FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

 

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

 

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

 

For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

 

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

 

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

 

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

 

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30

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Fiscal Cliff and Real Estate

Late in the evening of Tuesday, January 1st Congress reached a settlement in the “fiscal cliff” negotiations, and President Obama signed the legislation January 2nd.  As a result, the Mortgage Forgiveness Debt Relief Act was extended another year.  The measure will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including principal reduction), or foreclosure.
The same provision also expired in California, but Senator Ron Calderon (D-Montebello) introduced SB 30, which would waive the potential tax bill for Californians for all of 2013.  C.A.R. already signed on as the bill’s sponsor, and the two hope to fast track the bill through the Legislature.

Also under the fiscal cliff agreement, the so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  The thresholds have been increased and are indexed for inflation so will rise over time.  Under the formula, filers gradually lose the value of their total itemized deductions up to a total of a 20 percent deduction.  The reinstitution of these limits has far less impact on the mortgage interest deduction (MID) than a hard dollar deduction cap, percentage deduction cap, or reduction of the amount of MID that can be claimed.

Capital gains rates on the sale of principal residences will remain unchanged and continues to exclude the first $250,000 for single taxpayers and $500,000 for married couples.

REALTORS® should encourage their clients to consult with their own tax advisers about their own individual tax situation.

Information provided by Sacramento Association of Realtors.

 

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Article Posted on Zillow – 1 in 3 homeowner’s underwater

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Great Article posted on www.zillow.com that I wanted to share.

One in three mortgage holders still underwater

By John W. Schoen, Senior Producer

Got that sinking feeling? Amid signs that the U.S. housing market is finally rising from a long slumber, real estate Web site Zillow reports that homeowners are still under water.

Nearly 16 million homeowners owed more on their mortgages than their home was worth in the first quarter, or nearly one-third of U.S. homeowners with mortgages. That’s a $1.2 trillion hole in the collective home equity of American households.

Despite the temptation to just walk away and mail back the keys, nine of 10 underwater borrowers are making their mortgage and home loan payments on time. Only 10 percent are more than 90 days delinquent.

Still, “negative equity” will continue to weigh on the housing market – and the broader economy – because it sidelines so many potential home buyers. It also puts millions of owners at greater risk of losing their home if the economic recovery stalls, according to Zillow’s chief economist, Stan Humphries.

“If economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures,” he said.

For now, the recent bottoming out in home prices seems to be stabilizing the impact of negative equity; the number of underwater homeowners held steady from the fourth quarter of last year and fell slightly from a year ago.

Zillow map: Where homes are underwater

Real estate market conditions vary widely across the country, as does the depth of trouble homeowners find themselves in. Nearly 40 percent of homeowners with a mortgage owe between 1 and 20 percent more than their home is worth. But 15 percent – approximately 2.4 million – owe more than double their home’s market value.

Nevada homeowners have been hardest hit, where two-thirds of all homeowners with a mortgage are underwater. Arizona, with 52 percent, Georgia (46.8 percent), Florida (46.3 percent) and Michigan (41.7 percent) also have high percentages of homeowners with negative equity.

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Tips when applying for Loan Modification

The following tips were given by Stephfan Nurse, CEO of Consumer Education, makers of mortgage reduction software designed to help people thru the modification process: 

1)      When faxing or sending in your paperwork to your lender, make sure that your loan number is printed on every page you are sending in.  Lenders received thousands of papers a day and sometimes the cover sheet gets lost or the fax gets misplaced.  If you have the loan number on every page, they can make sure it gets in your file.

2)      Make sure that ALL of the requested paperwork is included in the file.  If you are missing just one required document, they will show your account is incomplete and your file sometimes goes to the bottom of the pile.

3)      Follow up every week with your lender to make sure all of the documents they have are up to date.   Don’t worry about being a pest; this usually keeps your file moving along.

