Michael Creed's Blog

The Housing and Economic Recovery Act of 2008 enacted this past summer continues to affect FHA guidelines and additional changes took effect on January 1, 2009.  Those changes are as follows:

The minimum down payments on purchase loans will increase to 3.5% on all cases assigned on or after January 1, 2009.  Loans with case numbers assigned prior to January 1 will continue to have the old rules applied.(read the full mortgagee letter here)

The maximum loan-to-value ratios (LTV) for refinance loans has been changed. There is no longer an FHA distinction between high-cost and low-cost states and all states will now be treated equally with the same loan to value allowances.  (read the full mortgagee letter here)

A second appraisal will be required on all FHA cash-out loans that exceed an 85% LTV.  This is likely a compromise to recent proposals to decrease the maximum LTV on cash-out FHA loans to 85% LTV. (read the full mortgagee letter here)

A non-borrowing spouse will no longer have to be taken off title at any point (i.e. before, at, or after the closing).  This applies only to cases assigned a case number on or after January 1, 2009.  This is huge because it was often a major hindrance to those that wanted to not have a spouse on an FHA loan for one of many personal reasons. It is also important to note that a non-borrowing spouse could still be required to sign certain documents required by HUD just like they are with many conventional home loans - it just depends on the state in which you live. (read the full mortgagee letter here)

Jumbo loan limits for Fannie Mae and Freddie Mac will now be geographic-based in many areas.  The limits will be the greater of $417000 and 115% of the area median home price.  This figure cannot exceed $625500. To see the loan limits in your area, visit this website; be sure to select the appropriate "Limit Type" when doing your search.

Finally, you should note that FHA loan limits in many areas have also changed effective January 1, 2009.  Even if you are familiar with your area, you may want to visit this website to ensure that you are correct!

Also, there is some great news out this morning:  DPAGroundSwell2 was launched today to coincide with the introduction of H.R. 600, FHA Seller-Financed Downpayment Reform Act of 2009, by Representative Al Green (D-TX). H.R. 600 is the 2009 version of last year's bill (H.R. 6694) that would restore seller-funded downpayment assistance (DPA).  

Reformed DPA will help stimulate the housing market by providing working-class Americans with a path to homeownership and generate $150 billion in home sales this year. Purchasing a home now puts homebuyers in a position to build equity as markets recover. To learn more about this, visit the DPAGroundSwell2 site. To see what has happened in the past, check out my most recent blog entry on this topic.

"The U.S. Constitution doesn't guarantee happiness, only

the pursuit of it. You have to catch up with it yourself."

-Benjamin Franklin (1706-1790)

American statesman, scientist & printer

Today, I wrote a few letters to my elected officials asking them to support a new bi-partisan bill (FHA Seller-Financed Downpayment Reform Act of 2009 H.R. 600) that has been introduced by Congressman Al Green (D-TX) which would restore seller-funded downpayment assistance (DPA) indefinitely.

H.R. 600 is the 2009 version of last year's bill H.R. 6694 that didn't make it through Congress due to several major issues that we are all well aware of (think "bailouts").

I urge you to use this automated service to make sure this one gets the attention it needs by also contacting your elected officials!

Here's an excerpt from their website:

Please consider writing your elected officials using this automated website to tell them that you need them to take action on this matter! Then, please email me to let me know who you wrote! Who knows? I might just have something of value for those that do!

"Achieving life is not the equivalent of avoiding death."

-Ayn Rand (1905–1982)

Russian-born American writer and philosopher

After a nice holiday-blogging-break, I thought that I would talk about something that has been occurring more and more.

Lately, I have been getting inquiries for home loans made by those that have their homes currently listed - or recently delisted - for sale.  Many times, those that inquire are trying to save some money on their monthly payment because they bought a new home and the former home is taking longer than anticipated to sell.  Other times, those that were trying to sell their home have simply given up due to no activity and have decided to just stay put for the foreseeable future. Whatever the reason, those in this boat have probably been told that they cannot refinance their home until a certain number of month pass.

Before I get into the specifics, I must note that this is not a new catch-22 that has popped up because of the mortgage meltdown; it's a rule that has been around for quite some time but just didn't come into play very often when the market was booming. 

Also, there are exceptions to the rule.  Oftentimes, a borrower that has decided to stay in their home and who is only looking to lower their rate or change their term of their note (i.e. no cash out), can get an exception granted on a case-by-case basis if they are willing to promise to not sell their home in the near future. Also, those looking to take out an FHA mortgage can also refinance.  Both just require one day off the market and a letter of explanation.

Here's the rule that applies to most Fannie Mae and Freddie Mac loans: We cannot provide financing on any refinance transaction secured by a property that is currently listed for sale or has been listed for sale within the six months prior to the Loan Application (i.e. the date credit was pulled).

Why?  Well, there are two major reasons:

Oftentimes, a borrower is looking to get cash out of their current home to use as a downpayment on a new home that they plan to buy.  This presents a problem for two reasons; first, the borrower will have three mortgages instead of one and, secondly, the loan is often paid off within a few months of closing (because the house is sold) and the lender ends up losing money - they weren't able to hold the note long enough to turn a profit.

A home that has been listed on the market for a long time, usually six or more months, implies that it will be hard to sell.  When an underwriter reviews a file, they have to look at everything with these questions in mind - What will happen if the borrower defaults and we end up with the home through foreclosure; will this be an asset we will be able to liquidate? When a home has been on the market for a long time, it's clear that it will be difficult to sell, and, therefore, it is probably not an asset that they would want on their books.

How can a lender tell if my home has been listed for sale?  An appraiser is required to search the MLS and report any listings within the past 12 months.

As with all loans, there are situations that don't fit the mold.  Please contact me and we can talk about your specific situation.

"We are all faced with a series of great opportunities brilliantly disguised as insoluble problems."

-John W. Gardner (1912–2002)

Government official and activist