March 11th, 2011
On Friday, January 28th, HUD/FHA extended the “Less Than 90-Day” flip rule. Now trying to find a lender who will allow the seller to resell for 20%+ over what they bought it for is becoming more difficult.
Last October HUD/FHA increased the Monthly Mortgage Insurance (MMI) cost from .55% to .90% for a 30-year fixed with a minimum down payment loan. During that time, HUD/FHA also lowered the Up Front Mortgage Insurance Premium (UFMIP) they finance into the loan from 2.25% to 1%.
In a move to increase their capital reserves and encourage private money back into mortgages, HUD/FHA will once again raise the MMI cost. On April 18 MMI goes from .90% to 1.15% for 30- and 15-year fixed loans with minimum down payment. (Since April 18 is a Monday, your loan professional needs to pull the case number on Friday April 15 to avoid this increase.)
One positive outcome for homebuyers from this new change is that the HUD/FHA system will automatically cancel any uninsured case number where there has been no activity for six months since the last action except for:
Loans where an appraisal update has been entered, and/or
Loans where the Upfront Mortgage Insurance Premium (UFMIP) has been received
Last action includes:
Case number assigned
Appraisal information entered
Firm commitment issued by FHA
Insurance application received and subsequent updates and
Notice of Return and Resubmissions
Last action does not include updates to borrower names and /or property address (e.g. making changes to the number of borrowers on the loan will not reset the six-month time frame for automatic cancellation).
You will not have to track down the last lender to release the case number from up to a year ago. Now you only have to worry about up to six months. The reason I mention this is because sometimes the last lender with the case number may not respond very quickly or at all. When this happens you may have to involve FHA , potentially slowing down your closing.
Conventional lenders have suspended temporary buy downs on loans due to the new TILA (Truth-in-Lending Act) form. It does not adequately address disclosure for this loan feature correctly.
The Mortgage Guaranty Insurance Company (MGIC) recently announced changes to minimum borrower contributions and gifts. Gifts and grants can be considered borrower’s own funds for the purpose of meeting the MGIC 3% minimum borrower contribution when the following requirements are met:
Property is located in a non-restricted market
Debt to income is less than or equal to 41%
Credit score is greater than or equal to 740
Loan instrument is fixed rate/fixed payment for at least the first five years
Property is one unit
Property will be a primary residence
Loan has no subordinate financing or a soft second
If all the above requirements are not met, gift or grant funds are considered only after the minimum borrower contribution is met. (Consult your loan professional for the rest of the guidelines.)
Credit Scores
One of the major lenders announced that starting Friday, February 18, the recommended minimum credit score will be increased to 740 for purchase and rate and term refinance transactions would loan-to-value ratio between 95.01% and 97.00%. Recent updates also addressed the validity of credit scores.
Gas Prices
Oil prices are in the mid-$80 per barrel range, and gasoline in many parts of the nation is sitting at or above $3 per gallon for regular unleaded. This is bad news for anyone who uses transportation or buys goods that are transported. What do higher oil prices mean for folks in the loan business? Higher oil prices appear to be indicative of higher demand caused by a recovering economy. In theory, this demand will eventually help the real estate market. Many will argue, however, that we still have the foreclosure and inventory overhead keeping a lid on values, and the higher oil prices will have a negative impact on consumer spending on other goods and services. So higher energy prices may be a result of a stronger economy, but they can also slow an economy down. In fact, they can contribute to higher inflation which can then cause higher rates, causing another drag upon economic growth.
Food Prices around the World
Alan Greenspan spoke in Southern California in mid-February. One of his big fears, in the current economic climate, is the price of food around the world. As nations develop, they move from grain-based foods toward eating more meat. Meat uses more grain per calorie and is more expensive. Food prices have risen markedly lately and, in some cases, are near 2008 highs. This worldwide increase in food prices will likely not have major inflationary implications in most advanced economies. Food has a relatively low weight in CPI baskets in those nations. In contrast, however, food price inflation poses a significant downside risk to economic growth in many developing economies where food accounts for more of the consumption basket. Central banks in some important developing economies could end up tightening monetary policy too aggressively.
At the time of the writing of this article, the recent move up in interest rates wasn’t unexpected, as the rate markets have been technically bearish since Halloween. What was a surprise was the magnitude of the run-up. Many analysts believe that we have already seen the big jump in rates (unless the world stops buying our debt). Although rates are gradually expected to increase for much of 2011, don’t look for any significant increase. (information provided from Rob Chrisman of www.robchrisman.com)
If you have any questions or comments, you can email me, Scott Short, Comstock Mortgage at sshort@comstockmortgage. com or call 916-421-8559