 These tips are the same tips we use when submitting Short Sales.  The complete packages move along much quicker then the packages submitted with missing documents.  Some lenders even tell us to keep sending in pay stubs and bank statements so the file is kept current at all times.

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Cashing in on rental property

One bright spot in the dismal real estate market is the rental market.  Demand is up and rents are rising.  That’s partly because those foreclosures have turned more than 4 million former homeowners into rents, but also because many other prospective homeowners, worried about losing their jobs or housing prices falling a lot further still, are reluctant to buy now. 

As with many investments, the best time to get in is when most others are sitting on the sidelines. 

Mortgage rates are at a 40 year low, and homes in many areas are ultra-cheap.  Meanwhile, demand for rentals has risen in more than 500 cities.  With this increase, it has allowed landlords to charge more.  Hotpads.com, a real estate research firm, reports that rents nationwide jumped 11.6% in 2010 to $1,320 a month. 

You’ll need that rental income to tide you over until home prices bounce back; in fact, the typical investor today plans to hold for 10 years, according to a survey by the National Association of Realtors.  If you can hang on that long, you have got a good shot at solid gains, especially if you are financing the home. 

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California Law Helps Protect Distressed Homeowners doing Short Sales

Effective January 1, 2011, California first trust deed mortgage holders who consent to a short sale of residential property (up to 4 units) are prohibited from seeking a deficiency judgment for the difference between the mortgage balance and proceeds realized through the sale. 

Senate Bill931 was passed by legistature in August and approved by the Governor on 9/30/10 to help strapped homeowners.

See the complete article at Realty Times 

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What you Should Know Before Buying a Home

This past week, I have posted several articles on credit reports.  Below are a few things you should know before buying a home:

1)  Get Pre-Qualfied – you will need to find out what you can qualify for and obtain a Pre-Approval letter before going out to look at homes.

2)  If you have marginal or bad credit, consult your lenderthey will be able to advise you on whether your credit history will prevent you from qualifying for a home loan.

3)  You will need a down paymentDown payment requirements vary depending on the type of loan.  There are a few down payment assistance programs, but gone are the days of lots of  ZERO down loans, unless you are a Veteran.  Consult with a lender about the programs available in your area.

4)  You will need funds for closing costs – In addition to your down payment, you may need to have additional funds for closing costs (i.e. Escrow, title, mortgage insurance, taxes, loan fees and fire insurance).

5)  Some loans have “points” and some do not – A point is a loan origination fee equivalent to 1% of the loan amount.  Together with the interest rate they constitute the yield on your loan for the lender.  Some lenders charge a higher interest rate to compensate for charging no points.  It is important to comparison shop lenders to make sure your loan is at a competitive yield.

6)  Should you select a mortgage with a fixed rate or an adjustable rate?  It depends on whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home.  If rates are low, a fixed rate would be more attractive and if rates are high, an  adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments.  Also lenders may offer a low rate during the first few years of an adjustable mortgage to make it appealing to you.

7)  Be aware of the two main type of loan categories – Conventional Loans and Government Loans (FHA/VA) .  Both of these loan types are available with fixed or adjustable interest rates and some require mortgage insurance.

8)  If you are a low or moderate income home buyer – there are some local and state housing agencies, like the California Housing Finance Agency(CalHFA) that have special loan programs available.

9)  Why might I have to pay mortgage insurance?  Generally, conventional loans that require larger down payments do not require mortgage insurance.  Mortgage insurance is always required on FHA loans.  Mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment. 

10)  Many organizations offer home loan counseling to prospective home buyers– These organizations provide classes for home buyers to cover the steps to home ownership.  They will cover home selection, realtor services, lenders, loan programs, home ownership responsibilities, saving for a down payment, and other important pieces of information.  Many first-time home buyer programs require home buyers to attend this type of class to be eligible for selected programs.

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What your FICO Credit Report Score Consists of

It seems today that everything revolves around your FICO score (i.e.  Insurance, Auto Loans, Mortgages, Employment).

