credit crisis

Forbearance Bailouts and Refinances

December 23, 2021 by Realty411 Team Leave a Comment

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By Rick Tobin

The 2020 and 2021 years have been two of the most unusual time periods in world history, especially for the real estate sector. For example, millions or tens of millions of homeowners and tenants have been severely delinquent with their mortgage and rent payments while unemployment numbers rose incredibly high. However, home values have absolutely skyrocketed to all-time record high annual percentages and prices.

How is it possible for us to see record delinquencies with or without approved forbearance (“no mortgage payments paid and the lender agrees not to foreclose”) or loan modification agreements in place and record price growth at the exact same time? Don’t these two opposing situations contradict one another in a cognitive dissonance sort of way? In past years, record mortgage delinquency numbers would typically cause declining property values nearby because these home delinquencies or foreclosures would become the latest lower sales comparable for the neighboring homes.

The true irony of record delinquency numbers is that most homeowners created much more equity in their properties by just sitting there and not making any mortgage payments. As reported by CoreLogic’s Homeowner Equity Report, the total US homeowners’ annual equity grew $2.9 trillion between the second quarters of 2020 and 2021 with an average individual mortgage borrower’s gain of $51,500 in just one year. A deferral of 12 months’ worth of $2,000 per month payments that totaled $24,000 would still be less than half of the new equity gains.

Image from Pexels

In this article, you will learn about how you can refinance out of a forbearance or loan modification plan instead of losing all of your equity in a future foreclosure sale. For most American families, the bulk of their net worth originates from the equity in their owner-occupied residential property (single-family home, condominium, townhouse, duplex, triplex, or fourplex), so this topic point is quite relevant to millions of people today.

Let’s review next some of the most mind-blowing delinquency data that’s been published here in 2021:

$833 Billion in Unpaid Mortgage Balances

An estimated 15 million people lived in households that owed more than $20 billion in unpaid rent as of July 2021.
7.43 million rental property units were not current.
5.95 million owner-occupied housing units weren’t current.
8.71 million lived in owner-occupied homes where the homeowners have little or no confidence in their ability to pay their mortgage.
12.71 million lived in rental properties where the heads of household had little or no confidence in their ability to pay their rent.
Serious mortgage delinquencies were up 20% in July from June and were the highest recorded since 2010.
By mid-August 2021, 3.9 million homeowners were in active forbearance, which represented 7.4% of all mortgages nationwide and $833 billion in total unpaid principal.
An estimated 11.6% of all FHA and VA loans were in active forbearance.

Sources: U.S. Census Bureau and Black Knight Mortgage Monitor

How Hyperinflation Creates Wealth

Most people should know by now that historically low mortgage rates for borrowers is one of the main reasons why real estate values have boomed since 2013, depending upon the region. The vast majority of homeowners need third-party loans to buy their properties. Over the past decade, a very high percentage of homebuyers purchased their homes with 0% to 3.5% down payments with or without their own personal funds for loan programs like FHA, VA, or conforming that allowed gifted funds from family or seller credits.

Image from Pixabay

Historically, 7-year to 10-year boom cycles for real estate have been the norm. Yet, we haven’t seen significant price drops in a major metropolitan region, state, or across the nation. Do we still have at least another few years of potential double-digit home appreciation growth in our future or not?

Few investments have been a better hedge against inflation than real estate. On an annualized basis, home values generally increase in value on average at least as high as the published annual rates of inflation. The Federal Reserve must continue to keep rates artificially low or they may risk causing the housing bubble to pop.

The Federal Reserve’s ongoing policy of Quantitative Easing (create more money to boost asset values related to housing and stocks, especially) and their lesser-known Operation Twist policy (the simultaneous buying and selling of long-term and short-term bonds to artificially drive down mortgage rates) that they seem to turn on and off as needed with or without notifying the general public. With record high government debt levels today, the Fed has really no choice but to keep pushing inflation higher because one of their biggest fears is massive asset deflation like seen in Japan in the early 1990s after their own Quantitative Easing program failed miserably.

Rising inflation trends for various consumer goods and services like food, clothing, cars, and gasoline are not usually viewed favorably. However, rising home values tied to meteoric inflation trends are welcomed by homeowners who see their home values rise $50,000 to $100,000+ in a year.

