Nationwide Mortgage Loans Blog

According to interest rate researchers HSH Associates, the 30-year mortgage rates for fixed home loans which were as low as 5.89% in April of this year and have been rising and have nearly reached a 1-year high of about 6.75%.  Conforming and FHA mortgage rates remain below 7%, but they have been rising and the consumer response is not positive.  According to mortgage broker, Chris Kostoff, “Borrowers are weary of the rising rates to the point where more people may decide to rent homes until interest rates become lower.”

The financial woes and corporate lay-offs at Freddie Mac and Fannie Mae, the U.S.’s two largest mortgage servicing companies, are certainly not helping keep home mortgage rates low. These two government created public trading companies continue to tighten their lending guidelines that make it increasing tough on mortgage lenders and brokers,no to mention homeowners ntrying to refinance into an affordable mortgage rate.  With Fannie and Freddie the cost of selling mortgage loans continues to increase and ultimately consumers will be affected.

FHA mortgage loans continue to preform well because of HUD’s visionary loan guidelines that consider more than just the credit scores.  FHA loans do not allow “stated income” mortgages either.  All FHA loans require full documentation in an effort to ensure that borrowers can afford their house payments before signing loan documents.  Fannie and Freddie seem to be following FHA as they are allowing significantly less “stated income” loans than previous years. 

Many real estate brokers, lenders and realtors report growing concerns that rising mortgage rates will not aid the sunken home prices. Many home financing evaulators believe that the higher mortgage rates will hinder the new home buyers’ purchasing power and further the slide of real estate values across the country. Many potential homebuyers are waiting on the side-lines until home prices and the real estate market have hit the bottom.�

According to the American Bankers Association report, the number of homeowners thirty days or more behind on their home equity loans or lines of credit hit the highest point seen in over 10 years. The 1st quarter 2008 data suggests that the economic pain being felt by borrower is bleeding over into another segment of consumer credit that in the past had been almost completely resilient in recessions.

Economic Advisors President Joel Naroff explained, “The risk of losing the roof over their heads, homeowners who are financially pinched tend to pay their home mortgages and equity loans before car loans and credit cards, explains “That people are now having trouble making payments on equity loans is a clear sign of the extent of the pressure on the household budgets,” he said in an article published by USA Today.

Many people are touting the latest mortgage aid bill as the savior to mortgage and housing sectors.  I am concerned that FHA is spreading themselves too thin and risking too much in the process.  Most home financing experts would agree that the 80-20 - no money down mortgages that were sold a few years back contributed to the mortgage crash of 2007. 

Down payment assistance programs are riding a fine line, because they are home loans that once again are promoting homeownership to borrowers who clearly can’t afford to buy a home.  What happened to saving for 6 months of mortgage payments, before you buy a home.  Affordability will always be a crucial aspect in real estate, but helping borrowers get into a home that very easily could decline in value over the next few turbulent years could be a recipe for disater.�

In a recent article, David Twiddy reports and evaluates the new FHA initiaves and down payment assistance programs that were released by HUD chief.  The Housing Secretary Steve Preston said that an expanded federal home mortgage program would help thousands of struggling homeowners find more secure and more affordable mortgages. But Preston, speaking at the annual meeting of the National Association of Counties on Monday, warned that a similar plan that passed the Senate on Friday would “tie our hands,” forcing the FHA to either reduce loan services or turn to taxpayers for additional funding.  “We’re hoping that reason will prevail,” he said.  The Bush administration unveiled the FHA Secure program in August 2007, letting homeowners who had good credit histories, but couldn’t afford their mortgage payments after their adjustable-rate mortgages reset to a higher interest rate, refinance into mortgages insured by the FHA.  Preston said that since that program went into effect, FHA has helped with mortgage refinance loans for 265,000 homeowners. 

Beginning Monday, Preston said, the program was expanding to also offer FHA-insured mortgages to people with adjustable-rate loans who have missed three payments in the past year or who have suffered a temporary economic hardship, such as reduced income or a medical emergency.  He said the program would also encourage lenders to renegotiate the loans, such as bringing down the interest rate or principle or extending the payments.

