With the supposed elimination of the adverse market fee FNMA and Freddie Mac have been charging lenders, as well as the decline of “risk based pricing” and “Loan level price adjustments”… One would hope lenders will pass some of the savings onto consumers through mortgage brokerages within the next few months.

We’ll see… they seem to be holding their profits pretty tight, at least until confidence is renewed in the financial market. 
For now, see below!

I want to take a second to thank Allyson Nakasone for sharing this article which she received from Michael Gray, CPA’s Tax & Business Insight. Please read below:

Housing Act includes a tax surprise.

President Bush signed The Housing Assistance Act of 2008 (H.R. 3221) on July 30, 2008. The tax part of this legislation is The Housing Assistance Tax Act of 2008.

The big surprise in the tax act that isn’t being widely discussed is a cutback in the home sale exclusion. The reduction applies for home sales in tax years after 2008. Gain eligible for the $250,000 exclusion for single persons, $500,000 for married, filing joint returns, is reduced for periods of non-qualifying use after 2008. For example, if you convert a principal residence to a vacation home or a rental, the gain eligible for exclusion is reduced for the period of non-qualified use. (Temporary absences, such as for a vacation or for medical treatment, still count as qualified use.) This is a major change that many people won’t understand, and is especially important for real estate investors who convert a principal residence either to or from rental or vacation property.

For example, John Taxpayer, a single person, bought a residence on January 1, 2007. It was his principal residence until December 31, 2008. He used it as a vacation home starting January 1, 2009. John sells the house on December 31, 2010 and has a $200,000 gain. Before the change in the tax law, the entire gain would be eligible for the $250,000 exclusion, resulting in no tax. After the change in the tax law, only one-half of the gain is eligible for the exclusion, the other $100,000 is taxable as a long-term capital gain.

The Act also includes a tax credit for first-time home buyers. The credit is 10% of the purchase price of a home, up to $7,500 ($3,750 for married taxpayers filing a separate income tax return. The credit is phased out for married persons filing a joint income tax return with modified adjusted gross income from $150,000 to $170,000, and for single taxpayers with modified gross income from $75,000 to $95,000. The credit is effective for homes purchased from April 9, 2008 through June 30, 2009. The credit is actually an interest-free loan that is repaid over a 15-year period. The balance must be repaid if the home is sold before the repayment period is over. A “first-time homebuyer” is defined as a person who had no ownership interest in a principal residence during the three-year period before the new home is purchased.

Please read the following snippet below from last Thursday (AP), (edited down, of course).

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NEW YORK (AP) THURSDAY 07.18.08 — Treasury prices fell sharply Thursday as several upbeat earnings reports, falling energy prices and an unexpected jump in housing starts alleviated some of investors’ concerns about the economy. The news lured investors back into stocks and away from the relative safety of government debt.

Treasurys were benefiting earlier in the week as Wall Street fell on uneasiness about the financial services sector and the broader economy.

Stocks also soared because the price of oil declined sharply for the third straight day. The Dow Jones industrials rose more than 200 points and logged the best two-day percentage gain since October 2002.

Kevin Giddis, managing director of fixed income at Morgan Keegan, said the bond market will remain choppy until stocks appear to stick with a direction; advances like the surge on Wall Street the past two sessions have often been given back quickly. Investors have jumped between both markets depending on the strength of corporate and economic news.

“This has been a wild and crazy last few days, and the focus is on the credit markets,” he said. “We’re bouncing back and forth on this safe-haven play all day long, and we will have volatility until we get a better idea about earnings, credit and the economy.”

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Unfortunately, the trend continued through Friday, leaving us with some of the highest rates we’ve seen this year.

However, as Kevin Giddis said above,

“Advances like the surge on Wall Street the past two sessions have often been given back quickly.”

And this week is chocked full of economic reports which hopefully will bring our rates back to the level we started the beginning of last week…

I will keep you posted as we move forward. J

I hope you all have a great Monday, please be sure to give me a call or send me an email if you can refer anyone who is thinking of purchasing or refinancing.

Hope to hear from you soon,

Matt

Well, Fannie Mae and Freddie Mac dont believe you.

Unless that is, you have at least 30% equity in your home.

Which unfortunately…. most of us don’t.

Many people out there have been taking advantage of the low market and qualifying by stating that their old home will be used as a rental. Once they close escrow on the new home, they stop making payments and let the bank foreclose on the old one.

Frankly, Fannie Mae and Freddie Mac, (FNMA & FHLMC) aren’t “buying it” anymore, (Pun totally intended). They’ve updated their guidelines; and us as mortgage brokers need to follow their new rules.

