Many of the problems being experienced in the economy, especially the housing market, are being blamed on the poor decisions made by the Federal Home Loan Banks, also known as FHL Banks. Fourteen banks, including Fannie Mae and Freddie Mac, comprise the FHL Banks, and a combination of questionable practices and bad business decisions has this group a combined $1.25 trillion in debt. The U.S. government is the only entity currently with a larger debt than the FHL Bank system. As a result, a new housing agency finance plan is being proposed that will attempt to increase regulations on the FHL Bank system and begin to correct many of the current issues.

The new housing agency finance plan has been designed by the Federal Housing Finance Agency. The director of this regulatory agency is former Chief Operating Officer of the Social Security Administration James Lockhart. He was appointed by former President George W. Bush in July of 2008. The ultimate goal of the agency is to restructure the requirements for the capital of the 14 FHL Banks as well as place the investment regulations on them in an attempt to correct the problems that have led to the systems substantial debt and subsequent strain on the housing market.

The focus of the new housing agency finance plan will be FHL Banks Fannie Mae and Freddie Mac. The companies have portfolios that combined value approximately $1.7 trillion. The two companies are also the largest home mortgage providers in the U.S. The Federal Government had already taken control of both companies, after financial trouble was putting the future of both in jeopardy. Combined, Freddie Mac and Fannie Mae lost almost $70 million in just over a year. After a $14 million bailout from the Treasury Department failed to improve the situation, control of both was given to Lockhart’s agency.

In order to achieve the desired results, the main area that the new housing finance agency plan will attempt to address is the capital requirements of the 14 FHL Banks. Essentially, these banks must keep a certain percentage of capital to cushion against losses. When failing to meet these requirements, banks are limited on the number and types of loans they can make. The plan is to classify these banks based on the condition of their capital and to then introduce new regulations and requirements. By catering specifically to the situation faced by each bank in the system, the effectiveness of the plan should increase.

See more:
Federal Housing Finance Agency (FHFA) Boss James Lockhart on Fixing the Housing Market
Federal Housing Finance Agency’s Fiscal Year 2009 Financial Statements
Judicial Watch v. U.S. Federal Housing Finance Agency

On the 19th of October the Obama administration announced the use of a new program made available to support local and state finance agencies.

This program will assist those local and state agencies by helping them finance mortgages for first-time home buyers.

Many of these state and local agencies have had difficulty raising funds to assist with morgages because of the nation’s housing crisis and credit crunch.

This past year, these agencies have only been able to obtain about a quarter of the funds that they usually gain through the sale of tax-exempt bonds ($4 billion).

Because of the large reduction of funds made available to these agencies, the number of morgage loans for first-time home builders have been limited.

This program that was just recently unveiled uses the morgage finance giants Fannie Mae and Freddie Mac to aid in the repair of the financing crunch.

This is accomplished by Fannie Mae and Freddie Mac packaging mortgages put together by state and local agencies and selling those mortgage packages as bonds to the United States Treasury Department.

See more:
$8k Tax Credit for First Time Home Buyers
Fannie Mae to Allow Borrowers in Foreclosure to Lease Back Homes
Loan Modification Reporting Changes

The Obama administration announced a program in March called the Making Home Affordable program that aims to reduce borrowers’ monthly payments to no more than 31% of their pretax income.

To qualify, homeowners must meet a very specific set of circumstances. The homeowners must live in their homes, they can already be behind in their mortgage payments or they have to prove that they stand at the threshold of default because of their financial difficulties, the balance of their first mortgage can’t be in excess of $729,750.00, and their new payments must be made for a three-month trial period in order to qualify.

The savings can be very noticeable for those who qualify. Let’s say a homeowner can’t make the monthly payments of $2,023.00 (excluding taxes & insurance) on their $320,000.00 mortgage. Making Home Affordable could cut that payment to $1,254.00, with a 2% interest rate.

Although the Making Home Affordable program only lasts for just 5 years, each year the loan principal is reduced by $1,000.00 if the homeowner stays current on the payments. When the 5 years is up, the lender will increase the interest rate 1 percentage point a year until it reaches the prevailing rate.