However, the agency will now charge homeowners insurance premiums of up to 2.25 % based on their credit history.  “The change is absolutely essential for FHA to be able to expand its support and to be able to maintain fair pricing for traditional customers and to protect the American taxpayer,” Preston said, adding that he estimated the program would help 100,000 more people get refinanced.  Risk-based pricing has its critics, however, as the Senate last week included language in its foreclosure rescue package that prohibits the FHA from charging customers different interest rates. Opponents say the higher rates would disproportionately harm the poor, who would have the most to benefit from getting out of an adjustable-rate loan.  But Preston said that among FHA-insured loans, people with the lowest incomes tended to have the highest credit scores - a fact he attributed to banks passing on lower-income customers in favor of those with higher income.  He said that without risk-based pricing, the FHA faced several unpleasant options.

“Either we’re going to have to cut back service to these people and tell them we can’t help them anymore, we’re going to have to increase prices on all borrowers at a time when we need them in the market, or we’re going to have to ask Congress for funding, which this agency has never done in its 73-year history,” he said.  The Senate plan is by no means a done deal as it differs significantly from the House version and includes provisions opposed by President Bush.  Preston praised efforts by the FED and the Treasury Department to assist sluggish mortgage lending compan ies like Freddie Mac and Fannie Mae, which have seen their stock shares plummet in recent weeks as they struggled with loan defaults and falling home prices. The Fed has agreed to provide the two companies with funding for mortgage loans at reduced interest rates.  “Our markets today trade on confidence or doubt,” Preston said. “These actions take doubt off the table.”

The mortgage melt-down started with 80-20 home loans.  Think about it- If you take a person renting with fair or poor credit and then give them a home with no money down you are lending with no collateral.  If the property values declined and the adjustable mortgage rates rose - What would be the motivation for this 1st time homebuyer to stick it out?  We know its not the down-payment, because with 80-20 loans there is no down payment and no mortgage insurance.  The bottom line is that home values dropped and the variable interest rates rose…Of course most of these 80-20 borrowers bailed out and the foreclosure epidemic arrived.  Needless to say that 80-20 loans has disappeared.

The only true 100% home financing left is the VA home mortgage loans.  You need to be a veteran and the mortgage rates are low.  The VA funding fee is only .5% and borrowers can buy a new home with no money down.  like FHA underwriting, the credit scores with VA mortgages are not as important as income and job history.  Veterans who already have VA loans can do streamline refincing up to 100% as long as they keep the new mortgage rate and term.  If Vets want cash out theu can refinance up to 90%.

Like any American consumer product, mortgage loan products can become trendy.  In 2005 and 2006, the Pay Option ARM was the coolest loan product on the planet.  First time homebuyers across the country were lining up for 80-20% purchase loans with teaser rates starting at 1%.  Who wouldn’t want 1% mortgage rate?  Of course it was too good to be true as borrowers saw the negative amortization make their mortgage balances rise. 

For the first time homeowners saw their mortgage balance larger than their mortgage limit and like a revolving credit card, it killed their credit scores.  Borrowers found themselves stuck with an adjustable rate mortgage because their were no refinance loan programs available for sub 600 credit scores with no equity.  Mortgage companies went out of business and homeowners began defaulting on their home loans like never before.  Foreclosure ratios broke records in 2007 and in 2008 more foreclosures records will be broken. 

Along comes the new FHA mortgage refinance…This government mortgage is as old as the great depression, but has with stood the test of time.  In 2007 the FHA Secure and the 95% Cash Out Refinance was introduced by HUD.  In 2008 Congress finally passed the economic stimulus package that mandated increased loan limits across the country.  The raised FHA loan limits are helping borrowers refinance their 1st and 2nd mortgages into a better payment that they can afford. 

FHA mortgage loans differ from option ARMs greatly.  FHA loan terms are calculated with simple interest and provide a hedge against inflation because they are fixed for 15 or 30-years and there is no pre-payment penalty.  Option ARM loans are calculated with negative amortization as the interest deficit is added to the principal balance and once the loan to value has reached 115% or 120% the payment rests to the fully indexed payment that carries an adjustable interest rate.  After a few years, borrowers with option ARMs have reported payment hikes that doubled their monthly payments.  FHA loans are not the new Option ARM’s!  If you have a variable interest rate mortgage, consider refinancing with a FHA loan featuring a fixed rate for 30-years.