Year-over-year inflation trends for August 2021:

Used vehicle prices: +31.9%
Energy costs: +25%
Southern California home prices: +22.1%*
National home prices: +19.7% (a new annual US record)*
Export prices: +16.8%
Apparel / clothing: +15.52%
Import prices: +9.0%

*July year-over-year housing price trends

Sources: U.S. Bureau of Labor Statistics, CoreLogic, and California Association of Realtors

Forbearance and Loan Modification Refinance Solutions

A homeowner who hasn’t made a mortgage payment in several months, a year, or almost two years probably has a few options to exit out of this dire financial situation. First, they can sell the home and lease another property if their credit scores aren’t too negatively impacted.

In September 2021, multifamily apartment units reached an all-time record high of $1,558 which was an all-time record annual 11.4% increase, according to Yardi Matrix. For single-family home rentals, the monthly rents are normally much higher in the $2,000 to $5,000+ per month range, depending upon how close they are to an ocean or prime metropolitan region.

Image from Pixabay

Or, the homeowner can attempt to save their home and end their existing approved or unapproved forbearance (“no payment, no foreclosure”) or loan modification situation, and refinance with a new loan that may allow cash out, a lower rate, and better monthly payments. The mortgage companies or lenders that will consider refinancing a mortgage which is severely delinquent are likely to request that the homeowner exit out their forbearance agreement, make a few payments, and then complete the new refinance closing.

Oftentimes, a homeowner who has been in forbearance cannot provide tax returns or more formal income verification. As a result, more lenders today may consider qualifying the borrower applicant with anywhere between zero and 24 months’ worth of bank deposits while closely analyzing the averaged bank deposits. In some cases, a government-backed mortgage product may allow an almost “No Doc” loan program with a financial hardship letter that may reduce the monthly principal and interest amounts by 25%, as recently announced by the Federal Housing Finance Agency (FHFA) and the Federal Housing Administration (FHA).

For more details in regards to these new financial solutions to exit out of forbearance and loan modification programs, refinance, and save your home, please visit my website at www.realloans.com.

Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.

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Limited Home Inventories & Soaring Prices

September 27, 2021 by Realty411 Team Leave a Comment

By Rick Tobin

Nationwide during the first quarter of 2021, homeowners with mortgages saw their home equity jump by a staggering 20% as compared to one year earlier. The dollar amount gains for the first quarter (January 1st – March 31st) alone for homeowners across the nation amounted to a whopping $2 trillion in total homeowner value gains, according to CoreLogic.

The average US homeowner gained $26,300 in additional home equity over the past year. According to Experian and CNBC, the average Generation X consumer had $32,878 in non-mortgage related debt such as credit cards, student loans, and car loans. When equity growth exceeds debt in just a few months or within one year, this is usually a positive for homeowners.

In California, the average homeowner gained $11,000 per month in equity during the first quarter of 2021 ($33,000 in three months) as the average statewide home appreciated 39% in just 12 months ending in May 2021 to reach $818,000 per California home.

In April 2021, the top three metropolitan regions for year-over-year home price gains were Phoenix, San Diego, and Seattle. The median sales price for the Southern California region in the same April month reportedly appreciated at a pace of $1 every two minutes, according to DQ News/CoreLogic. Each day has 1,440 minutes (24 hours x 60 minutes), so this would be equivalent to a price gain of $720 per day and approximately $21,600 per month over 30 days.

Declining Home Listings and Rising Demand

Image from Pixabay

Values for products or services usually fluctuate up or down based upon supply and demand. When demand is strong and home listing supplies are low, then home prices rise.

Let’s take a look next at some of the primary factors for these suppressed listing supplies and why there’s so much demand in spite of an ongoing pandemic designation:

1. Near record low mortgage rates: Most buyers need mortgages from third-party lenders or mortgage brokers. The lower the interest rate, the more affordable that the monthly mortgage payment is for the borrower.

Many younger Generation Z or Millennial buyers or tenants have seen incredibly low mortgage rates for the past 10 years, so they may not remember that mortgage rates in the 2% to 3% rate ranges are shockingly low as compared with previous decades.

