Sonoma County Home Loans Blog: October 2009

Monday Morning Mortgages ~ Sonoma County Home Loans Newsletter for Real Estate Professionals

Monday Morning Mortgages is a brief week-opening report on mortgages in our area.  This is a tool to assist my realty partners on loan trends, rates, program changes, and problem solutions.

Current rates available at https://www.sonomacountyhomeloans.com

Fannie Mae Upcoming Changes to DTI

Fannie Mae manages the automated underwriting system called DU (Desktop Underwriter).  This is the system that loan officers use to run a potential borrower's financial data to achieve a pre-approval.  In the past, total expense ratios (debt compared to income or DTI) could go as high as 69% and still get an approval. To go over 55%, the system is acknowledging some compensating factors such as reserves and credit history.  The old FHA limit used to be 43% to give some perspective here.  Many lenders have put their own "overlays" on DTIs.  For example, Sierra Pacific Mortgage will not take a loan over 50% DTI even though DU gives the loan an approve rating.  But many other lenders available to brokers will accept whatever the DU system accepts.  I like those lenders.  Big changes are upcoming to how Fannie Mae approves a loan.

Here is the link to live Fannie Mae Guidelines: https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sg0309.pdf

Well, December 12, 2009 Fannie Mae will usher in a major change in the new DU version 8.0.  Fannie Mae is now limiting the DTI to 50%.  This change will make for more conservative lending, but also make it difficult for borrowers with non-traditional income to get approved.  One of the hardest sectors to get approvals seems to be retirees.  Although they can have sizeable investment income and enough assets to buy the property outright, the lending industry is gun shy of stock portfolio values and income.  This is in reaction to the volatility in the market in the last 18 months.

Another Fannie Mae change will also make 620 FICO the absolute maximum.  Only 60% of retirement account funds can be used on an application, and 70% of stock, bonds or mutual funds.  If an asset will be liquidated for downpayment, this will have to be done and documented prior to underwriting approval.

Other news...

Loan-Mods-R-Us Fees

Among the real estate legislation signed into law 2 weeks ago by Governor Schwarzenegger is Senate Bill 94 banning foreclosure and modification companies from collecting any fees prior to completion of the services contracted.  That means no non-refundable deposits. 

New Laws

Unless you are living under a rock (where I will admit I sometimes spend my weekends) you know it is now a felony to commit loan fraud on a mortgage loan application punishable by 1 year in prison (SB 239).  And AB 957 eliminates buyers from being forced to use those Escrow and Title companies selected by the RE) banks and assets managers. Finally!  That was a nightmare.  They just do things DIFFERENTLY in Southern California...

Rates

The 10-year Treasury note hit 3.5% this morning before setting down to 3.48%.  This is an indication of slowing rising rates for the past couple of days.  The Fed's mortgage backed securities purchase program, which many mortgage bankers believe is still the only thing keeping mortgage rates as low as they are, still has the capability to absorb close to $15 billion a week through the end of the first quarter of 2010.

Today's Rates (see current days throughout the day with APR calculations at

www.sonomacountyhomeloans.com

 For Today's Rates - www.SonomaCountyHomeLoans.com

 No Appraisal Home Loans in Sonoma County

Fannie Mae HOMEPATH

Homepath is a program organized by Fannie Mae to sell Fannie owned REOs.  The incredible features of this program are;

• Homepath special financing is available for these REOs
• There is actually Homepath inventory in Santa Rosa and Sonoma county

Go to http://www.homepath.com/ to search current listings for our area.  This am there are 42 listings for Santa Rosa, 30 of which are listed at $300k or less.

Homepath financing features are incredible.

• No appraisal required no matter what the offer price is.  If the offer is accepted, the value will be the offer price.  Fannie Mae already knows the conditions of these properties are willing to lend on these homes.
• Owner occupied OR investment purchase.
• 3% down payment for owner occupied SFR up to $417k loan amount.
• Owner occupied down payment can come from gift or Santa Rosa ADDI assistance program (if buyer qualifies).
• 10% minimum down payment for investors
• NO MORTGAGE INSURANCE REQUIRED
• PUD, and Fannie approved condos ok (if it is on the list, it is approved)
• Interest only available
• 660 minimum FICO
• Up to 6% seller concession allowed

Purchase Agreement must include a purchase addendum with page 1, paragraph 3 indicating that the agreement is contingent on Fannie Mae Special REO Financing from a participating lender. If this is not indicated and the borrower wants to use HomePath financing, the borrower must work with their real estate agent to ensure the contract addendum is updated appropriately.

Homepath rates are higher than market.  Comparing today's rates:

Program                            Down                        Rate                  Points                     MI

Conventional                20%                 4.875%            2.5%               None

Homepath                   3%                   6.25%             2.5%                None

FHA                            3.5%                4.75%              2.5%                  MI

Required Closing time is the same as conventional lending but remember to increase those loan contingency periods from the standard 17 days to 24.  This won't slow a 30 day closing, but will need a longer contingency release period.

