Monthly Archives: January 2017
Earlier in January 2017, we reported on changes in policy regarding FHA Mortgage Insurance Premiums. Mortgagee Letter 2017-01 announced revised, lower Mortgage Insurance Premiums, plus the elimination of the distinction in rates based on the base loan amount according to the mortgagee letter.
However, a new mortgagee letter announces that this change has been suspended. “This Mortgagee Letter…communicates that Mortgagee Letter 2017-01, reducing Mortgage Insurance Premiums for loans with Closing/Disbursement date on or after January 27, 2017, has been suspended indefinitely. FHA will issue a subsequent Mortgagee Letter at a later date should this policy change.”
It is unclear at the time of this writing whether the suspended policy will be revised, or eliminated completely, but we will report on any future developments.
Borrowers with FHA loans that have closing/disbursement dates prior to January 27, 2017 were not affected by the changes in policy before or after the suspension, but borrowers who do have loans with closing/disbursement dates on or after January 27 2017 should have a conversation with the lender about whether the current suspension of policy affects their transactions.
Mortgage insurance premiums are required for most FHA mortgages. Borrowers with forward mortgages will have an MIP that lasts either 11 years or the duration of the mortgage depending on the loan-to-value ratio and the term of the loan.
For loan officers who need additional clarification of policy related to these changes, the FHA official site states, “Please address any questions about the topics addressed in this Mortgagee Letter to the FHA Resource Center at (800) 225-5342.”
We get many questions about home loans and related policy, and these new changes are likely to bring several inquiries about the reasons for the suspension of Mortgagee Letter 2017-01.
While we are happy to answer questions, it’s important to point out that this website is in no way affiliated with the government or the FHA, so those seeking clarification about the reasons or causes for the policy change should contact the FHA directly at the number given above.
Mortgage loan interest rate trends have been up and down within a certain range in the new year, but uncertainty over the new administration in Washington D.C. has investors skittish. Since our last report we’ve seen mortgage loan rates push higher, with some lenders hitting 4.375% territory (best execution).
For 30-year fixed rate conventional mortgages, our sources say that means that at the time of this writing, there’s a best execution range that starts at or near 4.125% (a smaller number of lenders offering this) and ending with Friday’s at-or-near 4.375% for other lenders.
FHA mortgage rates are at the time of this writing still holding at a best execution 3.75%, but that’s likely to change soon if the upward trend remains. As always, the rates you see listed here are best execution mortgage loan interest rates.
Your access to these rates depends greatly on your financial qualifications. The rates listed here are not available to all borrowers or from all lenders and your experience may vary.
There is much potential for change this week due to the previously mentioned uncertainty in the nation’s captial, but there are some scheduled economic data releases this week that could also contribute to adjustments in mortgage rates.
Home loan interest rates are not directly tied to things like the release of Gross Domestic Product data (due out on Friday) or new home sales reports (Tuesday) or “durable orders” reports (Friday).
However, investor reaction to the data in these reports can and often do have an influence on rates. The paradox (to newcomers) is that where there is bad news for the economy, investor reaction often means good things for mortgage rates. And vice-versa. So the key to knowing which way the wind blows, so to speak, for mortgage rates depends a lot on how markets respond to these influences.
If you have not made a mortgage loan interest rate lock commitment with your lender yet, have a conversation to get some good advice on how to proceed in these unique times-the uncertainty over possible changes in economic policy (among many other things) makes for a tricky rate environment at present.
A new mortgagee letter updates FHA loan policy on properties bought with FHA loans that are “encumbered with a Property Assessed Clean Energy obligation”.
Mortgagee Letter 2017-06 updates PACE policy starting with a reminder; “The terms and conditions of a PACE obligation may vary by state, local government, and PACE program. Generally, a PACE obligation is secured and collected in the same manner as a special assessment is treated by the local government; funds obligated are not paid directly by the Borrower to the party providing the PACE financing.”
When the sale happens (including foreclosure sales), if a property has “outstanding PACE financing” the obligation will, according to the mortgagee letter, “continue with the property causing the new homeowner to be responsible for the payments on the outstanding PACE amount. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished.”
There are a number of updates to PACE policy for FHA loans. They include the following as described in the mortgagee letter:
–Application of Payments (section III.A.1.e.ii) has been modified to state that escrowed items include any assessments related to a PACE obligation.