If a homeowner qualifies they must also deal with a lender that is both willing to help and is in the program. Lender participation is voluntary but lenders or loan servicers that handle loans owned or guaranteed by Freddie Mac or Fannie Mae will most likely participate. The names and phone numbers of lenders that have formally announced participation are listed on the Making Home Affordable website.

If you are in need of a loan modification, contact your lender and ask for the loss-mitigation or home-retention department. If they give you the run around, seek help elsewhere.

See More:
MakingHomeAffordable.gov
Loan Modification Program
FDIC Loan Modification Guide

There are alternatives available other than debt consolidation loans, instead of shifting debt from unsecured loans to secured loans, debt is eliminated through settlements or payment plans. All the options available to consolidate debts can often be quite confusing, debt consolidation loans, debt settlement, credit counseling programs, bankruptcy are only a few of the many options available now. It can often be a difficult task to find the best option to suit your current financial situation. Sometimes an advisor should be contacted to help with the many options available in elimination of debt.

Most often, debt consolidation programs are typically debt repayment programs. These programs can consolidate most types of unsecured debt from major credit cards to personal and student loans. Upon joining the program you choose the accounts you want to enter. Once enrolled, your creditors will be contacted by the company who will negotiate more favorable repayment terms, reduction of interest rates and may even eliminate late fees on your accounts. One monthly payment will be made to the debt consolidation program company which will cover the payments on the accounts you entered when joining the program.

Debt consolidation loans are usually just home equity loans in disguise. All unsecured debts are paid using the equity built in your current home loan. Loan options of these types often come with heavy application fees and can extend the amount of time it takes to pay off those debts. All unsecured debt is converted to secured debt which is backed by your home with the use of these types of loans. Falling behind on your payments could cost you your home.

See more:
Countrywide Home Loans
FHA Streamline Loan
House Financial

This couple refinanced to a low rate

Do you have an FHA loan? Do you have over a 6% interest rate? Well if you do, what are you waiting for? FHA streamlines are as good as gold these days but they are not always going to be easy to get. Today, streamlining an FHA loan really doesn’t take that much effort. There is no appraisal or income verification. Really, the only requirements now are: You must have at least a 620 credit score, be employed and have an FHA or VA loan, that’s it. Soon that will all change, by the end of the year streamlines will require an appraisal and we all know what that means. If you don’t have equity in your home (which most home owners don’t anymore) that means that lenders will not approve a streamline refinance. This is going to pose a big problem for those of you who haven’t taken advantage of streamlining your FHA or VA loan yet. Anybody with one of these loans that also has a high interest rate probably should refinance with a streamline soon, especially if you’re not sure if you have equity in your home or not. Most likely if you bought your home more than 2 years ago you don’t. I’m not saying that you’ll need equity in your home for the purposes of taking money out, because that’s not what a streamline is about, but at this moment lenders are paying off up to 105% of what you owe on your home without finding out what the home is worth. In the future this will soon change; lenders will require an appraisal and if your home isn’t worth more than what they are paying off the lenders won’t approve the refinance. So if you are thinking about doing a streamline refinance, I would suggest not waiting any longer. You can get a rate somewhere in the mid to low 5’s depending on your situation. But if you keep waiting any longer you might not qualify in the future.

