Jul 202019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The House Financial Services Committee recently passed two bills out of committee that could make FHA loans more attractive.

The first, The FHA Loan Affordability Act, would repeal the requirement that FHA borrowers pay mortgage insurance for the life of their loans. Mortgage insurance on conventional loans automatically ends when the loan balance is 78% of the original home value.

Mortgage insurance can considerably increase a homebuyer’s mortgage payment. On a $250k 30-year loan, mortgage insurance adds $180 to the monthly payment.

Despite the pain of never-ending mortgage insurance, this FHA requirement really has been more of an annoyance than an impediment for homebuyers who want to use an FHA loan. Home price appreciation often allows FHA borrowers to refinance into a conventional loan with no mortgage insurance within a few years of purchase, and perpetually low mortgage rates have made that an attractive option.

Interestingly, the wording of the bill appears to disallow appreciation as a means of achieving the requisite home equity to cancel mortgage insurance. Thus, homebuyers with strong credit still may favor conventional loans.

The second bill, The Housing Financial Literacy Act, would provide a 14% discount on the the upfront mortgage insurance for FHA borrowers who complete a homebuyer course prior to closing. On that $250k 30-year loan, the discount would save a homebuyer $625.

Both bills now go to the full House for consideration.

FHA crack down on down payment assistance

 Loan Guidelines, Residential Mortgage  Comments Off on FHA crack down on down payment assistance
Apr 292019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

One of a myriad of causes of the housing collapse during the Great Recession was the absence of “skin-in-the-game.” Borrowers used no-money down loans to purchase homes, then walked away from those homes when the economy went sour. Given that they had put none of their savings into the homes, walking away was easier.

One way to achieve no-money down during that time was to use seller-provided down payment assistance with an FHA loan. The seller provided the necessary 3.5% down payment and usually boosted the home’s sale price a little to make up for it. Congress outlawed this practice in 2008, mandating that no party with a financial interest in the home sale – including the seller, the agents, and the lender – could provide the homebuyer’s down payment funds. However, the law allowed governmental programs to continue providing down payment assistance.

Well, where there’s a will, there’s a way, and an entrepreneurial fellow in UT partnered with the Paiutes tribal government to create a fund, the Chenoa Fund, that lenders could use for down payment assistance. Whereas government down payment programs target homebuyers in the governmental jurisdictions, the Chenoa Fund was available nationwide, and it made a profit on the transactions.

Borrowers in down payment assistance programs become delinquent about twice as often as those who use their own funds, and the Feds see these programs as an increasing risk to the FHA Mutual Mortgage Insurance Fund, which backstops FHA mortgages.

Last week, HUD published new guidelines that clarify which entities can provide down payment assistance. The guidelines seem to target the Chenoa Fund, and it will be interesting to see how it responds.

But that still leaves the bigger issue of higher default rates for down payment assisted loans unaddressed. Many of these programs offer the assistance in exchange for higher-than-market interest rates, which stretch a homebuyer’s ability to repay the mortgage. In addition, they perpetuate the problem Congress thought it had addressed in 2008 – homeowners with no skin in the game.

FHA changes aim to deny riskier borrowers

 Loan Guidelines, Residential Mortgage  Comments Off on FHA changes aim to deny riskier borrowers
Apr 272019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Late last month, FHA made some changes to its automated underwriting system that may prevent as many as 50,000 potential borrowers from qualifying for an FHA loan. FHA said the changes are meant to limit exposure of its insurance fund from higher risk situations.

According to the agency’s annual report to Congress, it’s seeing a concentration of mortgages with high debt-to-income ratios and low credit scores. It also reported a 60% increase in cash-out refinances. (This isn’t an issue in TX as TX homeowners cannot take cash out using an FHA loan.)

An FHA official told The Wall Street Journal that the system changes will affect 40,000 to 50,000 loans each year, which is 4 to 5% of all loans FHA insures.

The changes will flag loans with a combination of higher debt-to-income ratios and lower credit scores for “manual underwriting,” which means underwriting performed by a human being. Unfortunately for borrowers, manual underwriting also means more stringent loan guidelines, and many of those who qualified before the system changes no longer will qualify.

How the shutdown will affect your loan application

 Mortgage Process, Residential Mortgage  Comments Off on How the shutdown will affect your loan application
Dec 272018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

If you’re in the middle of the homebuying process, you may have some concerns about the government shutdown. Even though it’s only a partial shutdown, the parts of the government that are closed are kind of important to the mortgage world. However, the potential impact on your application depends on the type of loan you’re using.