Sonoma County Home Loans

For Today's Rates go to www.sonomacountyhomeloans.com.

Will FHA Trouble Effect Lending in Somona County?

In 2008 in Somona County when mortgage lending came to a screeching halt, FHA was the only insurer on the market who kept taking applications and did not reel in guidelines excessively.  While Fannie Mae and Freddie Mac did abrupt about faces on their lending, FHA kept originating loans, having already made its lending procedure less onerous years before.  FHA did raise its minimum down payment to 3.5% from 3% and it's up front mortgage insurance premium to bolster the insurance funds in this time of great risk, but overall, it remained a sensible place to get a loan.  Many Sonoma County loans were originated in the FHA program.

Because of the tightening of credit, FHA gained market share nationally and in Sonoma County, increasing the amount of all new mortgages it insures from 6% in 2007 to 21.5% in 2009 so far.  Many are asking if FHA is the next institutional shoe to drop; requiring rescue and bail out.  Recent delinquencies and foreclosures are up to nearly 8% at the end of June 2009 from 5.5% in 2006.  And in the near future, its reserves for loan losses are expected to slip below federally mandated limits.

FHA's Commissioner, David Stevens, says that FHA will not need government funds to be sustained.  The insurance fund is created by collecting a 1.75% up front fee for mortgage insurance in addition to a monthly MI fee.  All FHA loans require payment of this fee whether 3.5% or 20% down payment was made.

Some are comparing the possible FHA falter to Fannie Mae/Freddie Mac demise that required the government to step in and take over.  But FHA is different than the big mortgage giants in that it engaged in much less risky lending than the privately owned lending giants.  FHA did always require solid proof of income in order to get a mortgage.  Also, FHA always required a down payment while Fannie/Freddie insured 100% + loans.  FHA offers 30 year fixed mortgages only, whereas Fannie/Freddie had many adjustable rate mortgages that created problems for many borrowers. 

In my observation, the defaults FHA is experiencing now are not do to loans given to those who shouldn't have them, but due to the loss of jobs in our struggling economy.  Here in Sonoma County, I know of one FHA default of all the FHA loans I originated since 2003 and that was due to a job loss.

As these issues come before a congressional committee, FHA and our government hope to ward off any further weakness in FHA that could threaten a lending outlet that has been a bright spot in this credit constrictive market.  One proposal on the table is to increase minimum down payments to 5%.

100% USDA Rural Home Loans in Sonoma County

100% financing, with no MI?  Yes!  In Sonoma County, "rural areas" are eligible for USDA Rural Development home loans.  This is a gov't insured loan for owner occupied single family homes for moderate income household incomes in Sonoma County.  Rates are great (www.sonomacountyhomeloans.com) and there are no limits on loan amount or price limits.  The home loan consists of one 30 year fixed loan at a rate that runs about .25% over the day's FHA rate.

Income and Asset Limits

This special 100% Sonoma County home loan insured by USDA has income restrictions.  In Sonoma County, household income is limited to a generous $92,000 for up to 4 in a household.  In a household of 5-8 income can go up to $121,450.  Assets are also limited to 20% of the purchase price.  So a buyer with less $60,000 in assets (savings, investments) is eligible to buy up to a $300,000 sale price home in Sonoma County.

Eligible Sonoma County Locations

A large area of Sonoma County is eligible for this 100% USDA Rural home loan.  Excluding Santa Rosa up to Larkfield, Rohnert Park/Cotati, city of Sonoma and Petaluma, the rest of Sonoma County is eligible.  Included are communities like Healdsburg, Sebastopol, Cloverdale, Windsor, all Russian River area, Graton, and Sonoma Valley along Hwy 12.

Details

Some of the attractions of this USDA Rural Development home loan is for 100% of the purchase price, it will allow a 6% interested party contribution, requires no reserves, FICO scores can be as low as 620, and it can be used for a single family home, PUD, or a condo in a HUD or Fannie Mae approved condo project.  Some of the restrictions are that it can only be used for a single family dwelling, the debt-to-income ratio (DTI) is limited 47% with a 660 FICO, and the loan requires a guarantee fee.  Also, the property site cannot be worth more than 30% of the total property value, limiting the size of the parcel to a specifc valuation percentage.  The appraisal is done by a HUD certified appraiser and all section one of any produced termite report needs to be cleared.

The guarantee fee goes to the USDA Rural Development Department and is 2% and can be financed as part of the loan.

This is an excellent loan for any Sonoma County home buyer looking to buy in Windsor, Cloverdale, Healdsburg, Sebastopol or anywhere around the Russian River with no money down.