Tag Archives: FHA

The Greatest Mortgage Product EVER!

During my former fifteen-year career as a loan originator, I came across countless loan programs. In 1995, fixed rates were 11% and there were only a handful of mortgage loans offered by lenders. All of the agency loan types had limiting loan amounts, and scant portfolio products intended to help the self-employed person who was otherwise shut out of the mortgage marketplace. FICO scoring had just slithered out from under the rock from which it came, and national property values would begin their meteoric climb, and eventual crash, once again.

In the ensuing years, we saw thousands of reckless loan programs offered by lenders, backed by securitization and peddled to institutional investors by the snake oil salesmen of Wall Street. Ninja loans (no income, no job, no assets), the pay option arm (and a leg), Stated/Stated but somehow A+ rated, and zero down with zero chance the borrower was going to repay the loan, were offered by everyone. Sub-prime, loan-speak for poison, proliferated as underwriting sensibilities disappeared and Libor manipulation emerged.

The inadvertent corollary of this easy money encouraged droves of people to enter our industry, who didn’t know a thing about it or how to qualify someone. They didn’t have to. The only relevant question to the borrower was “What is your FICO score?”, because the rest of the underwriting, like income, down payment, reserves, collateral, and employment were purposefully taken out of the equation. No longer did you need to know about how to calculate income, view credit history, verify funds, read tax returns (who hasn’t been burned by 2106 expenses), MI factors and underwriting. The list goes on and on. Don’t ask, don’t tell, and for God’s sake, don’t look.

Then the day of reckoning came and went, taking with it trillions of dollars in stock market and property values, countless jobs and careers, and our once limitless confidence in our country and economy.

I illustrate this because to understand what I believe is the greatest mortgage product ever, is to understand the history of the other mortgages. The greatest mortgage ever has been around for quite some time, but historically is not frequently used. The only thing you can state when applying for this loan is your ethnicity at the bottom of the application. For many years, only 1 out of 10 lenders could originate the mortgage, given the requirements at the time. There is considerable bias against this loan product that can only be chalked up to ignorance and misinformation. The human mind, without proper information, will always fill in the blanks with negative information, every single time.

It is a fact that the best mortgage product is the FHA mortgage. And let me tell you the reason why. The FHA mortgage is one of two mortgages that are assumable by the buyer at the existing rate and term of the seller. The other assumable loan is a VA loan, but on a VA assumption, the veteran has continuing liability for the mortgage, while the FHA seller doesn’t. The seller who allows the buyer to assume his mortgage receives novation, which is the substitution of one contract for another. Assumption may not seem like much of a benefit, and that’s only because all interest rates have done during the past 20 plus years is go down, making assumption unnecessary.

The fifty-year average of the thirty-year mortgage is 8.5%. Yes, 8.5%. Rates have been going down and staying down for so long, this figure is hard to reconcile for most of you reading this. And the reason for this is the Fed, cutting rates and employing quantitative easing, purchasing mortgage backed securities and treasuries totaling almost two trillion dollars, which is keeping the cost of money artificially low. If you and I did what the Fed did, which is counterfeiting, we would be buying hot chocolate packets from Bernie Madoff.

So, I want you to envision the certain future mortgage environment where fixed rates are 8 percent, which is double where they are now. Demand would most certainly be weaker than it is now, and competition for the buyers in the marketplace would increase dramatically. Values would begin to drop precipitously, creating even less buyers. Default rates would rise, tightening credit once again, and making it harder again for buyers. Properties would sit on the market longer, which is never a good thing for values.

The one safe harbor from this maelstrom would be the almost 8 million assumable mortgages currently attached to residential properties. On the average FHA loan in this scenario, the payment on the assumption would be six hundred dollars less a month than the loan the buyer would otherwise have to obtain. There would be no Up Front Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount, because it was already charged to the current borrower. The buyer assuming the seller’s mortgage would be inheriting a loan with years shaved off of it, saving tens of thousands of dollars in interest. Similarly, MMI would automatically terminate much quicker on an assumed loan than a newly originated one, for those FHA loans where MMI isn’t lifetime. There would be no mortgage tax in the states that have one, which can amount to thousands of dollars in savings. Now comes the cherry. Once the buyer assumes the mortgage, he too can offer the assumption to a subsequent buyer when he sells.

If you still think that the FHA mortgage isn’t the greatest mortgage product even, consider this. The FHA mortgage is the only one that can, and will, enrich the borrowers bank account. Every single other one only drains it. The seller who has an FHA mortgage will have a greater pool of buyers when he sells, because more people will qualify with the lower payment his low rate loan confers. With the increased demand, price will rise. Buyers will look at the homes that have assumable FHA mortgages first before looking to ones that will require a new loan. Bidding wars for these particular properties will happen, because the present day value of large such monthly savings is substantial. Accounting for the increase in value won’t be a problem either, because an appraiser can adjust value for financing options offered by the seller.

Sometimes the federal government does get things right, and they did when they decided many moons ago to make FHA insured mortgages assumable. There are tens of millions of future homebuyers and sellers who are going to be able to take advantage of this benefit, a benefit that carries absolutely zero cost to the taxpayer. If all of this doesn’t convince you that the greatest mortgage ever is the FHA, then you haven’t been listening.

