National Finance Capability Challenge

March 15th, 2011

It’s rare that I find something that I can’t wait to write about.  The National Finance Capability Challenge is one of them. 

This is a program designed to help high school students understand money and finances as they prepare themselves for life outside of school.  For years, I’ve felt that topics such as credit, finance and investing should be taught at a younger age. 

I came across this topic on a blog post on the US Treasury’s website.  I can’t express how excited I am to see something like this available for our young adults.  The basic idea is to provide high school students with education on how to handle their finances.  Too often I’ll talk to first-time-buyers who had wished for education to better prepare them for managing their personal finances.  Dave Ramsey has talked for years about the importance of teaching young adults the values of money management, and I couldn’t agree more.

What’s more exciting is the quality of the content.  Investing, insurance, budgeting, and investing in yourself through education were all included in the curriculum.  They even include web-based video games where students can play along and test the knowledge they’ve gained.  Genius!  This year’s challenge has already started and is only running until April 8th, 2011.  If you believe in empowering our youth with education, please help to spread the word.

Here are some important links:

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House Votes to Kill Short Refinance Program

March 15th, 2011

Earlier this month, the House of Representatives passed a bill to kill the FHA short refinance program.

For someone who’s personally tried to assist a client in qualifying for this, I tend to agree with this movement.  The concept of the program is good and it may be true that principal reduction is required to prevent some foreclosures, but we’ve learned from HARP that the key to a successful program is to design a program that is beneficial to both client and lender AND must also have an existing infrastructure for lenders to implement the program easily.

HAMP and other programs have had failures because prior to the recession, lenders did not staff professionals experienced in loan modifications.  The time it takes to train people is lost time for a slippery housing market.  HARP has received its 2nd extension and represented a whopping 10% of all the refinance activity in 2010.  Why has the program been more successful than its counterparts?  Easy, the program is nothing more than a loan with different guidelines.  Loan officers, processors and underwriters only had to learn a few guidelines to add this program to their menu of loan options.  Lenders already staffed loan officers and the operation staff to support the program.  Even with this program was easy to implement, we’ve still needed time for lender participation and customer awareness to become effective. 

The FHA short refinance program had the staff to support the program like HARP but there were two elements that made this program too difficult.  One, most FHA lenders didn’t employ the staff to negotiate a short-payoff with an existing lender.  Two, there weren’t enough lenders who were willing to take a short-payoff on a loan that was underwater.  The program had incentives in place for the lenders if they accepted a short-payoff but details of the incentives were too vague and lender participation on both sides of the transaction have been minimal.

If anything, the introduction of the FHA short refinance program hurt the housing market.  Prior to the release of this program, FHA allowed homeowners to refinance to a FHA loan up to 97.75% of their home value and no limit on a second mortgage.  This gave homeowners an option to refinance if only their second mortgage was underwater and they didn’t have a Fannie Mae or Freddie Mac eligible first mortgage (a requirement for HARP).  When FHA released the short refinance program, the option to refinance above the value of the home without a short refinance was removed.  All homeowners who didn’t have a HARP eligible first mortgage lost their only option unless their current lender was willing to take less than the balance due, which rarely took place.

If congress is successful in killing the short refinance program, I hope they convince FHA to change to their old guidelines where FHA allowed second mortgages above the home value.

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HARP Extended Until June 30th, 2012

March 11th, 2011

The Federal Housing Finance Agency announced that the Making Home Affordable Refinance Program has been extended until June 30th, 2012.  This is great news for homeowners and the housing market.    

Lender guidelines and participation have steadily grown since HARP’s inception.  Many homeowners don’t know of the program and need this extra time to refinance their home.  I believe this is an excellent decision and should have a positive impact to our housing market.    

According to an article from BusinessInsider.com, only 220,000 homeowners have refinanced under HARP where an expected 4-5 million were projected at the program’s inception. 

UPDATE 3/14/2011

The 220,000 closed HARP loans mentioned in the BusinessInsider.com article is inaccurate.  This figure was published by Alan Zibel on March 5th, 2010, over 1 year ago.  An article from MortgageNewsDaily.com has indicated that 621,083 HARP refinances were closed in 2010 alone.  It’s not the 4-5 million they hoped for but there’s no question that lender participation and consumer awareness have grown. 

Here’s a copy of the announcement: 

FHFA Extends Refinance Program By One Year   

Washington, DC– Federal Housing Finance Agency Acting Director Edward J. DeMarco has announced an extension of the Home Affordable Refinance Program (HARP), a refinancing program administered by Fannie Mae and Freddie Mac, to June 30, 2012.  The program was set to expire on June 30 of this year.  In addition, Fannie Mae and Freddie Mac will make the following adjustments to their programs:  Freddie Mac will exempt HARP loans from their recently announced price adjustments and Fannie Mae will conform their eligibility date to May 2009.    The program expands access to refinancing for qualified individuals and families whose homes have lost value.  HARP has grown over the past year.  In 2010, Fannie Mae and Freddie Mac purchased or guaranteed more than 6.8 million refinanced mortgages.  Of this total, 621,803 were HARP refinances with LTVs between 80 percent and 125 percent. This is up from 190,180 in 2009, when HARP began.  