What is a FHA Streamline you ask, well let me tell you. Streamlining your loan is the process of refinancing without a required appraisal on your home or credit check. Now don’t be fooled, having good credit is always going to get you the better deal in the end, but it’s not a requirement. Also, there are little to no out of pocket cost and you get to skip one payment. Regular refinancing can cost someone thousands of dollars in origination whereas with a streamline, brokers are not allowed to charge any origination. You may be asking yourself, “How do these brokers get paid?” “What is in it for them?” The answer is simple, yield spread. Brokers usually always make some kind of yield spread. Let me explain, if the current market rate is 4.5% that does not mean you’re going to get that rate. Most likely you’ll be offered a full point to two points higher, and the reason is because of yield spread. If a 5.5% is paying 2 points that means 2% of the loan amount. Loans usually cost around the ballpark of $3,000 so there has to be enough money made in yield spread to pay for it, which means $150,000 loan would need to pay at least 2 points in yield spread to cover all the cost associated with a refinance. Then whatever is left over is what the broker will make. Now some of you might be thinking, “Hey, that’s not fair, I want that low market rate.” Well you can get it, but you’re going to have to pay for it because there will not be enough yield spread to cover the costs. As the consumer you’ll have to decide what’s more important, saving a little money for no out of pocket costs or saving more of money and paying closing costs. I always recommend to all my clients not to pay closing costs. Anybody out there with a high interest rate FHA or VA loan should definitely take advantage of what a Streamline has to offer. Don’t be confused though, there is no such thing as a free lunch, but if you can shave a point or two off you’re interest rate and save yourself a $100-$200 a month you might as well do it.

See more:
Streamline Your FHA Mortgage
New FHA FICO Score Requirements
FHA Streamline Loan Requirements

Up until now any person trying to qualify for a FHA loan would need a credit score of at least 620. Now that has all changed. Once again the lending industry is making it tougher and tougher to get approved for a new home loan. As of September 14th 2009, anyone looking to qualify for a new FHA loan will be required to have a least a 640 credit score of higher. This requirement doesn’t come from HUD or FHA, but from the lenders and investors. Now 20 credit points higher isn’t that big of deal, but it can be if you’re trying to buy a house and you’re sitting with a credit score of 622. If anyone is facing this problem, they should follow some quick credit score clean up tips.

First, if you have multiple credit cards with balances, try paying one off at a time rather than spreading the money out evenly. Pick one card to pay off and pay the minimum amounts on the others. When that card is paid off, move on to the next one. A big factor in determining your credit is the is the percentage of your available credit. Stay current with all payments. No matter how hard it is, make sure you don’t skip a payment on any of your debts. Whatever you do, try to make at least the min payment. Defaulting on a payment will take a hit to your credit and that’s the last thing someone will need when trying to qualify for a new loan. Other things you can do is to check your credit report to see if there are any unknown delinquencies. This is a very common problem. If there is anything that is incorrect, you should always dispute with all three credit bureaus. By law an investigation will take place within 30 days. Also, make sure you don’t close any unused accounts; many people make this mistake all the time thinking that it will improve their FICO score when it can actually harm it.

Doing all these things can definitely up your credit score and hopefully move you up past a 640 score so when you go to get a new FHA loan you won’t have any problems getting qualified.

New Refinance Rules to Aid Borrowers

The federal government has recently eased up on some of the eligibility requirements for its home loan refinancing program. In the beginning of July 2009, the U.S. Department of Housing and Urban Development extended the Home Affordable Refinance Program to borrowers who are up to 25% more in debt to their home than the property is worth as long as their mortgages are guaranteed by Fannie Mae and Freddie Mac.

The previous threshold was 105% of the homes value, or owing 5% more than the home is actually worth.

Under the Making Home Affordable Program, there are two available options to eligible borrowers: (i) they can refinance their mortgage; or (ii) they can modify their loan by lowering their interest rate, extending the duration of the loan or reduce the principal on the loan.

It is currently estimated that only 200,000 of the 4 to 5 million Americans that are having difficulty saving their homes are enrolled in the program. Furthermore it is estimated that 10 percent, or 20,000 of these program participants are refinancing.

Only borrowers who have not missed a payment by more than 30 days in the last year, and are backed by a government sponsored lender, are eligible for the program.

Fannie Mae and Freddie Mac normally do not allow borrowers who owe more than 80% of the value of their home to refinance. These two lenders constitute around 50% of the outstanding mortgages in the country, and about 20% of all the seriously delinquent loans, on which no payment has been made during the past two months.

Here are the eligibility requirements:

-          To qualify for refinancing under the Making Home Affordable Program, the borrower must have their loan secured by Fannie Mae or Freddie Mac. To find out if your loan is secured through either of these entities, contact your lender.