–Pre-Foreclosure Sales (PFS) (section III.A.2.l.ii.) includes revised requirements to determine whether the title is impaired by a PACE obligation, analysis and reporting in the PFS appraisal of a PACE obligation that will remain outstanding, and disclosure of any PACE obligation in the property sales contract. Owner-Occupant Borrower Compensation may be used to resolve a PACE obligation.
–Deed-in-Lieu of Foreclosure (section III.A.2.l.ii i.) has been revised to state that HUD will allow a notice of lien recorded in the land records to secure repayment of a PACE obligation that may only become subject to an enforceable claim (i.e., a lien) for delinquent regularly scheduled PACE special assessment payments and otherwise complies with the eligibility and acceptability criteria for Properties encumbered with a PACE obligation provided in Section II.A.1.b.iv . (A)(6). Owner-Occupant Borrower Compensation may be used to resolve a PACE obligation.
–Conveyance of Acquired Properties (section III.A.2.t) has been revised to state that HUD will allow a notice of lien recorded in the land records to secure repayment of a PACE obligation that may only become subject to an enforceable claim (i.e., a lien) for delinquent regularly scheduled PACE special assessment payments and otherwise complies with the eligibility and acceptability criteria for Properties encumbered with a PACE obligation provided in Section II.A.1.b.iv(A)(6). Prior to the conveyance of a Property to HUD, the Mortgagee must pay PACE assessments currently due and payable at the time of conveyance or within 30 Days of conveyance. Mortgagees must not satisfy the full PACE obligation and seek reimbursement of such funds as part of their FHA claim.
–Assumptions (section III.A.3.b) includes a revised requirement that the Mortgagee advise the selling Borrower that any existing PACE obligation that will remain with the property must be fully disclosed to the buyer and made part of the sales contract.
We will examine the details of these changes in future blog posts. If you are not sure how the new PACE policy changes may affect your mortgage loan transaction, speak to your loan officer to clarify.
FHA home loan options for new borrowers and first-time home buyers vary. There’s a misconception that FHA mortgages are only for first-time borrowers, and another misconception that FHA loans somehow favor first-time borrowers with better rates, terms, or other factors.
But the truth is that FHA mortgages are NOT just for first-time home buyers. And there’s another truth-the FHA loan program itself does not offer more favorable terms for first-timer buyers than for anyone else. All applicants who are financially qualified can apply for an FHA loan or refinance loan.
That leads to some confusion among borrowers who see lenders offering first-time buyer incentives. The fact is, those incentives either come from the participating lender and not the FHA, or from a state/local program designed to assist those who have never purchased a home before.
So what kind of options are available for a first-time home buyer when looking at FHA mortgage options?
You can get information on home buying programs broken down by state from the FHA official site. These programs are not administered by the FHA but the state-by-state list of programs is there to help you find non-FHA sources of assistance near you.
First time home buyers do well to also take advantage of the FHA/HUD offer of a referral to a local, HUD-approved housing counselor who can help with pre-purchase planning, budgeting issues, credit, and more. If you aren’t sure where to begin with an FHA mortgage or any other type of home loan, this can be a very important resource.
First-time home buyers should also have a look at the official site of the government’s consumer watchdog agency, the Consumer Financial Protection Bureau, which has a section dedicated to mortgages. Knowing important details about interest rates, mortgage insurance, appraisals, and home inspections will make you much better prepared to make informed choices about your new FHA home loan.
While we don’t report on mortgage rate trends on a daily basis, we do give more time to that coverage when circumstances warrant, and this week definitely rates a closer look at the trends. Since our last report, mortgage rates moved decisively higher, pushing back in the direction of the mid-four percent zone (but not there yet).
Some market watchers blame (at least in part) bond market performance for the most recent upward spike that pushed 30-year fixed rate conventional mortgages into a range between a best execution 4.125% and a best execution 4.25%. Prior to that, coming out of the weekend we saw more lenders at the lower end of that range.
Could some borrowers see them most recent changes reflected in closing costs rather than actual mortgage rate changes? It’s entirely possible but that will change if the upward movement gains momentum.
FHA mortgage rates are still holding in a best execution comfort zone of 3.75% but if upward pressure continues to affect mortgage rate trends, we could see that number at the bottom end of a new range for FHA mortgage rates.
(The rates cited here are best execution rates which assume ideal conditions; these rates are not available to all borrowers or from all lenders. Your experience may vary based on your FICO scores, loan repayment history, etc.)