Jeff Moran is contributing finance writer who has experience with companies like Countrywide, Lennox, Nationwide and CFB Loan Services.

Borrowers ask me all the time…What is the difference between a FHA Streamline and a Rate and Term Refinance?  These FHA loans are very similar but they do have there differences.  First of all, streamline refinance loans are only available for homeowners who already have an existing FHA mortgage.  If you have a FHA loan then you may qualify for a streamline refi, but you payment history needs to be perfect.  FHA will not reward you with a streamline if you have been more than 30-days late on your existing FHA loan payment. 

The 2nd major difference between a streamline and a rate and term refinance is that streamline refinancing ususally does not require an appraisal.  Rate and term refinance mortgages will always be required to provide a new appraisal.  In a declining market the appraisal can really define the loan.  Since the FHA streamline waives the appraisal, the loan will typically close faster than a standard FHA rate refinance loan.

Of course there are some similarities between these two FHA loans.  There is no cash out allowed in either FHA loan and both refinance products allow lending to 97.5% Loan to Value.  Both FHA loans also require 1.5% mortgage insurance paid at closing and both allow the borrower to finance the insurance cost so they do not have to pay the closing costs “out of pocket.”

Paul Proffitt is a contributing finance writer for Nationwide and a Senior Loan Manager for CFB Loan Services.  His published loan articles can be found online at sites like CNN and Nationwide Mortgage Loans.

Each lender office has a “Lending Area” which is composed of clusters of States where a FHA registered branch or the home office of a FHA approved lender can originate new single family loans for FHA insurance. This geographic restriction does not apply to streamline refinance loans. In the FHA Connection, a lender can see the lending area of each of its registered branches and its home office under the section entitled Areas Approved for Business. The AAFB is a listing of all HUD field offices located in the States within the lending area and is located under the Institutional Profile tab in the Lender Approval section.

As long as the lender meets State requirements to be a mortgage broker or lender in a specific State, they can originate loans eligible for FHA insurance in any of States in their lending area. The following are the current lending areas:

Most real estate experts agree that housing prices will continue to drop in most metropolitan markets in the near future. Consider the impact that the adjustable interest rate home loans originated between 2003 to 2006 have had. In the past, these ARM loans that were popular for new homebuyers because the mortgage rates were low for a teaser period.

During that period borrowers got used to low lending costs that are just not possible anymore.  Many people find themselves rate shopping for a refinance loan that no longer exists.  Homeowners need to realize that if their mortgage has a varaiable rate that they need to refinance while they have enough equity to qualify.  According to mortgage lender, Paul Proffitt, “With home values plummeting the window for refinancing may shut sooner than later.” 

Adjustable home mortgages accounted for over 65% of foreclosures in the 4th quarter of 2007. It used to be that, If you only plan to remain in a house for a few years, then a low teaser rate mortgage was an appropriate choice of loans, but this has changed.  Many borrowers think they will move and buy up, but often times this option disappears as they are unable to sell their existing home.  Therefore a secure fixed rate mortgage makes more sense because if they don’t move, then at least they know they have a mortgage payment that they can afford.  The threat of inflation brings into focus the dull, but risk-averse, fixed-rate mortgage. In a rising-rate environment, it’s the best deal around. It provides complete insulation from higher borrowing costs once you lock in a rate.

Last year the government rolled out the FHA Secure loan that was supoosed to help people save their home’s.  Unfortunately the FHA Secure is difficult to qualify for and very few lenders are providing access to the program because it is so risky.  The FHA Secure was designed for people who had never been late on their mortgage payment prior to their ARM adjusting.  Our loan officers have commented that is very rare to mind borrowers who are late on their adjustable rate mortgage who had a perfect payment history.  The other issue is that most FHA lenders require a 580 fico score and if a borrower is late on their mortgage, then their credit score is almost always below 580.