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 A new settlement in 49 states could bring mortgage relief to an estimated 1 million homeowners. 

The $26 billion foreclosure settlement will impact customers of Bank of America, GMAC, Citibank, Chase and Wells Fargo in all states except Oklahoma.

At the middle of the settlement is that lenders will, if they wish, be free to write down the value of the residential mortgage loans on their books in one of three ways:

• Reducing balances owed on mortgages. The greatest share of money will go to this option. A write-down costs a lot less than a foreclosure, so there is motivation for the lenders to pursue this option.
• Refinancing. A smaller share of the settlement will go to the banks to make them allow you to refinance even if you are upside down on your loan. This option is only for loans that are not already owned by Fannie Mae or Freddie Mac (those loans are currently eligible for HARP refinancing. Read here to learn how we have already helped many people refinance their underwater mortgages.)
• Already foreclosed. The smallest portion of the settlement will go to homeowners who have already been foreclosed upon in the robo-signing scandal. Those homeowners will be eligible for a cash payment of somewhere between $1,500-$1,800.

It’s going to take at least a couple of months for this program to get up and running, so don’t expect an immediate response. However, the banks are being offered special credit to get deals done in the next 12 months.

For more information on hoe the new mortgage settlement could benefit 1 million homeowners, visit NationalMortgageSettlement.com.

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Over the past several years, FHA mortgages have become the most popular home financing option for home buyers around the U.S., and right here in northwest Washington state. However, even with the low down payment and added flexibility to underwriting conditions, not everybody qualifies for FHA financing, leaving some people to ask, “Why don’t I qualify for an FHA mortgage?”

One of the most common reasons that I’ve seen that causes people to not qualify for an FHA loan is their debt-to-income (DTI) ratio is too high. Quite simply, a DTI ratio is the sum of all of their installment debt (car payments, student loans, child support payments, etc.) and their revolving debt (minimum payments on credit cards and lines of credit) divided by their gross monthly income (net income if they are self-employed).

FHA generally looks for a DTI ratio to not exceed 43%, but they will approve a loan up to 50% DTI with compensating factors – other strengths in the file that make the underwriter feel all “warm and fuzzy”. Here is a list of sample compensating factors that might allow an FHA loan approval with a DTI higher than 43% (each of which must be documented and verified):

• Established history for the past 12-24 months of housing expense greater than or equal to the proposed housing payment
• Significant cash down payment (10% or more) on purchase of the property
• Demonstrated ability to accumulate savings and a conservative attitude toward the use of credit
• Previous credit history showing that the ability to devote a greater portion of income to housing expenses
• The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage
• There is only a minimal increase in housing expense
• Substantial documented cash reserves (at least 3 months) after closing
• Substantial non-taxable income (if no adjustment was made previously in the ratio computations)
• Potential for increased earnings, as indicated by job training or education i the borrower’s profession
• Purchase transaction as a result of relocation of the primary wage-earner, and the secondary wage-earner has an established history of employment, is expected to return to work, and the reasonable prospects exist for securing employment in a similar occupation in the new area. The underwriter must document the availability of such possible employment.

If you find yourself asking, “Why don’t I qualify for an FHA mortgage?”, take a look at this list of compensating factors and see if there is an area that you can build on. Of course, you should always talk to a professional mortgage planner first before venturing out to make an offer on your next home.

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One of the most popular home mortgage programs around for Skagit County and other surrounding areas is the Rural Development financing program. It offers 100% financing and a very nominal monthly mortgage insurance charge, making it one of the most affordable financing options available for home purchases.

Unlike most other home purchase mortgage programs, there are two major conditions that must be taken into consideration when looking for a home to finance with a Rural Development guaranteed loan:

1. The property must be located in a rural area
2. The total household income cannot exceed a certain threshold

USDA just issued new guidelines which increases the total household income in many areas around Washington State:

In case you are thinking of the old-style Rural Development loans, you may not know that effective October 2011, USDA lowered it’s upfront funding fee and started charging a minimum mortgage insurance amount every month.

With the new, higher income limits, now is the time to consider buying your home using 100% Rural Development financing. Contact me today with any questions you may have.

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On February 1, 2012, President Obama announced his latest plan to help millions of homeowners refinance their homes to today’s record low rates.

But will the plan ultimately be successful?

The first refinance program that was introduced in 2009, called Home Affordable Refinance Program (HARP), was supposed to help millions of people, but less than 900,000 homes were successfully refinanced under this program.

So, along comes HARP 2. This new and improved version of HARP is now supposed to help millions of homeowners by removing loan-to-value caps (you can now be under water an unlimited amount), eliminating most appraisals, and limiting the fees imposed by Fannie Mae and Freddie Mac. Of course, lenders have “overlays” which may limit the effectiveness of these new guidelines. We’ll have to see what happens when this program is rolled out in March 2012.