So from our last report where we noted some industry pros were saying “lock within 15 days, and carefully weigh your floating options otherwise” we are now seeing advice that modifies this to remind borrowers that “risk tolerance” is the phrase of the day. If you cannot or do not want to take a financial risk of having to commit to a mortgage rate higher than the ones seen today (best execution), floating might not be the right option for you.
Setting a limit to how high rates might go before you ultimately make the commitment with your lender is the first and most important thing to do before choosing to “float” in hopes of getting a lower rate. It’s true that as our sources and other industry professionals are pointing out right now that we are within a specific range of rate behavior in the short term.
The most recent move higher is still within that range according to our sources and some feel it could be a matter of time in the short term before we see rates fall down into the lower part of the range.
But if that doesn’t mean much to you and you simply want to eliminate the uncertainty, discuss this situation with a loan officer and get some advice on how to proceed. Floating is never risk-free, and there are plenty who would rather avoid the risks altogether.
There are many reasons why we report on Fair Housing Act laws. Violations of Fair Housing laws don’t just directly affect the borrower who is trying to purchase a home; such violations can hurt renters who are in the planning stages of a home loan or those who are actively looking as renters who have relocated to a new job market, etc.
Families with children looking to rent or buy with an FHA loan (or any other type of mortgage) may experience discrimination based on family status. One recent example discussed on the HUD home page makes it clear that people from all walks of life may experience this type of illegal discrimination.
Consider a recent example in Wichita, Kansas, where credit history, payment status, or other financial qualifications were NOT the cause for denying housing to a resident who sought to modify an existing lease.
“The U.S. Department of Housing and Urban Development (HUD) announced today that it is charging the property owners, operator, and office manager of a multifamily property in Wichita, Kansas with violating the Fair Housing Act by terminating the lease of a resident who had asked that her grandchild be allowed to live with her”. That’s according to a press release on the HUD official site, which adds:
“The case came to HUDs attention when a female resident filed a complaint alleging that the owners of Northridge Apartments, a complex in Wichita consisting of 16 one-bedroom units, terminated her lease after she asked if she could add her granddaughter to her lease. The grandmother had obtained custody of the child shortly before she made the request.”
HUD is bringing charges against the property manager, who was described in the press release as having told the renter the told her that her request may be a problem, and that, according to the press release, the owner doesnt want kids on the property. The HUD release also includes allegations that “the owners gave notice that they were terminating the lease of another family with a child around the same time.”
Such discrimination, if true, is a violation of Fair Housing laws. “Grandparents shouldnt have their housing taken from them simply because theyre guardians of young children, said Gustavo Velasquez, HUD Assistant Secretary for Fair Housing and Equal Opportunity, who is quoted in the press release. This charge reinforces HUDs commitment to ensuring that housing providers meet their obligation to treat families with children the same as any other resident.
If you feel you have experienced Fair Housing Act violations in your search for housing, contact the HUD Office of Fair Housing and Equal Opportunity at (800) 669-9777 (voice) or (800) 927-9275 (TTY).
Since our last report, the mortgage rate trend has swung back to improvements, taking back loses incurred last week and dropping hints that things could be settling into a new range. It’s still early days yet, but industry professionals are talking about these gains in association with weaker stock market performance, talk of European economic issues, and bond market activity.
If the current trend persists, we might see rates (best execution) at or near current levels, giving those inclined to float a better picture of where things could go if upward pressure resumes.
If you haven’t made a mortgage rate lock commitment with your loan officer, at present it might be easier to set your cut-off; if you decide to “float” until rates improve or cut your losses and lock if rates climb to a certain point, setting that point might be easier to do now than it was at the start of the holiday season.
30-year fixed rate conventional mortgages are at the time of this writing reported at or near a best-execution 4.125%. There may be some lenders who offer a higher best-execution rate, but according to our sources, 4.125% is easier to find. FHA mortgage loan rates are holding in their best execution 3.75% comfort zone and it may take a major shift up or down to push things out of that zone.
As always, the mortgage rate information you see here is listed as “best execution” which implies ideal conditions including an extremely well-qualified borrower with outstanding FICO scores and other financial qualifications. These rates are not available to all borrowers or from all lenders, and your experience may vary.
Back to the lock/float question, some advise locking within 15 days of closing in the current rate environment, while others may advise not floating at all currently if for no other reason than the fact that we’re still looking for more specific signs of an upward or downward trend.
