More Changes, It’s the Name of the Game

It appears the black cloud over California is being lifted by the PMI (Private Mortgage Insurance) companies. When the housing market started to decline, the PMI companies retreated from the “sand” states (California, Florida, Arizona, and Nevada), or at least pulled back on the maximum loan-tovalue (LTV) they would guarantee. They still have a lot of areas they are avoiding (flips, non-owner occupied and condos – just to name a few).

April was the first month mortgage rates were not artificially stimulated by the Fed. (The Federal government bought $1.25 trillion of mortgagebacked securities (MBS) over the past 15 months.) Rates initially jumped up mainly due to the long Easter weekend after a shortened trading day on Good Friday.

Rates settled down the following week mainly attributed to the safer mortgages being produced now than were before. (Meaning that the quality is better and the risk of default is less.) Hopefully the appetite will continue. The Mortgage Bankers Association believes the 30 year mortgage rate will increase to 5.5% by mid-to-late summer and then possibly 6% by year end.

Kudos to the SAR Housing Opportunities Committee for hosting the “Show Me the Money” seminar held on April 29. There is an amazing amount of money being allotted to energy upgrades in the form of rebates, tax breaks and incentives. The REALTOR® community needs to stay current with this information in order to effectively educate clients on how to utilize the available programs.

On April 15, Congress reauthorized and the President signed into law an act that includes reauthorization of the National Flood Insurance Program (NFIP) through May 31, 2010. This temporary measure is retroactive to March 28, 2010, the date the NFIP’s authority expired, and provides the NFIP the ability to issue new and renewal flood insurance policies and increased coverage on existing policies.

At the end of April, the new Good Faith Estimate (GFE) 2010 will be enforced without leniency. HUD gave the industry 120 days before they start cracking down. Now lenders and escrow companies will more closely scrutinize the GFE 2010 and the HUD 1 and HUD 1a. On the other hand, we are hearing that HUD is looking into revising the form, too. We all know this 8-year HUD project does not make it clearer for the consumer, only more ambiguous due to the over inflating of costs to avoid a penalty for under-disclosing a fee. Apparently many loan officers are required to cut checks to borrowers for not disclosing seller fees on the new GFE 2010. HUD released a new FAQ on their website “bolding” all the new changes to the new GFE 2010. (This is only a short 62-page document.) The GFE is one of the major hurdles in today’s buying process with the lenders, loan processors and escrow officers all having different interpretations of the rule.

Tips for the new FHA less than 90 days flip rule:

Give both appraisers the home inspection. This will allow the appraisers to comment on the items in the home inspection if they are a “health and safety” issue to HUD. Some lenders currently are letting the buyer order the home inspection themselves and then giving a copy to the lender. This loophole is soon to be closed. The lenders want control over this process just like the appraisals. There are some cases already popping up where the home inspector is not reporting everything due to influence from interested parties in the transaction.

The first appraisal is the FHA appraisal (the one that sticks to the property for 4 months). The lender will determine the value based on the lower of the two appraisals for the down payment calculation. If your purchase price is greater than the lower of the two appraisals, your client will need to pay the difference plus the required down payment based on the lower appraisal plus any closing cost not negotiated for the seller to pay.

Watch out for the issue of “arm’s-length” transaction. HUD/FHA states, “The transaction must be at arm’s length; meaning there cannot be any identity of interest between any of the interested parties to the transaction” (e.g. if the seller owns the real estate company and the listing agent works for the same company, HUD considers this an interest between the seller and the listing real estate agent).

If you have any questions or comments, you can email me: Scott Short; First Priority Financial at: scott.short@comcast.net or call: 916-421-8559.