Both HARP and HARP 2 are limited to only those loans that are already owned by Fannie Mae and Freddie Mac. Obama’s latest plan is meant to help more of the crowd, specifically, those with non-government mortgages owned by private lenders. It will allow people to refinance into a government-backed FHA loan. The new loan can be up to 140% loan-to-value, and it will require the lender to cut the debt on the most severely underwater loans to this 140% mark.

If the plan is implemented as outlined, then there will still be a large portion of the mortgage market that is overlooked: those who already have government backed loans – FHA, VA and USDA.

If President Obama really wants to make this program effective, here’s what he could do. Open it up to all mortgages, and make the only qualifying criteria to be that you must have made the last 12 months of mortgage payments on time. There would be no limit on how far underwater you are, no credit scoring criteria, no appraisal, no income verification (if you’ve made your payments on time, why dissect how you earn your income), and no asset verification. If we could save every household $200 each and every month, don’t you think that would do tremendous things for the economy?

And if you’re worried about the government backing all of these mortgages, realize that it’s pretty much doing that right now anyway. FHA, VA and USDA are already government entities, Fannie Mae and Freddie Mac are under government receivership, and many “private” loans are held by banks that have received or still owe government bailout funds.

No, Obama’s new mortgage refinance plan may not be the plan that I would design, but it certainly will help more people than HARP by itself.

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The National Association of Home Builders (NAHB) Housing Market Index (HMI) rises in January to a reading of 25. This is up 4 points from the previous December reading of 21 and marks the 4th consecutive month of increases. The last time the HMI had a reading of 25 or more was in June of 2007. Though moving in an encouraging direction, readings over 50 are considered positive, a level last reached in April of 2006.

The increase in the index can be attributed to two factors:

1. Homebuyers’ decreasing desire to buy a foreclosed property and instead wanting to build new
2. An increase in consumer confidence which is allowing buyers to open up their wallets

The NAHB Housing Market Index is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes.

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“How much money can I get to buy a home?” It’s a common question that often leads off a buyer’s conversation with me.

What they’re really trying to learn is, “In what price range should I be shopping?” The answer to this question provides a target for the buyer to do their search, and a cap for their REALTOR® to not exceed.

However, it’s not so much the purchase price that makes the largest difference, but instead the interest rate. Take a look at the chart on the right. Just a 1% rise in interest rates reduces a buyer’s purchasing power by 10.76%.

And, interest rates are much more volatile than home prices. We have seen interest rates move both up and down as much as 1/2 of a percentage point in one day – it usually takes many weeks or months for home prices to move that much.

Also, note that when home prices are falling, the buyer has much more leverage than when home prices are increasing. This gives you much more buying power as I outlined in my prior post.

So, when will rates start to rise? Let’s answer this in reverse – how low will rates go? Currently, investors are now buying T-bills at below 2.0%. Inflation is also at 2.0%. That means investors are just trying to get their money back, rather than get a return on their money. This won’t last long, and investors will start to demand a higher return on their money, pushing home mortgage rates back up.

Knowing how much home you can afford is an important first step. Knowing that your affordability is at risk with just a small increase in interest rates is probably the most powerful tool you have by your side.

Contact me today to learn how much you can afford now and when interest rates rise later.

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VA is making a change to the types of loans that will be approved through the automated underwriting engine, and those changes are not friendly to new borrowers.

Currently, people applying for a VA loan can sometimes get an approval with debt-to-income ratios as high as 56% (assuming the lender doesn’t have overlays reducing that top mark). Well, VA has said they are going to stiffen the requirements for the automated approval, but they won’t tell us exactly what.

These guidelines are expected to be implemented the week of December 17, 2011. FHA has not announced any changes to their automated model.

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Here in Skagit County, many of us just received our new “Notice of Value”. This letter states what your old assessed value was and what the new assessed value is going to be. Many people mistakenly believe that means that their home has dropped in value. In fact, your home may have increased in value – it’s just that this Notice of Value won’t reflect it. Why not?

Remember that these statements are based on data that could be 1-2 years old. It does not reflect the current market and sales trends in your area.

Many people will also mistakenly believe that along with a lower Notice of Value, they will enjoy a lower tax bill as well. In Skagit County, the amount of taxes to be collected are divided among all the property values using the new assessments. See my prior post for a more detailed explanation of how this works.

If other words, if everybody’s assessment went down by 10%, we would all still pay the same amount of taxes next year. The only way your tax bill will go down is if your notice if value has a decrease that is greater than the average of everybody else’s.

Of course, if you have just bought your home, and you have a current appraisal which shows that your home value is lower than your new assessment, now is the time to bring that evidence to the assessor’s office and appeal your tax bill, but you must do it within 30 days of receiving your notice of value.

And also remember that even if your home value is lower than what you owe on it, the HARP program allows you to refinance your existing loan to lower your monthly payments, and there is no appraisal required! Contact me today to learn if your home is eligible.

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HARP 2 was recently announced. This new and improved, completely revamped refinance program is a reworked version of the original HARP program, first launched in 2009. The original HARP program was intended to help more than 9 million U.S. households. However, fewer than 900,000 were able to take advantage of this program.