-          The home must have no more than four single-family units, as some multifamily properties are able to qualify.

-          All mortgage payments must be current. The borrower cannot have any late payments more than 30 days past due.

-          The outstanding primary mortgage loan principal cannot exceed more than 125% of the home’s current market value that is up from the 105% limit in February.

See more:
If You Need to Refinance A Mortgage There Are New Rules
What You Should Know About Refinance
Should You Refinance? See if You Can Hit the Trifecta

Refinancing Your Mortgage

If you are behind on your mortgage and your payments are difficult to keep up with, you’re not alone: One in five homeowners now owes more money on their home that the house is worth, according to First American Core Logic. When it gets to this point, the goal here shouldn’t be to lock in the lowest interest rate; it should be to attempt to qualify for refinancing into a mortgage you can afford. Here are a couple options providing that you have a job and meet certain qualifications.

The first option is the Making Home Affordable program. This program was announced in March by the Obama administration and is intended for homeowners who owe more money on their home than the house is worth and need a more affordable payment. One feature of refinancing with the Making Home Affordable program is an interest rate that is fixed for at least five years.

The Making Home Affordable program is no cure-all. You’ll only qualify for the program if Fannie Mae or Freddie Mac owns the current loan on your home and the balance on your first mortgage can’t exceed the value of your home by more than five percent. That five percent limit disqualifies many in troubled markets in Arizona, California, Florida, and Nevada, where home values have dropped considerably. The Making Home Affordable program ends in June 2010.

The second option is called the Hope for Homeowners program. The Hope for Homeowners program may help if you’re at risk of default or are in bankruptcy or foreclosure. Because of the high cost to both the lenders and borrowers, very few of these FHA-insured loans have had any takers.

The Obama administration has proposed fixes to the Hope for Homeowners program to make it more effective. This includes the easing of eligibility requirements for borrowers and reducing their costs.

See more:
Obama’s Loan Modification Program
Fannie Mae, Freddie Mac, What to do?
www.makinghomeaffordable.gov
www.hud.gov/hopeforhomeowners

In light of the recent liquidity crisis involving the financial institutions in the mortgage lending arena, a home buyer or homeowner must know the difference between the two. The current conforming loan limit is $417,000 and below. Conforming loan limits change annually. Fannie Mae Freddie Mac establish the loan limits for their guidelines to establish a standard in which they will purchase loans. These government institutions are continuously in the market for conforming loans so the banks have greater liquidity originating these loans.

Jumbo loans are considered nonconforming and the ability to sell these loans in the secondary market have caused liquidity issues for banks. Anything over $417,000 must abide by different set of standards and the quality of these loans has been scrutinized in underwriting. The banks understand that these loans will more than likely become a portfolio loan because the secondary market does not currently have an appetite for jumbo loans. In addition to stricter underwriting standards, the rates are much higher than in the previous years. It is a simple supply and demand issue and in order to make these loans saleable they have to carry a higher interest rate and thus a higher yield to the investor that buys the loan. This is now one of the major reasons to avoid a jumbo loan if possible.

There are a couple of strategies to keep the loan amount at or less than $417,000. The obvious strategy is to buy a house less than the limit or make sure you put down enough money to keep the loan conforming. One of the most popular strategies is to split up the debt into a first and second mortgage. For example, if the loan amount was $650,000 the first mortgage would be $417,000 and the second mortgage would be $233,000. Since the bulk of the debt is on the first mortgage it yields an overall lower payment. The lower payment can help the borrower qualify with a lower debt to income and also allow the borrower the freedom of selecting from a wider variety of loan programs.

Keep in mind that these limits go up annually and the reports should be out soon if Fannie Mae and Freddie Mac have decided to raise the loan limits. States like California have been pushing for them to raise the limits because most of the states median value is over the conforming limit. Make sure you keep this in mind the next time you are house hunting or looking to refinance. You could end up saving yourself a lot of money.

Ben Hawkins

President

Home Loans in Arizona

Office~480-947-6200 x 105

Direct~602-410-6388

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