Jan 112019

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

By G. Steven Bray

As the government shutdown lingers, let’s do a quick update on the effects it’s having on the mortgage world.

As I reported before, the mortgage products experiencing the greatest impact are those offered through the USDA. USDA will not issue commitments during the shutdown, meaning if you’re using a USDA loan, you’ll probably experience a delay.

But we have some positive developments. Under intense pressure, FEMA reversed its position on new flood insurance policies. The new guidance means insurers can sell new policies and renew existing ones during the shutdown. Given that the ban on new policies lasted only a few days and over Christmas, it’s unlikely it created any significant backlog. If the property you’re buying requires flood insurance, you shouldn’t experience any shutdown-related delay.

Note that despite the reversal, the National Flood Insurance Program still is living on life support – a temporary extension that expires in May.

Another positive announcement came from the IRS. As I reported before, lenders often verify an applicant’s income tax return with the IRS during the loan process. The IRS previously stated it would not process any verification requests during the shutdown. On Monday, however, the IRS announced it would resume processing requests. The IRS says it has a significant backlog, so if your loan requires an IRS verification, you still may experience a delay.

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.

Jul 162018

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

By G. Steven Bray

It feels like deja vu all over again. The National Flood Insurance Program (NFIP) will expire on Jul 31 unless Congress acts to extend it. The program currently is operating on a short-term extension passed in March.

In Nov, the House passed a package of bills that extended the program until 2022. However, they included reforms, including the expansion of private flood insurance to compete with the federal program. While most recognize the program needs to be reformed, the Senate wasn’t comfortable with the scope of the House vision.

Without its own NFIP reform bill, the Senate has opted to kick the can down the road one more time. It slipped another short-term extension into the Farm Bill passed at the end of Jun.

Unfortunately, the Senate version of the Farm Bill differs significantly from the House version. The two bills now go to conference committee to find a compromise that can pass both chambers. The problem is compromise could take a long time, and the clock is ticking on NFIP.

If Congress fails to extend the program, it would have to stop issuing and renewing policies. Realtors estimate this could impact as many as 40,000 loan closings each month.

Congressmen and Senators, especially those from coastal areas, are well aware of what a disaster that would be, especially with the onset of the hurricane season. I wouldn’t be at all surprised to see Congress strip the extension from the Farm Bill and pass a standalone bill just in the nick of time.

Congress looks to private market to cover flood risk

 Residential Mortgage  Comments Off on Congress looks to private market to cover flood risk
Nov 162017

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

By G. Steven Bray

Back in Aug, I reported that on Congress’ to-do list was reauthorization of the National Flood Insurance Program, or NFIP. The program will expire on 12/8 unless Congress does something.

Tues, the House passed what it calls the 21st Century Flood Reform Act. The biggest reforms in the bill are provisions to encourage the private flood insurance market, transferring some of the risk away from the government.

Supporters of the reforms say that it will allow for lower cost policies that could appeal even to folks who aren’t required to have flood insurance. 80% of the flooded homes in Houston didn’t have flood insurance mainly because it wasn’t required. They weren’t located in a recognized flood zone. A lower-cost flood policy that could be bundled with homeowner’s and auto policies could be an attractive option.

Opponents of the bill say it will allow the private market to cherry pick the least risky properties from NFIP, making it financially unsound.

The bill also contains a $1 billion mitigation fund. A Pew Charitable Trust study showed that just 1% of homes covered under NFIP have produced almost a third of the claims due to repeat flooding. The funds will help folks modify their homes to reduce flood risk or to help them relocate.

The bill now goes to the Senate where its fate is uncertain. What is certain is that Congress must act in the next month to avoid disrupting the real estate markets in flood-prone communities.

Flood insurance program dies if Congress doesn’t act

 Residential Mortgage  Comments Off on Flood insurance program dies if Congress doesn’t act
Aug 312017

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

By G. Steven Bray

Among the many items Congress must address when it returns from summer vacation is the National Flood Insurance Program, or NFIP, which is set to expire on Sep 30.

Homeowners with a mortgage who live in a flood plain are required to carry flood insurance. The NFIP, created by Congress in 1968, provides this coverage for about 5 million policyholders.

Unfortunately, NFIP is in the hole to the US Treasury to the tune of $24.6 billion, and under the current terms of the program, it’s likely to remain insolvent as flood insurance premiums do not reflect the costs of the program.

In 2012, Congress reformed the program to address this problem by requiring NFIP to raise premiums to reflect true risk of loss. It grandfathered existing policies, but required risk-based pricing on change of ownership. That set off immediate wailing in flood-prone areas as full risk rates were 500 or more percent higher than the grandfathered rates. Congress quickly rolled back the requirement and with it the chance for NFIP to crawl out of its financial hole.

The House has passed legislation to reauthorize and reform the program, and industry groups say it’s on the right track as:

– It will continue to allow NFIP coverage of new homes in the 100-year flood plain;

– It will continue grandfathering of existing policies;

– And it will set the floor for premium rate increases to 6.5%.

Interestingly, the bill seems to reinstate the requirement that grandfathered rates end when a property changes hands. Reports are surfacing that this already is impacting real estate sales in coastal areas.

The possibility of better flood insurance

 Regulations, Residential Mortgage  Comments Off on The possibility of better flood insurance
Jun 062016

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

By G. Steven Bray

Congress is diddling with flood insurance again, and if you’re in a flood zone, you may want to pay attention. The House passed a bill about a month ago that would authorize state insurance commissioners to approve flood insurance policies that would be accepted for conventional and government mortgage loans. This means you would have a private insurance alternative to the National Flood Insurance Program (NFIP), which for many is currently the only game in town.

Obviously, the idea is that more competition will lead to more consumer choice. Consumers will be able to shop for an insurance product that meets their particular needs rather than be stuck with the current one-size-fits-all government product.

One interesting twist in the bill is that it would allow homeowners who switch to private insurance to switch back to the NFIP if they aren’t satisfied. Their NFIP insurance rate wouldn’t change as long as they don’t allow coverage to lapse.

The Senate is considering a similar bill that has bipartisan support, so it’s quite possible private flood insurance will become a reality this year.

Flood insurance surprise if you refinance

 Regulations, Residential Mortgage  Comments Off on Flood insurance surprise if you refinance
Jan 082016

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

By G. Steven Bray

If your home is in a flood zone, and you have a mortgage, you need to be aware of regulatory changes that took effect on Jan 1st. The changes implement part of the Biggert-Waters Flood Insurance Reform Act of 2012 and require lenders to escrow flood insurance premiums for most new residential loans.

So, what does this mean for you? If you’re currently paying for flood insurance, and you refinance your home, at closing your lender will set up an escrow account, and you will pay the flood insurance premium as part of your monthly mortgage payment. The change applies even if you do not escrow for property taxes and hazard insurance. This likely will mean more money due at closing because when you escrow, you pay in advance of the bill coming due.

The new regulation has one interesting twist that may be appealing to homeowners who currently pay their own flood insurance premiums. As of Jan 1st, your loan servicer must give you the option to escrow flood insurance premiums. So, if you don’t like paying that flood insurance bill each year, the change allows you to spread the payments out as part of your monthly mortgage payment.

Congress proposes easing flood insurance rate hikes

 Regulations, Residential Mortgage  Comments Off on Congress proposes easing flood insurance rate hikes
Aug 022015

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

By G. Steven Bray

The House of Rep is considering the Flood Insurance Fairness Act of 2015, which expands on last year’s changes to the flood insurance program by providing rate relief for second homes and rental properties. The intent is to allow these homes to receive the same flood insurance premiums as primary residences. While those who experienced the rate shock last year are probably cheering, I question whether this puts the solvency of the program at risk again. The House has a companion bill, the Flood Insurance Market Parity and Modernization Act, which is supposed to address the solvency issue. I’ll update you as I hear more about how these bills will affect both the program and premiums.

Regardless of the outcome of this legislation, one important change to the program already is in effect. Outbuildings that lie in the flood plain no longer result in a flood zone designation for the entire property. The outbuilding must be detached from the primary residential structure and cannot serve a residential purpose, such as sleeping, bathroom, or kitchen facilities.

Flood insurance rate spike

 Residential Mortgage  Comments Off on Flood insurance rate spike
Jun 102015

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

By G. Steven Bray

The recent flooding in our state may have some folks thinking about flood insurance. The National Flood Insurance Program, backed by the federal government, provides the only reasonable insurance for those in flood-prone areas against catastrophic loss.

Unfortunately for those who need the insurance, the government announced an annual surcharge starting this year of $25 for owner-occupied homes in flood zones and a surcharge of $250 for vacation homes. Insurance premiums are heavily subsidized by taxpayers, so the much higher surcharge for vacation homes is intended to reduce that subsidy somewhat on properties that are considered more of a luxury. If you own your vacation home free and clear, you could consider dropping coverage, but unfortunately, if you own a home in a flood zone that has a mortgage, you have no choice but to pony up the extra $250.

FEMA reports that the average premium for homes in flood zones is $638, so the increase for owner-occupied homes is rather mild, especially given reports last year that the fund was in danger of running dry.