As mentioned above, your tolerance for risk is what should determine your strategy in this area. If you can’t afford to take the chance, locking now could be the best move. If you are more comfortable with the risks of higher rates, floating is an option you should discuss with your loan officer first.
The FHA appraisal process is a requirement. You can’t purchase a home with an FHA mortgage unless there has been an appraisal on the property to determine the fair market value of the home and to insure the property meets FHA minimum standards.
This requirement is found in HUD 4000.1 and applies to proposed construction, new construction, and existing construction properties. According to HUD 4000.1, “The Mortgagee must evaluate the appraisal and any supporting documentation to determine if the Property complies with HUDs Property Acceptability Criteria. Existing and New Construction Properties must comply with Application of Minimum Property Requirements and Minimum Property Standards by Construction Status”.
During the FHA appraisal, the property is reviewed (but NOT “inspected”) and in some cases “defective conditions” may be noted. In such cases HUD 4000l.1 states, “The Mortgagee must evaluate the appraisal in accordance with Defective Conditions to determine if the Property is eligible for an FHA-insured Mortgage. If defective conditions exist and correction is not feasible, the Mortgagee must reject the Property”.
Defective conditions can be fixed, and if the FHA fee appraiser directs such corrections they are required as a condition of loan approval.
Some borrowers want to purchase a fixer-upper home with an FHA rehab loan (also known as an FHA 203(k) or 203(h) depending on which type is applied for) and the property would obviously NOT meet minimum standards at the time of purchase. FHA loan rules address this situation, stating:
“If the Mortgage is to be insured under the 203(k) program, the Mortgagee must confirm that the Property will comply with the following eligibility criteria upon completion of repairs and improvements.”
Borrowers should budget and save for both an initial appraisal fee and a follow-up inspection if needed. The follow-up, also known as a compliance inspection, may be required for certain corrections required as a condition of loan approval.
In all of this, it should be noted that the FHA appraisal is NOT a home inspection, is not as complete as a home inspection, nor should the FHA appraisal process be considered a stamp of approval that the property is free from issues. Only the optional (but extremely important) home inspection will give the borrower the most informed look at the state of the home. The FHA appraisal will NOT do this.
Markets were closed on Monday for the Martin Luther King, Jr. holiday, so today’s post should be read with that in mind. Since our last report, mortgage rate trends have taken a turn upward. That move has given back some of the gains mentioned in our last report, but at the time of this writing we’re still looking at changes small enough to be reflected mostly in closing costs for affected borrowers, but some lenders have repriced as we’ll see below.
The upward move comes in spite of some retail sales economic data that has (in the past) helped mortgage rates rather than hurt them, but the existence of data of that nature doesn’t guarantee movement in mortgage rates; it all depends on investor reaction to the data. And we know that investor reactions aren’t always predictable and don’t always follow historical precedent.
30-year fixed rate conventional mortgage loan interest rates are in a best-execution range between 4.125% and 4.25%. Enough lenders are still at 4.125% that any changes for them would be reflected in closing costs, but if upward movement persists this week we could see that range eliminated.
FHA mortgage rates are holding steady at a best execution 3.75%. FHA mortgage rate trends often develop more slowly, requiring either dramatic one-day moves to break out of a “comfort zone” or consistent, smaller changes in the same direction over time. How long FHA mortgage rates will stay in the below-four-percent zone remains to be seen but it’s logical to assume that a persistent upward movement in rates over the coming week won’t favor remaining below 4%.
As always, the rates you see listed here are best execution rates which assume ideal conditions. Your ability to access rates like these depends greatly on your FICO scores and other financial qualifications. Your experience may vary and the rates listed here are not available to all borrowers or from all lenders.
Many industry pros seem to favor locking in the short term rather than floating in hopes that rates might improve. The talk among some is that we’re settling into a new range of rates and floating (which always carries a risk) is less rewarding.
Those who feel comfortable with the risks of floating here might consider it, but if you’re not comfortable taking chances at this stage locking is for you. Have a conversation with your lender for some expert advice in this area before choosing to float.
Happy Martin Luther King, Jr. Day! Banks and markets are closed today to observe the holiday and we too feel it’s very important to remember this important day. America owes a great deal to Dr. Martin Luther King, Jr. and we are proud to observe this day dedicated to him.
We pause are regular coverage of FHA news and answering reader questions about FHA home loans to observe the holiday. We resume our usual schedule of posts tomorrow. Thanks for reading!