To better understand how low mortgage rates have become in recent times, let’s review the average 30-year fixed mortgage rate by decade dating back to the 1980s:

● 12.7% in the 1980s
● 8.12% in the 1990s
● 6.29% in the 2000s
● 4.09% in the 2010s
● Near 3% in 2020 and the first half of 2021

2. The CARES Act and foreclosure and tenant eviction moratorium: The CARES (Coronavirus Aid, Relief, and Economic Security) Act was passed on March 27, 2020 by Congress as an attempt to minimize the economic hardship for homeowners and tenants nationwide. These moratoriums or legal postponements included within CARES prevented lenders from foreclosing on delinquent borrowers and stopped landlords from evicting tenants for missed rent payments.

In addition, the CDC (Center for Disease Control) also issued their own guidelines which prevented landlords from evicting tenants or landlords would face both significant civil fines and criminal prosecution. As a result, the foreclosure inventory dried up as well because there were so few foreclosure auction sales or tenant evictions which would’ve allowed investors to sell their properties to new buyers and the overall supply of distressed homes for sale plummeted.

Image from Pixabay

3. Declining home construction numbers: Freddie Mac, one of the largest national secondary market investors along with Fannie Mae, had claimed last year that there was a new home supply shortage of 2.5 million units as compared with the estimated buyer demand. Yet, the US hasn’t surpassed more than 1 million units, or 40% of this 2.5 million unit number, since 2007 when 1.046 million new single-family home units were built.

During the depths of the Credit Crisis meltdown, new housing units declined to 430,600 in 2011. The Mortgage Bankers Association (MBA) did forecast that 2021 might finally break 1 million units again nationwide by reaching a projected 1.134 million unit number.

California’s new housing start numbers, however, are not as positive as the rest of the nation. Back during the peak of the previous housing market boom in 2005, there were 150,000 new single-family home units built. In 2020, there were only 59,000 new single-family homes developed for a state with a population trending towards 40 million residents.

Some key factors why there are so few new homes being built in California are related to rising and unaffordable prices for land, lumber, steel, appliances, building permits, and environmental-impact or “sustainable living” fees. If a home builder can’t make a profit, they aren’t very likely to take a risk to develop a new housing community.

Multiple Bids and Quick Sales

As per the May 2021 Zillow Market Report, the average time that a listing took to sell, or days on market (DOM), was just six days in spite of home prices reaching all-time record highs in most US regions. The National Association of Realtors defines days on market (DOM) as the number of days the property is listed for sale on the local multiple listing service (MLS) up until the day that the buyer and seller have mutually agreed to the terms signed in the sales contract.

Image from Pixabay

Because it’s very likely that a listed home for sale will probably have multiple offers, sellers can pick and choose between the best offers that may include all cash offers, 7 to 14 day closings, waiver of all third-party reports such as appraisals and home inspections, and even the option for the seller to remain in the home for another 30 to 60 days rent-free so that the seller has enough time to find a new place.

Most buyers usually need a mortgage to purchase a property. In today’s hot housing market world, buyers and their advising buyer’s agents don’t have much time to get pre-approved from their local bank or mortgage broker. Some lenders may need a few days to a few weeks to formally pre-approve a borrower, depending upon how complete the original loan application package is at time of the loan submission.

Fewer sellers in multiple bid situations will even consider accepting a purchase offer from a buyer who is not formally qualified before the buyer writes up the offer. This is why it’s so important to get pre-approved first before going out with a knowledgeable real estate licensee who understands the local housing trends and searching for properties. If so, you’re much more likely to be successful as a buyer, seller, tenant, landlord, or advising real estate licensee.

Rick Tobin

Homeowners’ Financial Solutions for 2021 and Beyond

December 18, 2020 by Realty411 Team Leave a Comment

Photo by Olya Kobruseva from Pexels

By Rick Tobin

Between 2006 and 2014 during the depths of the Credit Crisis, there were 10 million Americans who lost their home to foreclosure over this 8-year span. Within just a few months in 2020 (March to May), we’ve seen almost 50% of that 10 million foreclosure number with at least 4.7 million mortgages delinquencies. For most Americans, the vast majority of their family’s overall net worth is tied directly to the equity in their home rather than in any stocks or other investments.

The good news is that national existing home sales climbed an all-time record +20.7% month-over-month increase between May and June 2020 partly due to fixed mortgage rates repeatedly reaching all-time record lows. In spite of record unemployment claims filings, home prices are still at or near all-time record highs in most major metropolitan regions.