In summation, if a borrower is purchasing a home without selling their current residence….

Unless they have 30% equity in the property they are moving from, they will not be allowed to use any proposed rental income.

They must then qualify for both payments and have enough reserves to cover both payments for 6 months.

Converting a primary residence to an investment property (during a new purchase transaction):

Fannie Mae will continue to permit up to 75% of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property (derived from an appraisal, AVM, or BPO, minus outstanding liens).

The rental income must be documented with:

·         a copy of the fully executed lease agreement; and

·         the receipt of a security deposit from the tenant and deposit into the borrower’s account.

If the 30% equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

·         Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

·         6 months of PITI for both properties is required to be in reserves

These guidelines are applicable to manually underwritten loans and, except for the additional reserve requirements, must also be applied (on a manual basis) to loan casefiles underwritten with DO/DU. DO/DU will determine the level of reserves for each loan casefile.

All of the above guidelines go into effect August 1, 2008.

“If it looks too good to be true, it probably is.”

It seems that about once a month, I get something in the mail offering Lana and I a “No Closing Cost” Mortgage… I did a bit of a Google search and came up with this article written by Juan Boldizsar. He did an outstanding job in answering the question and I thought many of you would find it interesting and easy to understand. Enjoy!!

Here is the full article: http://www.mortgagenewsdaily.com/wiki/Contributors.asp?pID=24890

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 If it looks too good to be true, it probably is. Let me explain… Even if we omit the lender’s fees that get charged in connection with a mortgage, there are still third party fees, e.g., title examination and insurance, closing fee, recording fee, flood determination, appraisal etc. None of these parties give away their time, resources or services for free, nor does the mortgage broker or the retail lender who arranges your loan for you. The money to pay these people has to come from somewhere.

Here’s how it works. Banks and mortgage companies make lots and lots of loans. They pool them together and use them as collateral for loans that they get from institutional investors. This process is referred to as “securitization.” The loans they get are in the form of bonds that they sell in the financial markets, i.e., Wall Street. When the institutional investors like hedge funds, pension funds, insurance companies etc. buy these bonds, they expect a certain return on their investment. This rate of return is referred to as the bonds’ yield. This describes the rate of interest that the investors earn from these bonds.

 So, if a lender figures that on a given day, they can borrow money at 6%, lend it at 7% and cover their overhead and make a reasonable profit, the rate you will see advertised in the paper will be 7%. If they have to pay your closing costs they have to charge a higher rate if they still want to be able to cover their overhead and generate money for their shareholders. By charging a higher rate, they get paid more for the pools of loans that get turned into bonds. That extra money is used to pay your closing costs when you get one of those “no closing cost” loans.

All of that being said, the important thing to know is not whether there really is such a thing as a “no closing cost loan” — because in reality, there isn’t — but rather whether what gets referred to as a “no closing cost loan” makes sense in your particular situation. For instance, let’s say currently have a loan that has a rate of 8% and you have a choice of refinancing into a loan with closing costs that carries a rate of 6% and one that has no closing costs and a rate of 6.5%. Assume that the difference between the monthly payments is $100 and that for the loan with the lower payment the closing costs add up to $5000. By paying closing costs, you save a hundred dollars for every month that you keep the loan past month number fifty. On the other hand, if you plan on keeping the loan for less than 50 months, it doesn’t make sense to pay the closing costs because the total monthly savings don’t cover them.

Before we finish, let me make it clear that the numbers used in my example are for illustrative purposes only. When you are out shopping for a loan, you should consult with an experienced and knowledgeable mortgage professional. Ask that person to give you a “break-even” analysis so you can determine whether paying closing costs or going with a “no closing cost loan” makes more financial sense for your particular situation.

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For my clients, I will usually issue a few different Good Faith Estimates in order to examine the different types of loan programs we offer. Next, we’ll narrow down which program makes the most sense for the clients overall financial goals.

Once a program is decided upon, we will look at a few different Good Faith Estimates with different rates and fees for the same program. That way, it is clear what, (if any) benefit will result in paying down the rate in the form of points, or the extreme opposite of raising the rate to pay for the loan and 3rd party fees.

Generally speaking, I do not recommend paying points to lower an interest rate, unless the borrower is positive they will be keeping the loan long term or the property is an investment. However, I also do not typically recommend “no cost” loans because of the amount that the rate must increase in order to pay the fees…

I feel that with experience and proper mortgage planning comes finding that “happy medium” required to put together the perfect loan.