HARP 2 will be implemented on or before March 2012, and it’s expected to offer:

• Unlimited mortgage debt, no matter what the home is worth today
• No appraisal required in most cases
• Lower fees than with the original HARP program

What is HARP?

HARP, the Home Affordable Refinance Program, was started in April 2009 and goes by several names.  It’s also knows as the Making Home Affordable plan, DU Refi Plus (Fannie Mae owned loans) and Open Access (Freddie Mac owned loans).

Who is eligible for HARP?

In order to be eligible for the HARP refinance program:

1. Your loan must be backed by Fannie Mae or Freddie Mac (contact me to find out)
2. Your current mortgage must have a securitization date prior to June 1, 2009

If your mortgage is FHA, VA, USDA or a jumbo mortgage, you are not HARP-eligible.

If Fannie or Freddie owns my loan, am I instantly qualified for a new HARP mortgage?

No. You must still qualify for the new mortgage with a variety of criteria, including debt-to-income ratios, reserves, and other qualifying information.

Does my credit need to be perfect?

No. You must have a mortgage payment history with no more than one mortgage late payment in the last 12 months and no mortgage late payments in the last 6 months, and you must be current on your mortgage at the time of application and closing.

Is there a loan-to-value limitation for HARP?

No. HARP 2 removes the LTV limit that was in place with the original HARP. All homes, regardless of how far underwater they are, are eligible for HARP 2.

Will an appraisal be done on my home’s value?

It depends. HARP 2 allows for lenders to run an AVM (Automated Valuation Model), which is a computer report on the estimated value of  your home. If the value meets certain standards, a full appraisal will not be required. However, lenders may still choose to require a full appraisal anyway. These are called lender “overlays” and are more restrictive than the underlying program.

Will mortgage insurance be added to my loan?

If you do not pay mortgage insurance now, you will NOT have mortgage insurance added to your loan, no matter how far underwater your loan is.

Can I refinance my rental property?

Yes. Investment properties are allowed, and HARP 2 is expected to have much lower fees for investors.

Can I refinance my second home/vacation home?

Yes. Second homes and vacation homes are also allowed with HARP.

Can I get my HARP 2 loan from any bank?

Not all lenders are offering HARP loans, or they may be offering them on a limited basis.

My bank says this program doesn’t exist or isn’t possible.

It’s also possible that the person you’re speaking with just simply doesn’t know about this program. I’ve personally run across this situation with a major bank where the local senior loan officer wasn’t even aware this program existed.

Can I do a HARP loan more than once?

No. If you already refinanced once using the HARP program, you cannot do the HARP program again (one exception: it will be allowed if it’s a Fannie Mae loan that was refinanced under HARP from March 2009 to May 2009).

When does HARP 2 end?

You must close on your HARP 2 mortgage prior to January 1, 2014. That may seem like a long way out, but it can sneak up on you quick. And we don’t know for sure what interest rates are going to do between now and then. With rates at their historical lows, you should be considering this option sooner than later.

What do I do next?

This new and improved, completely revamped HARP refinance program is intended to give underwater homeowners a chance to refinance without paying mortgage insurance. Contact me to check the eligibility of your home and for more information.

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We’ve been talking about how credit scoring works and the things you can do yourself to improve your score. But what if you need a little more help? You can have a credit reporting company actually help you improve your credit score to help you qualify for your mortgage loan.

Let’s assume that we have run your credit report, and your credit scores are too low to qualify, or your scores could be higher to qualify you for a better interest rate on a conventional loan. You can then start the Game Plan.

The credit experts at the Game Plan will analyze your credit report, provide specific directions for you to follow on each tradeline that needs maintenance, and create a 5-10 page Credit Game Plan specifically designed for you. They will even run a new credit report at the end of 90 days to make sure you are on track (this credit pull will not count as an inquiry as it will be a “soft pull”).

The Game Plan is different from Rapid Re-scoring. Rapid Re-scoring is used when you have absolute, documented proof that the information on your credit report is incorrect, and you are willing to pay up to $40 per tradeline, per credit bureau, per borrower to get it corrected in as little as 2-3 days. For one tradeline reported by all three credit bureaus in a husband and wife’s name, that 6 instances times $40 for a total of $240. Additionally, Rapid Re-score only changes the information at the reporting level, not with the credit bureaus themselves.

The Game Plan takes longer, but it’s a permanent fix with the credit bureaus, and information that is not absolutely documented can be used to make the changes. The one time charge of $49.95 is valid for the length of the program, whether is takes 90 days or 12 months.

The Game Plan is NOT credit repair. Many of the “credit repair” companies that you hear about will slam the credit bureaus with letters challenging items on your credit report. The credit bureaus have become wise to these “methods”, and they are not addressing files with these letters as quickly or giving them as much attention.

If we determine that you could benefit by improving your credit scores, the Game Plan may the right tool for you.