- Your current FHA insured mortgage cannot be delinquent.
- No cash out may be taken on an FHA Streamline refinance
- No FICO score necessary – just a verification of mortgage
- No income or asset qualification or documentation needed
- No appraisal if the new BASE loan amount is the same or less than the original NOTE loan amount
- What is FHA mortgage insurance and how does it work?
- Why would I want an FHA mortgage?
- Is FHA new? How long has FHA been in existence?
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Lender Conditions 2008 vs Lender Conditions 2006 — Income Related Conditions
Over the last 5 or 6 years, approximately 70-80% of all of the files (a few thousand if my math is right) we have worked on were FHA files so we have developed a pretty serious competency around the ins and outs of FHA. We were doing FHA before FHA was cool!
When I was compiling the list of income-related conditions for this post, I noticed that the conditions that we see over and over again may not apply to the borrowers who make $150,000 per year and trying to purchase a $750,000 home – so as you review these, just remember that these are the main income-related conditions that we see in 2008 that we didn’t see in 2006 within our target market.
In 2008…
Lenders are requiring completed form 4506T (the document that allows UW to verify the social security numbers of the borrowers and confirm with the tax information about the borrower directly from the IRS). They still require a 4506T on each file and confirm income with the IRS regardless if you provided the borrowers copy of their W2’s and/or tax returns.
In 2006…
They used to take the borrowers W2’s or the borrowers copy of their tax returns.
In 2008…
You can no longer do an average of the previous year’s income and the YTD of this year with no further documentation. For example, if your borrower made 50k in 2007 and has made 60k through the first 6 months of 2008, you cannot just get a W2 for 2007 and the most recent pay stub for 2008 and come up with $55,000 in income.
The lender will most likely require that you get a full written VOE (Verification of Employment) from the employer and have it break down the income. It is amazing how many times an HR department can’t calculate/break down how much someone made – and it all adds up to quite a bit of time that a processor must spend on a file that they didn’t have to in 2006.
In 2006…
You could just average the previous year’s income with the YTD of this year as proven by W2’s and current pay stubs.
In 2008…
If your borrower has Social Security income or Disability income, you must get a 1099 from the IRS (borrower cannot provide it) and get the borrower to give you 3 months worth of bank statements showing 3 deposits to prove they are getting Social Security income.
In 2006…
You could just get an awards letter and a 1099 provided by the borrower.
In 2008…
It is very common for an UW to ask for “the most recent paystubs” – as in if your borrower got paid yesterday, get those.
In 2006…
You could provide income documentation where the borrower was proving W2 income with paystubs that were within the last 30 days.
These are some of the most common income-related conditions that we are seeing in 2008 vs. 2006. Did we miss anything? I am sure we did — Lenders, be sure to leave your comments as to what you are seeing out there!
Lender Conditions 2008 vs Lender Conditions 2006
This week, I have spoke with more than one person who is involved with the Arizona Real Estate market who has made the comment “my best lenders are saying they have never seen conditions like the ones they are getting recently from lenders!”
The first time I heard it, I kind of shrugged my shoulders and went about my business. The second time I heard it (from a different person), I made a mental note. The third time I heard it (again, from another different person), I thought to myself “hey, this may be a good blog topic”. The reason for this next series of posts was actually the FOURTH time in ONE DAY that I heard someone mention this and she actually said “hey, that would be a great blog topic!”
Hat tip Dru. Way to make me go to work and start talking about this kind of stuff!
CRC Report: Mortgage Servicers Most Common Response To Distressed Borrowers? Foreclosure.
I was in Corona, California this week meeting with Moe Bedard and Loan Safe Solutions. We were talking about the different ways that Loan Safe can help people who are facing serious financial problems due to a toxic mortgage loan.
Are lenders doing enough to help troubled borrowers?
Not according to the California Reinvestment Coalition, which released a report that argued mortgage servicers and lenders are not working with borrowers who need loan modifications in order to keep their homes.
Kevin Stein, CRC associate director who provided analysis on the survey results was quoted in a Housing Wire article as saying:
“With little accountability, obligation, or oversight, home loan servicers are not doing enough to keep borrowers in their homes. For some borrowers, this may mean that they will be doubly victimized by predatory lending practices on the front end, and now by unhelpful loan servicing practices that lead to foreclosure on the back end. We must work immediately and diligently towards solutions to avoid this result.”
What Happened to Student Loan Consolidation?
Recently I’ve had a few borrowers who have just graduated from college and are trying to buy their first home or refinance their current mortgage.
Unfortunately their debt-to-income ratio (DTI) is too high due to numerous student loans.