Your FICO Score consists of five different categories:

 35% – Payment History
30% – Amounts Owed
15% – Length of Credit History
                                                          10% – New Credit
                                                          10% – Types of Credit

Payment History
– This is the most important category, it gives the overall picture of how well a person handled loans, credit cards and other types of accounts in the past.  Are the payments made on time versus payments that are delinquent.  Time does play an important factor.  If you have a history of past due amounts, the amount of time should play an important role in how a FICO score will be affected in addition to the number of occurrences.  On the other hand, good payments on your past accounts and the number of accounts that were paid on time will be reflected positively on a person’s credit score.

Amounts Owed –
This portion consists of how much you owe, or have a balance on, what types of accounts the amounts owed are a part of as well as the capacity of unused credit a person currently has available to them.  Each type of account is weighted according to the type of loan per se a retail store account versus a mortgage.  This is all taken into consideration when calculating your score.  The amounts owed on card balances and other accounts or loans are totaled and expressed a s a ratio of what you currently owe versus what your currently have avaialbe to you.

Length of Credit History – This portion looks at the length of your overall credit history.  It is calculated by gathering up data on all previous and current accounts and analyzing how long you have had the accounts as well as the time of your most recent activity on the accounts.  Also taken into consideration is the types of accounts that you have been using or have not been making payments on, such as mortgage versus payments on new purchases on your credit card.

New Credit – This section reviews the number of new credit inquiries or new credit that has been obtained and/or applied for, such as new credit cards, car loans, mortgages, etc., as well as any repaired credit or re-established credit for those who have made an improvement on their credit score after their credit score had dropped due to past delinquent account activity. 

Types of Credit – The types of credit has a lot to do with how much of an influence it will have on the actual credit score.  Credit cards or other revolving debt, installment loans, consumer financing and mortgages are all considered when observing the types of credit a borrower has established and/or is currently making payments on.

 Even with the breakdown of categories and the percentages each category bears on your FICO score, it is nearly impossible to figure out on your own.  You can obtain a free credit report online and for an additional fee, you can obtain your FICO score at several sites.

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1/3 of Americans Unlikely to Qualify for a Mortgage Today

According to an analysis of more than 25,000 loan quotes and purchase request on Zillow Mortgage Marketplace during the first half of September; almost 1/3 of Americans are unlikely to qualify for a mortgage because their credit scores are too low. 

They found that 29.3% of borrowers have a credit score less than 620.  The lowest rates went to 47% of borrowers with excellent credit scores of 720 or above. 

Zillow Mortgage Marketplace quoted that during this period, borrowers with excellent scores got an average rate of 4.3% for conventional 30 year mortgages.  Mid range borrowers with credit scores between 620 and 719 received rates between 4.73% and 4.44%.  Those with credit scores below 620 received too few loans to calculate the interest rates received. 

For each 20-point credit score increase, the average annual percentage rate (APR) declines 0.12%.

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Home Affordable Modification Program Modifications down 27%

loan modifications
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New data was released on 9/22/10 by Treasury and HUD on the Home Affordable Modification Program (HAMP).  Just over 33,000 homeowners received a PERMANENT HAMP modification in August, 2010.  This figure is down 27% below the number of PERMANENT HAMP modifications in July, 2010. 

The borrowers whom received the PERMANENT HAMP modifications have seen their mortgage payments drop by a median of 36%, or more than $500 per month.  Homeowner’s who received these modifications saw their housing expenses fall from 45% to 31% of their monthly income

In August, 2010, 26,628 TRIAL HAMP modifications were added to the HAMP roster.  Currently there are 202,521 active trial modifications.  Federal officials are pushing the loan servicers to make decisions for borrowers who have completed the trial phase and either drop them from the program or make them permanent modifications. 

The Treasury stated that the most of the cancellations are due to insufficient documents received or missed or late trial payments.  In addition, if their principal housing expenses are already less than 31% they do not qualify for the program.

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