Photo by Burak K from Pexels

In spite of one of the most chaotic years ever in world history, national home equity grew $1 trillion in value due to the combination of historic all-time low 30-year fixed rates and unusually low home listing inventory. For example, there were 1.42 million existing homes on the market nationwide at the end of October 2020, which was a 19.8% drop compared with one year earlier. Some analysts claim that the median home price nationwide increased by a 16% year-over-year growth during the same October 2019 to October 2020 time range. In many metropolitan regions, listed homes are selling within one to two weeks.

The primary difference between now and the last negative economic time period is that more homeowners today have much more equity in their homes than back in the 2008 to 2012 years. As such, any distressed homeowners who need to sell should be able to do it rather quickly due to the strong buyer demand and record low mortgage rates.

Homeowners, Tenants, and the CARES Act

Back on March 27, 2020, the CARES (Coronavirus Aid, Relief, and Economic Security Act) was passed by Congress as a response to the worsening US and global economy due to the fallout from the ongoing virus pandemic designation. Subsequent to the passage of the CARES Act, governors in states like California and elsewhere signed mandates or legal orders that attempted to prohibit lenders from foreclosure on delinquent homeowners and landlords from evicting tenants through the end of December 2020 or January 2021 (dates subject to change).

Photo by Joshua Miranda from Pexels

Additionally, the CDC (Center for Disease Control) issued their own guidelines that referenced the possibility of civil fines and/or criminal prosecutions for any landlord who attempted to evict a delinquent tenant before the end of December 2020 partly due to claims that it may increase potential health risks for the general public. In US history, this may be the very first time that the CDC has claimed authority to directly affect landlords and tenants. In recent times, these foreclosure or eviction moratoriums have been extended to January 2021 or beyond. At a later date, these moratoriums may continue to be extended, but few people are fairly certain at this point.

Risks and Financial Opportunities

Let’s take a look below at the potential risks, market changes, and financial solutions for homeowners, landlords, tenants, and real estate professionals due to Covid-19’s impact on the economy:

* Adverse Market Fees: As of December 1st, 2020, the largest secondary market investors, Fannie Mae and Freddie Mac, are scheduled to assess a 0.50% “adverse market fee” to at least all refinance (and possibly purchase) loans that are designated as “conforming” fixed mortgage rates. Generally, these are some of the lowest 30-year and 15-year fixed mortgage rates in the nation for the most creditworthy borrowers with usually very solid FICO credit scores. This market fee adjustment may increase the overall 30-year fixed rate by anywhere between .125% and .25%, depending upon the lender.

* Non-conforming mortgage loans: Borrowers may consider easier qualifying non-conforming loans that aren’t purchased in the secondary markets by Fannie or Freddie which include: FHA (FICO credit score allowances in the 500 range), VA, Non-QM (Qualified Mortgage), and Private Money that may allow much higher debt-to-income ratio allowances and/or no formal income documentation requirements such as with Stated Income products (bank statements or profit and loss statements in lieu of W2s or tax returns).

* Forbearance agreements: The lender agrees to postpone or delay their foreclosure actions with the delinquent borrower. Sometimes, these foreclosure postponements may last months or years.

Image by Gerd Altmann from Pixabay

* Deferment: The lender agrees with the borrower’s request to delay or defer their delinquent payments until a later date. In some cases, the late payments and penalties are added years later when the loan may become all due and payable.

* Loan modification: The lender or mortgage loan service company agrees to reduce the existing interest rate and/or monthly payment amount so that the mortgage is more affordable as a way to avoid foreclosure.

* Loan repayment plan: Both the lender and borrower mutually agree to add unpaid delinquent payments and late fees to the existing mortgage which may slightly increase their monthly payments or increase the loan term to give the borrower more time.

* Reinstatement: After the borrower and lender agree to modify the monthly payments to avoid foreclosure, the loan is removed from foreclosure status and reinstated in “good standing.”

* Seller-financed sales: If the homeowner needs a quick sale to a new buyer who can effectively take over his monthly mortgage payments and give the seller some much needed cash, the seller may consider creating some type of wraparound mortgage {i.e., contract for deed or all-inclusive trust deed (AITD)} or “subject-to” property transfer in which the buyer receives the deed to the property that is “subject-to” the existing mortgage still secured by the property.