If you’re using a conventional (Fannie Mae or Freddie Mac) loan, the shutdown probably won’t affect you at all. Fannie and Freddie operate independently of the government budget.

I see mixed impacts on FHA borrowers. Most borrowers will be unaffected as most FHA systems are automated, and those system remain online. However, if your situation requires human intervention, you may experience delayed processing. Additionally, FHA will not insure any reverse mortgages during the shutdown.

The VA is fully funded, and I don’t expect any impact on most VA loans.

The USDA, on the other hand, is shut down. USDA will not issue commitments during the shutdown, which means most lenders will not fund USDA loans.

If your loan requires a new flood insurance policy, expect a delay. Even though the National Flood Insurance Program is funded through May, FEMA is disallowing the issuance of new or renewal flood insurance policies during the shutdown.

Many lenders require verifications from the IRS or Social Security Administration as part of the loan process. Neither agency will process requests during the shutdown. Check with your lender as to whether this will impact your loan. Some lenders are temporarily suspending the verifications unless there’s an issue of data integrity, such as an unconfirmed Social Security number.

Finally, if you’re a government employee, and your agency is shut down, expect a delay as your lender won’t be able to verify your employment during the shutdown.

Higher FHA and VA loan limits, too

 Loan Guidelines, Residential Mortgage  Comments Off on Higher FHA and VA loan limits, too
Dec 172018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

We found out a couple weeks ago that the conventional loan limit increased to $484,350. Over the weekend, FHA released its 2019 loan limits. By statute, the minimum FHA loan limit is 65% of the conventional limit, or $314,827 for a single-family home in 2019.

However, FHA allows higher limits in areas where 115% of the median home price exceeds the minimum. In TX, higher limits apply once again in the Austin, San Antonio, Dallas-Ft. Worth, and Houston metros, and for the first time, higher limits also apply in the Midland area and the city of Fredericksburg (Gillespie Co).

Unlike past years, the higher metropolitan area limits did not rise much this year. The DFW limit rose the most, by more than $9000, to $395,600. Austin’s limit rose about $6000 to $389,850. The limit in Houston and San Antonio remained the same at $331,200 and $359,950, respectively. Remember that these limits apply to all the counties in the metro, not just the cities themselves.

Among the new entrants to the higher limit list, Fredericksburg took the prize rising almost $30,000 to $324,300. The Midland area limit, including Midland and Martin Counties, rose $24,000, to $318,550.

The limit for the VA program mirrors the conventional loan limit at $484,350.

USDA programs shouldn’t be affected because loan size is driven by annual income limits, not median home prices.

Finally, these limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

Rising home prices lead to higher loan limits

 Loan Guidelines, Residential Mortgage  Comments Off on Rising home prices lead to higher loan limits
Jan 172018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Rising home prices have prompted regulators to increase loan limits for standard loan programs. Fannie Mae and Freddie Mac raised the limit for their conventional, conforming loans by almost 7% to $453,100. This limit applies to all areas of TX and is in effect now.

FHA also raised its loan limit, but the limit varies by county. FHA sets the limit to 115% of the median home price in an area with a ceiling of $679,650 and a floor of $294,515. The floor applies to areas where 115% of the median home price does not reach that level.

TX home prices haven’t reached levels at which the ceiling would apply; however, four TX metros do have a limit greater than the floor. Austin’s limit rose $23k to $384,100 for a single-family home. The DFW limit rose about the same amount to $386,400, still the highest in the state. San Antonio’s limit rose by the greatest amount, over $32k, to $359,950. Houston, still recovering from the oil industry downturn, didn’t see any change, with the limit remaining $331,200. Remember that these limits apply to all the counties in the metro, not just the cities themselves.

The limit for the VA program mirrors the Fannie/Freddie limit at $453,100. USDA programs shouldn’t be affected because loan size is driven by annual income limits, not median home prices.

These limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

The death of down payment assistance?

 Loan Guidelines, Residential Mortgage  Comments Off on The death of down payment assistance?
Nov 032017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Recent surveys indicate that saving for a down payment is one the biggest hurdles to homeownership. With rising home prices, that hurdle may seem like a moving target. Some homebuyers are turning to down payment assistance programs for help.

Well, Freddie Mac just threw cold water on one popular method of funding these programs. It’s called differential rate pricing or premium pricing. The lender provides assistance equal to 3 to 5% of the loan amount in exchange for a substantially higher interest rate. As Freddie correctly discerned, the result is a no down payment, higher-rate mortgage, which violates current conventional loan guidelines. As of 11/1, Freddie will disallow its use with low down payment loan programs.