Years ago when I graduated from college, there were loan consolidation programs available — However, in April 2008, Sallie Mae announced that they will discontinue their federal loan consolidation program effective May 9, 2008.
There are a few private loan consolidation programs available so check with your lender to see if your program still qualifies some type of loan consolidation program.
Anyway, I called Sallie Mae to find out what options are available for recent graduates who need to lower their monthly debt obligations but can no longer do a loan consolidation and they gave me a few options that I thought would be worth sharing:
Is it time to Buy, Sell or Refinance? (Answers upside down at the end)
If you live in Arizona and not under a rock (no pun intended of course), you are most likely fully aware that the real estate market is hurting. Sales are down, prices are down, gas prices are up and people are wondering if “driving until you qualify” makes any sense anymore.
What does this mean for you?
Well it depends on what you are thinking about – buying a new house, selling your house or refinancing your current loan.
Can you refinance your house if you owe more than it is worth?
Generally speaking — no.
Generally speaking.
However… if you currently have an FHA loan… you may be a candidate for a program called the FHA Streamline program and refinance your house even though you may owe more than it is currently worth.
Everywhere you read these days, the data shows that many homeowners who bought at the “peak” are now unfortunately upside down on their mortgage.
Look no further than our own Arizona Republic for many articles on this or maybe the latest statistics from ASU’s WP Carey School of Real Estate — it is clear that there are many people in Arizona who currently owe more than their home is worth.
For example, let’s say in 2005 you took out an FHA Adjustable Rate Mortgage (ARM) loan for $200,000 at 6% and because of the housing crisis, your home is now worth $175,000 but you still owe $195,000.
Not only has your home value fallen, but if you were in an adjustable rate mortgage, your interest rate may have gone up causing an increase in your monthly mortgage payment.
If you’re in a conventional loan you might have a hard time refinancing because an appraisal is necessary and it would clearly show that you owe more than your home is worth.
However, if you are in an FHA loan, you might be able to do an FHA Streamline refinance.
Here are HUD’s summarized guidelines for an FHA Streamline:
In order to qualify, you must be currently in an FHA insured loan.
Just this week I have a couple in Queen Creek who were able to do an FHA Streamline Refinance.
They were able to take charge of their future finances and lock into an FHA 30 year fixed interest rate, keep their monthly payments at about the same amount and now they can sleep at night not worrying what their monthly payment will rise to when their interest rate adjusts.
Are you in an FHA adjustable rate mortgage and your payment is going up soon and need to refinance so that you can afford to keep your home? Maybe an FHA Streamline Refinance could help you too!
Arizona Reverse Mortgages
Many people choose to live in Arizona because of our great weather. Ok — let me re-phrase that — many people choose to live in Arizona between 6 and 9 months a year because of our great weather.
Some of those lucky few who migrate north for our super-hot summer months are getting more and more interested in a mortgage product called a Reverse Mortgage.
Did you know that FHA insures Reverse Mortgages?
They do!
The program is called The Home Equity Conversion Mortgage (HECM).
This program has become more and more popular due to the increase in home prices (equity available) and the aging demographics of America.
FHA 95% Cash Out Options
FHA recently added a 95% cash out option to their loan options, which allow borrowers to cash out limits of up to 95% of the home’s value and use the money for just about anything, from paying off medical bills to eliminating debts in collection, from buying a new truck to going on vacation. This has been one of the most popular loans that we have done over the last 6 months.
While homes must fall within a certain price range to be eligible for FHA loans, there is no limit on the income of the borrower. While conventional loan programs have, for the past several years, been somewhat more popular than FHA loans, the FHA 95% Cash Out loan has some borrowers thinking twice.
FHA is becoming a popular Arizona Mortgage option
Most people already know that FHA is short for Federal Housing Administration – it is all over the news in recent months. And as you may also know – FHA doesn’t actually lend anyone money, they only insure loans that are underwritten to certain criteria.
Some of the most common questions that I hear regarding FHA programs include:
What is PMI and do you need it?
If you are buying a home chances are the topic of PMI has come up, and you’ve wondered what it is.
PMI stands for Private Mortgage Insurance, and is an extra fee built into your monthly mortgage payment designed to protect lenders against foreclosure costs. The protection is provided by third-party PMI companies, which work in a way that is similar to other types of insurance companies.
PMI is calculated on a sliding scale based on your LTV (loan-to-value) and your credit score and generally speaking, the more money that you put down when buying your house, the less PMI you will have to pay. So if you put down 15%, you could expect to pay less than if you put down 5%. The general range for PMI factors is .25% to 2%. If you really want to see what a PMI chart looks like, here is one — confusing!
And here’s something else you might not know… not all loans require PMI.
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