* Short sale: If and when the mortgage debt is greater than the current market value for the property (aka “upside-down” mortgage), the homeowner may consider contacting an experienced local Realtor who can help negotiate a discounted mortgage payoff with the lender when they find a qualified new buyer.

Image by Tumisu from Pixabay

* “Cash for Keys”: During the depths of the last major national foreclosure crisis between 2009 and 2013 especially, lenders were offering delinquent homeowners upwards of several thousand to $25,000 + to vacate the home while not damaging it or removing appliances. Quite often, the homeowner hadn’t made a mortgage payment for months or years up until this “Cash for Keys” offer. For many lenders, this cash payment to struggling homeowners was considered more affordable for the lender than fighting the homeowner for months or years longer.

* Bankruptcy: For homeowners who are days or weeks away from losing their home at the final lender auction sale, they may consider filing Chapter 7 (complete liquidation of most debts) or Chapter 13 bankruptcy (a longer term workout payment plan) either on their own with online companies for just a few hundred dollars or with the assistance of an experienced bankruptcy attorney. The bankruptcy filing could delay the foreclosure auction date by weeks, months, or longer. Please seek quality legal assistance first.

* Foreclosures: Please note that the typical foreclosure date timeline is close to four months from the start to finish. In California (a trust deed or non-judicial foreclosure state), the lender may first issue some warning letters to the delinquent mortgage borrower up to several months.
The lender will then file a Notice of Default to start the foreclosure process. Ninety (90) days later, the lender will file a Notice of Trustee’s Sale while advertising one day a week in a local legal newspaper for three consecutive weeks. If the loan hasn’t been cured or paid with some new installment or workout plan, the lender could hold the final Trustee’s Sale (or auction) approximately 120 days (4 months) after the Notice of Default was filed.

In other states that are considered judicial foreclosure states, the foreclosure timelines may be similar or much longer, depending upon the caseload for nearby local courtrooms.

Focus on Opportunities, Not Obstacles

It’s your ongoing perceptions of these negative financial, health, and overall national and global situations that may best determine whether you succeed or not. “Truth” is just your personal perspectives based upon life experiences. In the well-known Five Stages Of Grief description about emotional reactions to traumatic and painful experiences which was first written by Elizabeth Kübler-Ross and David Kessler about the fear of death, the five stages are described as:

● Denial
● Anger
● Bargaining
● Depression
● Acceptance

The faster that you get through the first four states of grief, the faster that you will get to the “Acceptance” stage and your focusing on the potential opportunities and solutions.

What we tend to focus on in life is usually what we end up with later because our minds are like giant magnets, for better or worse. Please keep your eyes on your personal goals because the solutions will appear sooner rather than later if you’re willing to focus with 20/20-like perfect vision. For many real estate investors, they will find incredible buying opportunities in 2021 and beyond if they keep a positive mindset.

Rick Tobin

How FHA Benefits Buyers, Sellers, and Brokers

August 18, 2020 by Realty411 Team Leave a Comment

By Rick Tobin

Since 1934, FHA has insured over 34 million home mortgages nationwide. For buyers, sellers, and advising real estate brokers or other licensees, they should all learn more details about how the use of FHA mortgage loans can help each of them to buy and sell properties at potentially a faster and more profitable pace today.

Easier Mortgage Underwriting Guidelines for FHA Loans

Because FHA mortgages are insured by the federal government in case of future default or foreclosure risks, mortgage lenders are more likely to offer much easier loan approval requirements for their interested borrowers. Let’s take a look below at some of the best FHA mortgage loan benefits that include:

Loan-to-value loan amounts up to 96.5% LTV for owner-occupied properties.
FICO credit score allowances as low as 580 for some lenders up to 96.5% LTV loans.
Sellers, family members, and other interested parties may be able to contribute up to 6% of the sales price towards closing costs, prepaid expenses, discount points, and other financing costs or concessions to greatly reduce total out-of-pocket cash contributions for the buyer.
Borrowers who invest at least 10% towards a down payment may qualify with a FICO credit score as low as 500 in some cases.
Debt-to-income (DTI) ratio limit allowances that may exceed 50% for borrower applicants.
Interest rates for FHA loans are usually priced at or better than the most attractive interest rates for loans that aren’t government-insured, which allows borrowers to qualify for much larger loan amounts.
Maximum loan amount limits for one unit ($765,600), two unit ($980,325), three unit ($1,184,925), and four unit ($1,472,550) properties are much higher now in 2020 than most people realize.