Here’s a link to the announcement:   

http://www.fhfa.gov/webfiles/20399/HarpExtended0311.pdf   

I have two suggestions related to this topic for homeowners:    

  • One, if I had an investment property, I would try to refinance it as soon as possible.  Certain pricing guidelines that benefit investment properties appear to be a “loophole” in the guidelines.  This helps investment properties price very well but appear to be designed for homeowners, not landlords.  If the FHFA had let those guidelines slide since HARP was expiring soon, they may very well change them now that the deadline has been extended.
  • Two, if you have a loan with PMI, this is the chance to let your voice be heard and let the government know that they should loosen guidelines to allow PMI backed loans to be done by outside lenders.  Too many people have their loans serviced by lenders who will not do PMI HARP loans or have their loan serviced by a company who does not originate loans at all.  These homeowners are well qualified and deserve to have their mortgage refinanced.  Being left behind due to an unlucky transfer of servicing to a mortgage company who does not originate new loans is not an acceptable reason for why these people cannot refinance their loan.
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How to Finance a HUD Home

February 2nd, 2011

As more foreclosures affect our housing market, the more HUD Homes we’ll see listed for sale.

HUD (US Department of Housing and Urban Development) Homes are homes that were foreclosed with a FHA loan on the property.  These homes often offer special financing options, such as special FHA loans with as little as $100 down.

Sounds easy, but there are many obstacles that can delay or kill your HUD Home purchase completely.  Here are some common myths about HUD Homes:

 

JUST BECAUSE IT’S A HUD HOME DOESN’T MEAN YOU CAN DO A FHA LOAN

One of the biggest mistakes I’ve seen is the assumption that all HUD homes qualify for FHA financing.  Not true.  Just because there was a previous FHA loan doesn’t mean they can be financed with a FHA loan.  They still require the property to pass a HUD compliance inspection.  If the property doesn’t meet FHA requirements, you either must deposit money in escrow to fix the items (Maximum $5,000), do a FHA 203k Rehabilitation Loan or choose another form of financing.

 

I CAN ORDER MY OWN FHA APPRAISAL

These homes already have a FHA appraisal issued to the property.  This means you must use this appraisal if you’re doing a FHA loan UNLESS you’re doing a FHA 203k Rehabilitation Loan.  If you do not like the appraisal and want to do a traditional FHA loan, tough luck.  All non-203k FHA loans must use the appraisal issued with the property.  This means that if you bid higher than the appraised price, you must cover the difference between the sales price and the appraisal with cash.

 

CLOSING COSTS LOOK LIKE A TRADITIONAL FHA LOAN

There are a few adjustments you’ll need to know about HUD Homes for closing costs that is unique for these purchases.

  • Since there’s already a FHA appraisal, you do not need to pay for the appraisal if you’re using a FHA loan to purchase the property
  • HUD will pay the escrow fee on the transaction
  • The buyer must pay for the sellers title insurance policy

One thing to note is that you will not be able to choose the escrow company on these transactions.  HUD determines the escrow company by the state or area.

 

I NEED HUD TO SIGN MY AMENDTORY CLAUSE

There’s a disclosure that’s typically required for all FHA loan purchases called an Amendatory Clause.  This form is used to protect the buyers interest in the event the FHA appraisal does not meet the value of the home.  However, HUD homes are already appraised by an FHA approved appraiser, so this form is not needed.

 

KEYS TO A SUCCESSFUL HUD TRANSACTION

Work with a lender who’s done a loan on a HUD home once before.   Be sure that the lender is well versed in 203k rehab loans.  These loans are critical for financing many of the HUD homes available.  Be sure the lender also knows a good, HUD approved compliance inspector and a good 203k Cost Consultant.  This will insure that you have the right professionals helping you if the property needs work before you can close on your purchase.   Also make sure your lender knows a HUD approved foundation inspector if you’re buying a manufactured home.  These homes require a foundation certification to be eligible for FHA financing.

You can find HUD Homes for sale at www.hudhomestore.com

 

UPDATE 6/8/2011

HUD Mortgagee Letter 2011-19 states that homes financed under the $100 down incentive cannot use a higher appraised value to finance closing costs and prepaids. See this POST for details.

 

UPDATE 8/23/2011

Some loan programs allow other buyers on the property title even if they’re not on the loan.  HUD will not allow this on a HUD transaction.  Be sure you only write the contract where all buyers are on the loan documents.

 

UPDATE 12/16/2011

Many HUD Homes require an escrow hold back to qualify for FHA financing.  HUD will allow buyers to finance these amounts up to $5,000 when purchasing a HUD home.

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Licensed in California

January 4th, 2011

When I began this career, I never envisioned doing business in states outside of Washington.  Since I work almost exclusively from referrals, I never imagined growing my referrals to other states.

 

In the past year, I’ve received requests from many consumers to help them with their mortgage.  After multiple requests, I decided to commit to helping clients in other states.  Cobalt Mortgage is licensed in several states on the west coast.  I plan on obtaining a license in all the states Cobalt is licensed in starting with California, which I’m proud to announce has been active as of December 31st, 2010 (License #CA-DOC 115042).  Oregon and Arizona will be next, followed by New Mexico and Idaho.

 

I wanted to take a minute and thank all of the people who have referred others to me.  I’ll keep everyone posted on my licensing updates for new states as they come on board.

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