD review was announced after an audit found that its insurance fund may require a federal bailout in 2010. You may recall that the Federal Housing Administration has insured more loans to make up for the demise of the subprime market. FHA, which is funded by fees paid by borrowers, has seen its reserves depleted as many of its loans fail.

According to a press release, the inspector general’s audit will examine why certain companies “have high default rates, especially at this unprecedented time when the FHA mortgage insurance program represents such a significant percentage of mortgages currently in force in our country.” All of the companies under investigation have originated at least 1,000 FHA mortgages.

The reports are in folks, and here’s what we got this morning:

Empire State Manufacturing Survey – estimated to be 13 , actually 15.92
Consumer Price Index (CPI)- estimated to be 0.1% , actually 0.1%
Industrial Production- estimated to be 0.6% , actually 0.6%
Capacity Utilization - estimated to be 71.9% , actually 72%
*Consumer Sentiment Index - estimated to be 74 , actually 72.8

The Consumer Sentiment Index is where 500 households are surveyed each month on their financial conditions, and most importantly, their attitudes about the economy. This report is also related to the STRENGTH of consumer spending, and when it comes down to it, the consumer (you and me) is what makes or breaks the economy.

Companies can make all the products they want, but at the end of the day, if nothing is bought, there’s no profit to report to its shareholders on that long, big, shiny table at the end of the each quarter.

Mortgage bonds have broken through the 25 DMA (Day Moving Average) and have also broken the 200 DMA, so today would be a good day to lock any of your transactions you are in the middle of. There have been some nice gains these past couple of days, so ride it all you can, because I don’t think its going to too much longer.

Make sure to tell you loan officer to be prepared to lock possibly today if things take a turn for the worst.

Again, this is where understanding the market pays off for the consumer.

With the new RESPA rules that have come out, many consumers may now THINK that they are now going to be guaranteed the “best deal” out there, but that’s really not the case if you’re wasting your time. You may save a few dollars folks, but TIMING AND MARKET COMPETENCE is what counts.

Just my 2 cents!