Seniors are getting much needed relief with the introduction of Single Unit Approval

It has been a tough past seven years since the requirement that a condominium must get HUD approval was implemented.  No one was affected more so than senior citizens seeking a reverse Mortgage.  There are less than ten thousand associations in which seniors can obtain a reverse mortgage out of a whopping 170,000 HOA’s nationwide.

Single Unit Approval is going to be a huge boost to seniors seeking to obtain this very important retirement tool.  No longer will they have to wait for the board to meet (sometimes taking months) and give their blessing for FHA approval.  No longer will they have to deal with a passive or indifferent property manager who is too busy to help them.  Additionally, no longer will they have to shell out the $1,000 it costs to process and submit a HUD application!

I have spoken to hundreds of seniors over the past seven years regarding their need for both a reverse mortgage and the approval of their condominium, and their stories are heartbreaking.  Many had to sell their home and move because of their inability to make HUD approval happen, leaving them no other option to reasonably tap into their equity to obtain necessary cash flow.  With needs like hip replacements, cancer treatment, and money for their grandkids’ college fund, these seniors battled against laziness, various biases, and ineptitude, while also losing valuable time.  When they sold those properties, and purchased again with a reverse mortgage, 10% of their hard earned equity was wiped out.

Thirty-one percent of the persons living in a condominium are 62 or older, which indicates that a high concentration of seniors will benefit from Single Unit Approval.  This is why the reverse mortgage industry was behind HR 3700, the federal law that mandates Single Unit Approval.

HUD has done a nice job balancing their need to protect the insurance fund with the needs of seniors to estate plan with the new condo rule.  It also just might lead condominium associations to conduct themselves with more fiscal and operational savvy, so as to enable more seniors to avail themselves of one of the greatest retirement tools ever.

7 Things All Borrowers Should Know About FHA Loans

FHA Pros, LLC, a national FHA condo approval service, has developed a list of facts speaking to the top misconceptions associated with FHA loans in order to help home buyers better navigate an already confusing market. FHA loans are mortgages issued by qualified lenders and insured by the Federal Housing Administration (FHA).

“We have seen home buyer interest in FHA loans go from practically zero three years ago to upwards of 87% today,” said Christopher Gardner, founder and president of FHA Pros, LLC. “Despite this rapid rise in popularity, many buyers still do not fully understand the benefits of these loans, and we believe it’s time to change that.”

  1. FHA loans are not only for lower-income borrowers. FHA loans are available to everyone. There is no maximum income restriction associated with FHA loans, but borrowers do need to substantiate income and assets by submitting proper documentation. This requirement ensures that borrowers are well-vetted and truly able to afford their future homes.
  2. FHA loans are not only for first-time buyers. Many people believe FHA loans are available only to first-time home buyers, but this is not the case. Whether borrowers are making their first home purchase or their fifth, they can look to FHA loans as a home financing option.
  3. FHA loans are not just small loans; in fact, loan amounts can be as high as almost $800,000. The government recently raised the maximum loan amount from its original cap of $362,790 to $793,750 as a way to help stabilize the housing market. The amount a buyer can borrow varies from county to county though. Later this summer, condo buyers interested in FHA loans can visit http://www.checkfhaapproval.com to instantly identify FHA-approved condo associations and review maximum loan amounts for a given location.
  4. FHA loans are not affiliated with the section 8 housing program. While both programs are administered by the U.S. Department of Housing and Urban Development (HUD), FHA loans have nothing to do with low-income subsidized housing. FHA loans are simply mortgages insured by FHA. This insurance provided by the federal government allows lenders to lend more freely by assuring them that they will be repaid in the event of default. Most traditional lenders, including Wells Fargo & Co., JP Morgan Chase and Citigroup are able to provide FHA loans to their customers.
  5. FHA loans are often more affordable than conventional loans. While FHA loans typically offer the same interest rates as other loans, borrowers benefit from a much lower down payment of as low as 3.5%.
  6. FHA-approved condo developments are more desirable to buyers. With 87% of home buyers indicating that they plan to use FHA loans, condo associations that are not FHA approved are missing out on a significant pool of prospective buyers. Under rules in place since February 2010, an entire condominium development must now apply to HUD and be granted FHA approval before a buyer can purchase a unit in an association with an FHA loan or before an existing unit owner can refinance into an FHA loan.

    Due to the general unwillingness of today’s lenders to extend credit with respect to conventional loans, many borrowers find that FHA is their best bet. Lenders don’t mind lending when the federal government (FHA) assures them of repayment.

    Homeowners associations (HOAs) should note that although FHA-insured mortgages might be easier to obtain, they are not “risky” loans, due in large part to the strict “full documentation” requirements placed on borrowers. Individual buyers or sellers can initiate the approval process or current owners can encourage their HOA to apply.

  7. FHA loans are assumable. In addition to lower down-payment and credit-qualifying requirements as compared to conventional loans, FHA loans are assumable. This means that when a seller with an FHA loan sells his or her property, the loan and its financing terms (interest rate) can be transferred to the new buyer. This unique feature will certainly make a property more valuable in times of rising interest rates.

“Now, more than ever, buyers and sellers need to understand the options available to them when it comes time to buy a home,” continued Gardner. “At FHA Pros we have worked with countless HOAs, attorneys and individuals to easily and efficiently navigate the historically tricky FHA-approval process.”