FHA Loan Amount Limits for 2020

Each year, the Federal Housing Finance Agency (FHFA), Federal Housing Administration (FHA), and the Department of Veteran Affairs (VA) revise their maximum loan limits for one-to-four unit residential properties by county regions across the nation.

The FHFA establishes the baseline conforming loan limit that meets or “conforms” to certain qualifying underwriting guidelines that are established by the two largest secondary market investors or Government-Sponsored Entities (GSE’s) named Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation).

After a mortgage company, wholesale lender, or bank funds a loan, they usually need to sell it off into the secondary market to Fannie Mae, Freddie Mac, or to another secondary market investor so that the financial institution doesn’t run out of money. As a result, the lender will underwrite and approve borrower’s loan applications that both meet their own guidelines as well as the secondary market investor’s requirements. If not, the financial institution might be stuck with the funded loan, and will not be able to transfer it to another secondary market investor.

A conforming loan that is saleable or transferable to Fannie Mae or Freddie Mac and FHA loans are typically based upon median home prices in each county region. California, and other expensive states to live in that are typically near ocean locations or prime metropolitan regions, have “high-cost” county loan limits that can reach as high as 150% of the baseline mortgage limit that is derived from local median home prices in that same county region.

FHA has a minimum loan amount or floor limits that go as low as $331,760 for a one-unit property (single-family home, condominium, townhome, etc.) as of January 2020. FHA has maximum loan amount limits that rise to as high as $765,600 in pricier county regions in California that include:

* Alameda
* Contra Costa
* Los Angeles
* Marin
* San Benito
* San Francisco
* San Mateo
* Santa Clara

Maximum Residential (One-to-Four Unit) Loan Limits in 2020

For so long as the owner lives in one of the units for a duplex, triplex, or fourplex property, the same owner may qualify for the maximum residential LTV ranges just like he or she would for a single-family home. Many times, the adjacent tenant or tenants will pay enough in monthly rent to cover the owner’s monthly mortgage payment.

Single (single-family home, condo, townhome) – $765,600

Duplex (two units) – $980,325

Triplex (three units) – $1,184,925

Fourplex (four units) – $1,472,550

Mortgage Insurance Premium (MIP) Fees

Because FHA mortgage loans tend to be at higher loan-to-value levels up to 96.5% LTV, these government-insured loans will include a mortgage insurance premium fee when the LTV exceeds 80% of the purchase price or appraised value for a refinance. The pooled insurance fee payments will act as future protection against any default risks.

Generally, the MIP funding fee equals 1.75% of the loan amount that’s due at the time of closing. The official title for this MIP funding fee is the Upfront Mortgage Insurance Premium (UFMIP). Many times, the borrower can add this MIP finance charge to the loan amount if all underwriting guidelines are met and approved by the lender.

Additionally, there will be an annual mortgage insurance premium (MIP) fee that varies depending upon factors such as the loan-to-value and loan amount size. Loans with a higher LTV range at 96.5% are generally considered much riskier than loans with lower 90% LTV ranges. As a result, the annual MIP fee percentage amounts will differ and range from a low of 80 basis points or .80% (at or below 90% LTV for loan amounts below $625,500) to as high as 105 basis points or 1.05% (at or above 95% LTV for loans greater than $625,500).

Please note that 15-year FHA mortgages generally have lower interest rates and much lower annual MIP fees to as low as 45 basis points or .45%.
Source: https://www.hud.gov/sites/documents/15-01MLATCH.PDF

FHA Monthly MIP Payment Example

Let’s quickly review a fictional $600,000 home purchase deal for a borrower who wants an FHA mortgage that’s fixed for 30 years with the lowest down payment possible:

Purchase price: $600,000
Maximum 96.5% LTV with just 3.5% down: $579,000
Upfront Mortgage Insurance Premium (UFMIP): $10,132.50 (1.75% of $579,000)
Annual MIP fee: $4,921.50 (.85% of $579,000)
Monthly MIP fee paid: $410.12 ($4,921.50 / 12 months)

The monthly MIP fee is paid in addition to the homeowner’s principal, interest, property taxes, and homeowners insurance. The faster that the homeowner can eliminate this monthly MIP fee requirement, the more affordable the future monthly payments will become for the borrower.