I have not heard if Fannie Mae is planning a similar prohibition, but given that both agencies are owned by the government, one has to wonder. FHA officials have been squabbling among themselves for over a year about the legality of premium priced programs. For now, they are permitted.

If you’re struggling to find the funds for a down payment, I suggest you check out my Can I Qualify with limited savings videos for ideas. You also may want to check with your city or county for down payment assistance that doesn’t use premium pricing. Keep in mind that most of these programs have income and purchase price limits, and you may have to repay some or all of the assistance if you don’t stay in the home for 5 to 10 years.

No down payment loan for hurricane victims

 Loan Programs, Residential Mortgage  Comments Off on No down payment loan for hurricane victims
Oct 302017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Government reports show Hurricane Harvey completely destroyed almost 13k homes and damaged more than 200k. As folks continue to recover from this destructive storm, some may be able to take advantage of a special FHA mortgage program specifically designed for disaster victims.

The program, called 203(h), allows a disaster victim to purchase a new home with no down payment. While the damaged home must be located in the federally declared disaster area, the new home can be anywhere. The damage to the existing home must be to such an extent that reconstruction or replacement is necessary.

As this is an FHA mortgage, it will have both up-front and monthly mortgage insurance. You can roll the up-front mortgage insurance into the loan. However, you cannot roll the closing costs into the loan. Check out my Can I Qualify video on our Web site for ideas how to cover closing costs.

The program’s guidelines provide flexibility. While you’re still responsible for any mortgage on your damaged home, we don’t have to count it when qualifying you if you provide evidence of insurance coverage. We also can ignore any late payments or other credit hiccups that resulted from the disaster as long as your credit was satisfactory before the disaster.

If this program sounds like it could help you, it’s important not to let too much time pass. You must apply for the new mortgage within 1 year of the disaster declaration date, which was 8/25. An equally important consideration is your credit. While lenders can ignore credit dings resulting from the disaster, the credit bureaus won’t, and late payments could depress your credit scores. You will find most lenders apply their standard credit score limits to the program. If you’re finding it hard to balance your finances post-disaster, it may make sense to take advantage of the program before your scores sink too low.

Why canceling the FHA rate reduction was the right move

 Loan Programs, Residential Mortgage  Comments Off on Why canceling the FHA rate reduction was the right move
Feb 042017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I’m sure you know by now that the Trump administration cancelled the FHA mortgage insurance rate reduction put forward in the waning days of Obama’s term. This caused moans from most of my housing industry friends, but I think it was the right move.

First, keep in mind that FHA MI provides insurance against defaulted FHA loans. By law, the insurance fund must be at least 2% of the FHA’s loan exposure. The fund last year exceeded the 2% threshold for the first time in many years. Given that economists are predicting a housing slowdown this year, wouldn’t it make more sense to let the fund grow a little before chopping the premium?

Second, I don’t believe the premium reduction would have resulted in many additional homebuyers. Instead, I think it simply would have transferred business from private mortgage insurance companies to FHA. I’ve never seen an honest analysis from HUD to justify its MI rates based on its risk exposure. Moreover, FHA also has up-front MI and never cancels its MI, unlike conventional loan mortgage insurance. If FHA wasn’t just trying to increase its market share, maybe it could have tweaked those characteristics.

In conclusion, I’m not convinced the move by the outgoing administration wasn’t intended to make the incoming team look bad. Personally, I think it makes them look prudent.

FHA loan limit going up in 2017

 Loan Guidelines, Residential Mortgage  Comments Off on FHA loan limit going up in 2017
Dec 052016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

FHA also is raising its area loan limits in 2017, primarily affecting the 4 largest metro areas. FHA sets the limit by county and calcuates the limit based on 115% of the county’s or metro area’s median home price.

Median home prices rose in Texas last year, so loan limits rose in the Austin, Dallas/Ft. Worth, San Antonio, and Houston metro areas. Austin’s limit rose almost $30k to $361,100 for a single-family home. The DFW limit rose about the same amount to $362,250, still the highest in the state. San Antonio’s limit rose about $10k to $327,750. Houston, given its flagging market due to the oil industry downturn, rose only slightly to $331,200. Remember that these limits apply to all the metro’s counties, not just the cities themselves. The limit for the rest of the state rose about 2% to $275,650.

These limits apply to FHA case numbers assigned on or after Jan 1st. The case number typically is assigned at the beginning of the mortgage process, so if you need these higher limits, you’ll need to be patient.