The Mortgage Guru

There is finally some light at the end of the tunnel for home owners facing foreclosure, are upside down in their mortgages or have a mortgage rate that is about to go adjustable. The Senate on Saturday passed a housing bill that will offer up to $300 billion in loans for troubled homeowners. That’s million with a ‘B’.

What does this mean for you? I have read the bill and pulled out the finer points for those of you who do not wish to read through 700 pages of political mumbo jumbo.

The bill requires your lender to write down your mortgage and refinance to 90% of your homes current value. If you owe $500,000 on your mortgage and your home is now worth $350,000 the lender will write a new loan for $315,000 at the current FHA 30 year fixed mortgage rate. Keep in mind the lender must agree to do this; which to me means the lender will look at the cost of foreclosing on your property and the cost to refinance at the 90% and see which option is cheaper and less of a headache for them.

Here are some basic qualifications:

• The property must be owner-occupied and must have been purchased between January 2005 and June 2007
• You must be spending at least 31% of your gross income on your mortgage payment.
• You must prove you will not be able to continue making your current payment and that you can afford to make the new payment.

What is my cost?

Your old lender must agree to “eat” any fees or penalties on the loan including pre-payment penalty. They must also accept the proceeds of the new loan on a paid-in-full basis. They must also agree to pay the FHA an upfront premium equal to 3% of the new mortgage principal.

You will be responsible for paying an insurance premium to the FHA guaranteeing the loan which is equal to 1.5% of the loan amount annually broken up over 12 months. You must also agree to share in any profits from future home-price appreciation to the FHA. You will need to pay a 3% exit-fee of the mortgage principal to the FHA if you sell or refinance.

Plus, you must agree to pay the FHA 100% of any profits if you sell or refinance within the first year after your loan modification. After the first year you will share 90% of the profits with the FHA. The percentage will continue to drop 10% per year after that until the 5th year where it will be a 50% split where it will remain.

These are the basics and President Bush is expected to sign the bill any day which will take effect October 1, 2008. Keep in mind, it may take several months of trial and error for the process to become streamlined. I have compiled a list of clients over the last several months who have contacted me for refinances. Unfortunately, they were upside down in their mortgages and I was unable to help them. Beginning in September I will be calling these clients and refinancing their properties under this new bill. If you would like to be added to this list please click here : http://www.garnesmortgage.com/fha_bill.html

I am based out of Las Vegas, Nevada but am licensed to do loans in 16 other states including:

Alaska, Arizona, California, Florida, Iowa, Indiana, Maryland, Massachusetts, Michigan, Nebraksa,   New Mexico, New York, Oregon, Texas, Utah & Washington

Tags: FHA by Matt Garnes
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The federal government has decided that starting October 1, 2009 banks and lenders will no longer be able to offer stated income loans unless they can verify the borrower’s ability to pay back the loan. If the borrower takes out an adjustable rate mortgage the lender will have to qualify the borrower based on the highest possible payment after the adjustment. I have mixed feelings about this.  If you go back to the Carter administration our government told lenders to lower their lending standards in order to increase home ownership in America. This ultimately led to subprime mortgages and the current mess we are in. In my opinion stated income loans should be exclusively for self-employed borrowers who do not receive W-2’s and standard tax returns. The problem we are having with subprime mortgages was caused by lenders allowing a borrower that could prove income with W-2’s and tax returns to state any income they needed (”within reason” the lenders would say) in order to qualify for the loan they wanted. “Within reason” is in the eye of the beholder. I saw loan officers stating $10,000 per month income for school teachers and line cooks on the strip.  You can’t put all the blame on the loan officers or the borrowers. The banks were dangling the carrot and everybody got greedy. I personally had clients in my office who would flat out tell me ‘give us the loan we want or we’ll go down the street and get it from someone else.’ We all have families to feed, what would you do?

So the pendulum has swung to the other extreme and self-employed borrower’s cannot find money to borrow. Unless you are a full doc borrower that falls under FHA guidelines, there is no guarantee you will get financed. Not because you are not a good borrower but because the lenders have limited money to loan and their safest bet is an FHA backed loan.

If you are self-employed you have the following two options:

First off you need at least a 680 mid FICO score and most lenders require 700. If you want to go stated income you will need to put down 30% of your loan amount; there are a couple lenders who will allow 20% down but who knows how much longer they will offer this.

If you are self-employed and want to go full doc the FICO requirements remain the same but you most show full tax returns and here’s the rub. Unlike W-2 borrowers who work off the gross income, self-employed borrowers are qualified off the net. Essentially if you make $100,000 gross income and you write off everything you can at tax time bringing your net income to $40,000 you may not qualify for that home you want.

Bottom line is this, the government started regulating lenders forcing them to lower their lending standards to increase home ownership and is now regulating them again now that things have gone haywire (without taking any responsibility for our current situation). The stated income loan that was intented for self-employed borrowers was essentially ruined by lenders allowing W-2 borrowers to utilize this program.

I’m very interested to see what happens next on this wild ride…

Tags: stated income, subprime by Matt Garnes
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I receive several calls a day with a common question. What are the mortgage rates going to do? With everything that is going on that is a great question for both home buyers and home owners trying to determine if they should take out a home mortgage loan. I will start by telling you this. My parents back in the 80’s were paying about 14% for their mortgage. Mortgage rates have held near historic lows for all of 2008. I just closed an FHA loan for a client who secured a 6% rate with a .625% buydown. With rates being so low and so many bank owned properties on the market (roughly 80% of home sales in the Las Vegas and Henderson areas are bank owned properties) you can now purchase a home 20-30% under market value while securing a very low 30 year fixed rate mortgage.

Now back to the point at hand. What is the prediction for the future of mortgage rates. I will start by telling you while the Fed was lowering the FED FUNDS rate this year the American dollar has taken a beating. You cannot have your cake and eat it too in this situation. If you lower the FED FUNDS rate the value of the dollar will drop. I do not believe the Fed can lower rates anymore without negatively affecting the economic situation in this country more than it already has. My prediction is the Fed will have to raise the FED FUNDS rate come this October 2008 in order to save the dollar and hopefully our economic future.

Now what factors determine the FED FUNDS rate that banks and thus home buyers borrow money? First off, when the Fed lowers the FED FUNDS rate it does not always equate to a lowering of mortgage rates and vice versa. The FED FUNDS rate is the rate that banks borrow money from the Federal bank. They then determine the rate they will loan this borrowed money to home buyers. Thanks to the very competitive market for mortgage loans and the numerous banks still in business this keeps the mortgage rate at a reasonable level. I realize over 300 banks have gone out of business but when you compare this to the last time we had a mortgage crisis in this country when over 800 banks went out of business we are not as bad off as some in the media would have you believe.

The main factor in determining 1st trust deed mortgage rates has historically been the 10-year US Treasury Bond. This index is traded on the open market every business day and is not directly controlled by anyone specifically.  But lately, the 10-year Treasury yield has been an imperfect predicter which has made predicting mortgage rates much more difficult. As the economy starts to recover in the coming months, referring back to my earlier prediction of a rise in rates for October 2008 as well as the treasury yields are poised to move higher. However, when you factor in the risk that refinancing poses to investors in mortgage-backed securities bonds decreasing, so too will the spread between Treasury yields and mortgage rates.

Tags: mortgage rates by Matt Garnes
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