FHA Streamline Refinances

Two or three years after buying a property with a 96.5% LTV FHA loan, a borrower may be able to qualify for the FHA Streamline refinance program if the new loan amount will be at 80% or below of the most recent estimated market value. Over the past several years, many homes have appreciated at 7% to 10% per year. If so, it may only take a few years for a property owner to reduce their LTV range from 96.5% with monthly MIP requirements to 80% LTV or below with no monthly MIP payments.

Ironically, these “fast track” refinance programs may allow the borrower to not provide any formal documentation for their current income, credit scores, or even need a formal updated appraisal. If the monthly MIP payment can be eliminated with the new FHA Streamline loan, the borrower may also get a partial refund of their upfront MIP payment that was due at closing when the home was purchased.

A new FHA Streamline loan could save a borrower $500 to $1,000 per month, depending upon how much their interest rate is reduced, their loan amount, and whether or not their monthly insurance premium was eliminated.

Whether you are a buyer, seller, or a real estate broker, the FHA loan option might be the best financing option of them all for the parties involved. This is especially true as both the 30-year and 15-year fixed mortgage rates hover at or near all-time record lows!

Rick Tobin

THE BASICS OF BANKRUPTCY: Acquiring bankruptcy loan, terms, and procedures. BK Chapter 13

August 6, 2020 by Realty411 Team Leave a Comment

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How Deferment of Mortgage Payments May Affect Borrowers in the Long Run

July 23, 2020 by Realty411 Team Leave a Comment

By Edward Brown

When Congress passed Section 4021 of the CARES Act in response to the effects of COVID-19, their intent was to help borrowers who were having problems making their mortgage payments. Little did Congress realize that they were potentially setting up borrowers for trouble in the future when it comes to credit worthiness as assessed by the lending community.

According to Mark Hanf, president of Pacific Private Money, “Section 4021 of the CARES Act contained a regulation that loan servicers “shall report the credit obligation or account for those participating in forbearance as current”. In other words, those participating in a forbearance program should not see their credit scores drop. However, there is a loophole that allows lenders to discover whether or not a borrower is actually making payments. It is the “comments” section of a credit report. The CARES Act does not mention the comments section of credit reports, and that’s where forbearance notations are going.” What borrowers are not being told is that any reference in a credit report to forbearance can be a Scarlet Letter for an applicant seeking a new mortgage, according to Kathleen Howley in an article she wrote in early May 2020.

According to Hanf, within a week of Howley’s article, his company received a loan request from a home buyer who was denied credit from a major bank for just this very situation. Although the bank sees the existing mortgage as “current” the forbearance has let the world know via the comment section that this borrower has requested a deferment. The major bank involved would most likely not deny the loan on its face due to the deferment, as this would violate the law; however, banks are notorious for coming up with a myriad of reasons for denying a loan and still stay within the guidelines set out for them.

Conventional lenders desire to have plain vanilla borrowers who pay back loans in a timely manner. When a borrower changes terms of the loan by requesting principal forgiveness or other aspects of the loan, the lenders generally do not usually extend credit again to these borrowers and can negatively affect the borrower’s ability to borrow again from unrelated lenders. Such is the case back during the Great Recession wherein some borrowers took advantage of the economic climate by asking their lender to reduce the principal of their loan [total forgiveness rather than just a deferment]. The borrowers may have gotten a reprieve, but the long-term effects may have been more drastic. Similarly, to when a borrower files bankruptcy. The borrower may get out of paying creditors, but their ability to borrow in the future is usually severely hampered.

In one case, back in 2009, during the heart of the Great Recession, one banker tells a story of how a wealthy borrower first asked for a principal loan reduction of $500,000 because his collateralized real estate had decreased and his request was granted. But, when this borrower was faced with the prospects of having this reduction reported on his credit report or the fact that he would have to inform any new lender that he requested a principal reduction [as this question is usually on bank applications], he voluntarily requested that the $500,000 abatement be reinstated. He decided his ability to borrow in the future was worth more than the $500,000 principal reduction.

Borrowers will have to decide if requesting deferments is worth the risk of potential future lending restrictions based upon the lender desire to lend to borrowers who choose to defer mortgage payments when the opportunity arises. Whoever said, “there’s no free lunch” must have been talking about these very situations.

Edward Brown

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company. Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns.