FHA Announces Policy Changes to Address Risk and Strengthen Finances

New Measures Will Help FHA Better Manage Risk, While Maintaining Support for the Housing Market and Access for Underserved Communities

WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.

The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”

Announced FHA Policy Changes:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

• The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
• If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
• This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
• The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

1. Update the combination of FICO scores and down payments for new borrowers.

• New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

1. Reduce allowable seller concessions from 6% to 3%

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

1. Increase enforcement on FHA lenders

• Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.
  • This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
  • Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
    • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
    • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
  • Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
    • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
  • HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
    • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
    • Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-016

U.S. Department  of Housing and Urban Development

Understanding California Short Sale Rules

We are hearing more and more about the realities of short sales. Making the latest headlines are the concerns addressing the changing California short sale rules. Short sales options by California property owners represent about twenty percent of that regions housing inventory.

In general, a short sale is when a property owner has fallen several months behind in their payments on that property, and there is a new agreement made between the lender and that property owner, to settle the property for less than is owed. The remaining balance is pardoned by the lender, so that both parties can move forward from this irreconcilable relationship. But is it a true move forward?

California short sale rules implies that the seller will still be ultimately responsible for the difference left between the money owed on the property and the new purchase price agreed to the new owner. This will still remain a problem for the original owner, after suffering through the lengthy, stomach wrenching ordeal, of the entire process.

The California Association of Realtors are franticly warning realtors that California property owners may be in danger of severe tax consequences if they decide to chose short sale over foreclosure, even if the lender agrees to allow the short sale to proceed after several road blocks, and so forth. The lender can still be instrumental in pursuing judgment against the previous property owner.

While the California short sale rules are still not clear, the possibility for government involvement to pursue wage garnishments for property owners believing that a short sale was their way of putting a bad experience behind them is very real. It is still being debated and reviewed in congress, but a solid decision is not coming fast enough.

Some say that it may be smarter to take the credit hit now and let the foreclosure happen versus try and save those few credit points, and still be subject to the ultimate financial ruin anyway. Either way, there will be some credit damage. Your final decision must be something that you are willing to live with long term. No easy solution, but there is a way to make the best choice for your particular situation.

When reviewing the California short sale rules with your counselor, ask if it there is a possibility of owing the California Tax Board as well, as the IRS. You may want to bring up capital gains as well as if there are other work out plans in addition to the ones you may have to create a hybrid plan, and if so what are the long term effects on your credit?

Thanks to Real Estate News Information for providing such useful information.  Please click on the link below for entire story.

http://www.real-estate-news-info.com/understanding-california-short-sale-rules/

Do you trust your bank?

If you are attempting a loan modification you may be at a serious risk you are not aware of.  E-mail me and I will send you a copy of all documents the bank has filed against your property.  You will be surprised.

Is this you?

Have you been in a loan modification for more than six months?

If you answered yes, what is it the bank needs to know that they don’t already know in order to render a decision on your loan modification?  Does your bank still own your loan or are they servicing the loan for investors?  Who are the investors?  Did your bank tell you they don’t own your loan?  Do you trust your bank?

More than 88,000 homes went into foreclosure in October.  The vast majority tried loan modifications.  Do you trust your bank?

Did you have a credit card for many years that you always paid on time and suddenly the bank cut your limit or cancelled your card?  Do you have any reason to trust your bank?  It can be dangerous!

You keep thinking something will happen.. but nothing happens.  You know what happened to the banks.  They were all bailed out.  You do not get this same deal!  Banks are not writing off a portion of your mortgage.  The best deal you get is a restructuring of your current payment on your devalued property.

FACT

Miss three payments and the bank files a Notice of Default.  This allows the bank to foreclose on your home in another ninety days if you fail to bring your account current.  Simply by filing a Notice of Default the bank has met all the legal requirements to foreclose on your home once you miss six payments.

What happens to you if you attempt a loan modification for more than six months and the bank denies your loan modification?  THE BANK FORECLOSES!

You come home from work one night or maybe you return from the store to find a Notice of Trustee Sale on your front door.  This is the only notice you will receive.  Can you really trust your bank?

To prevent the sudden upheaval and relocation of your family you need a bank up plan.  I can help.  My team consist of an attorney and full time bank negotiators.  There is no cost to you.  We are paid by the  banks.  You stay in your homes longer and move under more favorable conditions.

MOST IMPORTANT THING TO REMEMBER

We can show you how to rebuild your credit in three to five months legally and permanently!

More and more homeowners are turning to a short sale as the solution to their mortgage problem.  In almost all Orange County communities short sales account for approximately 70% of all real estate transactions.

Sad but true, 80,000 plus families lost their homes this way in the months of October and the November figures are expected to be higher.  According to the Governments Making Homes Affordable Services Performance Report through July 2009, 96% of all loan modifications were denied by major banks.  This is an experience you do not want to put yourself or your family through.  WE CAN HELP

My team can help you as long as you act before you run out of options.  If you doubt your bank will approve a loan modification you need to contact us immediately.  We will help you plan an exit strategy that is proactive rather than reactive.

Steps to Avoid Foreclosure

The following options may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure:

If your problem is temporary, you may want to consider the following options:

• Reinstatement – Your lender may be willing to discuss accepting the total amount owed in a lump sum by a specific date. Forbearance may accompany this option.
• Forbearance - Your lender may be able to temporarily reduce or suspend your payments for a fixed period of time. At the end of that time, you must make a lump sum payment or enter into a long term repayment plan to pay back the reduced or suspended amount. Forbearance may be a good option when the cause of your default is specific and temporary and it is reasonable to assume you will be able to resume making payments at the end of the forbearance period.
• Repayment Plan – Your lender may be able to arrange a simple repayment plan whereby you make your mortgage payment plus an amount of the total in default. The plan could be a few months long, or may extend to a year. At the end of the time period, you would have paid off the past due amount and your payments go back to the original payment amount. Your lender or servicer may require a good faith payment upfront to begin the plan.

If your problem appears to be long-term or will permanently affect your ability to bring your account current, you may want to consider the following options:

• Mortgage Modification – If you can make payments on your loan, but don’t have enough money to bring your account current or you can’t afford your current payment, your lender (We) may be able to change the terms of your original loan to make the payments more affordable.  Your loan could be permanently changed in one or more of the following ways:
  • Adding the missed payments to the existing loan balance
  • Changing the interest rate, including making an adjustable rate into a fixed rate.
  • Extending the number of years you have to repay.
• Partial Claim – If your mortgage is insured and you qualify, your lender may be able to help you get a one-time, interest-free loan from your mortgage guarantor to bring your account current.  You may be allowed to wait several years before repaying this loan.

If keeping your home is not an option, you may want to consider the following options:

• Sale - If you can no longer afford your home, your lender will usually give you a specific amount of time to find a purchaser and pay off the total amount owed. You may be expected to use the services of a real estate professional who can aggressively market the property.
• Pre-Foreclosure Sale or Short Sale – If you can’t sell the property for the full amount of the loan and you qualify, your lender may accept less than the amount owed. Financial help may also be available to pay other lien holders and/or help towards some moving costs.
• Assumption – A qualified buyer may be allowed to take over your mortgage, even if your original loan documents state that it is non-assumable.
• Deed-in-lieu of foreclosure – As a last resort, you may be able to voluntarily “give back” your property to the lender. This won’t save your house, but may help your chances of getting another mortgage loan in the future.

Regardless of which option you choose, it is important to note that for the majority of these alternatives to begin.

Source: www.reosas.com

Home Purchase Tax Credit Revisited 

With the extension of the first time homebuyer tax credit and the addition of a tax credit for existing homeowners there have been changes that need to be noted. Please find compiled the most important facts associated with the new laws. You will find below a breakdown of both the $8,000 first time homebuyer tax credit and the $6,500 existing homebuyer tax credit. 

$8,000 First Time Homebuyer Tax Credit 

The income limits have changed. In order to receive the full tax credit amount, the income limit for a single person is $125,000 and a married couple is $225,000. They can earn more than that but the amount received will be phased out to a maximum income of $145,000 for a single person and $245,000 for a married couple. In addition, no tax credit is available if the cost of the home exceeds $800,000. The buyer may not acquire the property from any relative on either side of the family. 

The same restriction applies as before which is they cannot have owned a home in the last three years and they must continue to live in the new house for 3 years or it will be required to pay the credit back.  The buyer must enter into a binding contract to purchase by April 30, 2010 and close no later than July 1, 2010. In order to receive the tax credit the buyer must file his or her federal tax return with the Internal Revenue Service along with the HUD-1 and IRS Form 5405. As an example, if the first time buyer owes the government $5,000 in tax, they will receive a $3,000 check from the Internal Revenue Service, not the entire $8,000. 

$6,500 Existing Homebuyer Credit 

To qualify the buyer must have owned and lived in a home for at least five of the last eight years. The existing home may have already sold and not been replaced in the last year or two. The home purchased must be the primary residence and the existing home may become a rental property or second home. The new purchase does not have to cost more than the existing one. 

If the existing home is sold, taxable profits from the sale will be added to the buyer’s other earnings to determine if the adjusted gross income exceeds the allowable thresholds. Remember, some profits from the sale of the existing home do not count as income. Taxpayers are allowed to exclude $250,000 per person or $500,000 per couple if they lived in the home two of the last five years. The $6,500 tax credit also phases out for singles earning more than $125,000 and couples earning more than $225,000. Always consult a professional tax advisor for tax advice.

Review the following comparisons between short sales and foreclosures for a better understanding of why short sales are a better option for most homeowners. While a short sale is a complicated process, the outcomes of your patience and diligence are worth it in the end!

What are the implications to my credit score, Short Sale vs Foreclosure?
Following a successful short sale your mortgage will be reported on your credit score as either paid or negotiated, lowering your score as little as 50 points.  After a foreclosure, however, your credit score can lower as much as 300 and usually at a minimum of 250 points.   

What are the implications to my credit history?
A short sale is usually reported as paid in full and is not reported on your credit history. A foreclosure will remain on your credit history and will remain as public record.

Who decides if my home should undergo a foreclosure or a short sale?
In both short sales and foreclosure, the decision is made by your mortgage lender. The most important aspects to getting a lender to agree to a short sale, and saving you the more damaging credit implications of a foreclosure, is to prove that you have no other way to pay the mortgage and that the amount received from a short sale is the fair price of the market. Lenders who believe they can receive more by taking possession of the home in a foreclosure and selling it themselves will not agree to a short sale.

What will be the effects on my future loans?
For most mortgage lenders you will not be asked to declare or be questioned regarding a short sale on any standard loan application (1003). In regards to foreclosure, you will be asked on any future standard loan application (1003) if you have had a property foreclosed in the last seven years, therefore affecting your rate. Fannie Mae backed mortgages will be available to you following a short sale after two years. Fannie Mae backed mortgages will not be available to you for at least five years if you have lost your home due to a foreclosure.

Does it affect my employment opportunities?
A short sale does not appear on a credit report and will not challenge your current employment status. In comparison, if you have a foreclosure on your credit report, some employers consider it a reason for termination or reassignment since many run credit checks on employees for certain positions. A foreclosure can be extremely harmful to your chance of being selected for a new job if your credit report is taken into consideration.

How does a short sale versus a foreclosure affect the deficiency judgment?
If your short sale is handled successfully, the lender may give up the right to pursue a deficiency judgment against you. If the lender does pursue a deficiency judgment against you after a successful short sale, the amount will be considerably lower because your home was sold at a price closer to market value than that of an REO (Real Estate-Owned) sale. In all foreclosures, with the exception of those states without deficiency, the bank has the right to file a deficiency judgment against you. Since your foreclosed home will have to go through the REO process if not sold at auction for a lower sales price, this results in a higher deficiency judgment against you.

Thanks to Fortmill Short Sales for such usefull information, please clinck on link below for entire story.

http://fortmillshortsales.com/short_sale_vs__foreclosure

Borrower Protection Plan 

The Borrower Protection Plan (BPP) is a unique mortgage feature available only at Bank of America. The BBP will cancel 6 principal and interest mortgage payments if the protected borrower suffers a qualifying Disability, Involuntary Unemployment, Hospitalization or a Loss of Life.  

There is No Cost for the first 12 months to protect one borrower. BPP is available on owner occupied purchase transactions and loan amounts below $500,000. It is very easy to enroll and there are no medical exams required and no age limit. When the debt is cancelled there is no requirement to repay later.  

Even though there is no cost to a single borrower for the first 12 months, joint protection can be offered at a deeply discounted rate of 3% of the principal and interest payment for the first 12 months. The price after the first year is 7.5% of the principal payment for a single borrower and 10.5% of the principal payment for joint borrowers. 

The Borrower Protection Plan is applied for when the borrower applies for their new home loan at Bank of America. Again, there is no cost to one borrower for the first year and the protection begins after 90 days of the note date.  

Now is a great time to buy a home but potential borrowers are concerned about the economy and their job. The Borrower Protection Plan from Bank of America offers borrowers security by knowing they are protected giving them the confidence to purchase the home they want.

Thank you to Kevin Budde for providing such useful information.

Three things about the first-time home buyer tax credit:

1. Despite the credit’s name, you don’t actually have to be a first-time buyer to get it, merely someone who hasn’t owned a home in three years. But you are supposed to — you know — actually buy a home.

The Treasury Inspector General for Tax Administration says more than 19,000 people have claimed the credit despite not purchasing anything. Just over 70,000 claimed it though they apparently didn’t meet the definition of a first-time buyer. And 582 individuals under 18 claimed it, including some 4-year-olds. (I can just picture the parents: “What? He’s a first-time buyer, isn’t he?”)

The agency says it “recommended that the IRS require taxpayers to provide documentation to verify a home purchase, such as a U.S. Department of Housing and Urban Development Settlement Statement (HUD-1) issued to homebuyers at closing,” but the IRS said “nah.” (OK, not exactly “nah,” but that’s the general idea.)

2. The Government Accountability Office issued a report that — among other things — breaks out the tax-credit usage by state as of Aug. 22. Maryland ranks 34th, with about 24,000 taxpayers claiming $166 million in credits. Report here, in PDF form. (Thanks to Jay Hancock for noticing this.)

Total nationwide: 1.4 million taxpayers claiming nearly $10 billion. Both the current version of the credit and the less-generous 2008 credit are included in the tally.

3. If you haven’t already signed a contract on a home, you’re going to be hard-pressed to get the credit — assuming it expires Nov. 30 as planned. To close by that date, “you basically would have to sign a contract to buy a house today to qualify,” Lawrence Yun, chief economist for the National Association of Realtors, told the Los Angeles Times … yesterday.

Several local real estate agents, noting that most first-time buyers use slower-to-close FHA-insured loans, have told me they recommend allowing 45 to 60 days.

thanks to Jamie Smith Hopkins for providing such useful information.  Click on link below for entire story.

http://weblogs.baltimoresun.com/business/realestate/blog/2009/10/weekend.html

Steps That Helped Avoid Foreclosure

Get Educated
Short selling your home is not a decision you should make lightly. It is often a difficult and a long process. If you are successful, the difference between what you sell the house for and what you owe on the house is forgiven. You’ll also avoid a foreclosure on your record.

Deed in Lieu

If you owe more than the home is worth, this is not an option for you. Deed in Lieu means that you give up the house to the bank and walk away. Ie, you give up the deed instead of facing foreclosure.

Short Sale

If you owe more than your home is worth, and don’t want to face foreclosure, then a short sale of your home is the best option. A short sale does have potential tax implications.

 Get Some Help

This is probably the biggest tip I would give to people who want to sell their home in a short sale.  Find an experienced real estate agent who has done a short sale before.  Your real estate agent will be able to deal and negotiate with the mortgage company(ies) on your behalf. An experienced short sale agent will give you a much better chance of successfully short selling your home. 

Because there is often so many different entities involved in a mortgage (1st mortgage, 2nd mortgage, the investor on the loan, etc) you really don’t want to do this on your own, with no experience. Plus, you’ll never have any out of pocket expenses to pay an agent, as everything is essentially paid by the lender. 

WARNING! Just because an agent says they specialize in “short sales” does not mean they have actually successfully done one! There are many classes agents attend regarding short sales, but nothing compares to real world experience. 

Get Started Now

The longer you wait to get started with the short sale process the less chance you have of success. Every state is different with their foreclosure process. You need to decide quickly to start the short sale process if you’re getting behind on your payments, or have already received a notice of default. 

Follow Instructions Exactly

An experienced short sale agent will tell you what you need to do to get the house ready to sell. Don’t get too hung up about the price. If the agent wants to set a low price on the house, there is a reason behind that. 

In my own short sale, we priced the house pretty low and got an offer very quickly. You need a buyer that is willing to stick around for a super long closing or changes to the agreement. In my case, it took almost 4 months from when we got the offer to when the closing took place. Don’t get hung up about the price, all you should care about is getting the place sold. 

Know The Tax Implications

Congress recently passed and the president signed a law that likely releases you from any tax implications of a short sale. 

Talk to a qualified tax attorney or CPA about this for your particular situation. Your real estate agent should know about this! A good agent will have a quality referral for you to handle the tax implications of your short sale.

 Prepare to move quickly

Because your closing date may not be set in stone, you need to be prepared to leave your home quickly if needed. You do not want to end up like me and live in your office for 2 months! Trust me, it’s not fun!

A minimalist lifestyle is nothing to be ashamed of; in fact it should be venerated. Your possessions are just inanimate things; it’s the relationships in your life that really matter. OK, enough life advice! Sell anything you don’t need or haven’t used in the last 6 months on craigslist! The less you have to deal with on moving day the better.

 Prepare yourself emotionally

If you are already in default, or have a foreclosure pending, this whole scenario and process of trying to short sell your home can be very emotionally draining.

 You will receive solicitations from everyone and their mother. You may have people stop by your home while you are still there. It can be a very difficult process.

 Make sure you have people in your life to talk to about your situation. You will need a support network to help through this time in your life. It will pass. And you are being proactive in seeking a short sale of your home. You are taking the right steps, and in time, everything will work out. I can’t promise it will be easy, but you will make it!

 You Need An Experienced Short Sale Agent!

Please take a moment and read our case study and a current short sale.

Thanks in part to Debt Kid for providing such useful information, again!  Please click on the link below to vist Debt Kid’s website for the entire store.

http://www.debtkid.com/short-sale-agents

Short Sale vs. Foreclosure: Which is the Better Option?

Losing your home to foreclosure due to an inability to keep up with your monthly mortgage payments is one of life’s most unpleasant experiences. It is also an event that keeps on affecting you long after your home is history by devastating your credit score. Regrettably, most people cannot be 100% sure that they will remain safe from foreclosure because they can’t foresee the unexpected. Occurrences such as serious illness, a major accident, divorce or job loss can happen to anyone. So it’s a good idea to understand the available alternatives should the worst occur.

Of all available options, foreclosure is the worst

The inevitable result of a foreclosure is the lender taking your house. Not only will you lose your house, but the lender can get a judgment against you for the arrearages you owe plus his costs for the foreclosure action. If that isn’t enough, your credit report will be in terminal condition for many years to come, worsening an already bad financial situation and making it very difficult to obtain any other kind of credit. There is no upside to foreclosure. It should be avoided at all costs.

Consider a short sale when foreclosure seems inevitable

A short sale is a popular option for homeowners mired down with financial problems. In this case, you would sell your home for less than what you owe your lender; the biggest problem you will face is getting your lender to agree to a short sale. In many situations, they will not. Experts advise pursuing this option the minute you realize that you are falling behind in your payments and most likely won’t be able to catch up. The longer you wait and the greater the amount you are in arrears, the less likely it becomes that your lender will even be willing to discuss a short sale.

Short sale has disadvantages too

While a short sale will save you from foreclosure, it will also have a negative effect on your credit score, frequently lowering it by as much as 200 points. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current. Perhaps equally distressing, the Internal Revenue Service frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. There is new federal legislation called the Mortgage Forgiveness Debt Relief Act 0f 2007 that just went into effect on January 1st, 2008. The new act essentially eliminates this problem.

Almost any option is better than foreclosure

Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, “What can I do?” Instead, consider that short sale and check with your lender before your options become more limited.

 Thanks to Debt Kid for the the information, please click on link for more information from Debt Kid

http://www.debtkid.com/short-sale-vs-foreclosure-which-is-the-better-option