Dan Polimino's Blog

While FHA fees for purchase mortgages will be going up sharply on April 1st, it appears that fees for FHA "streamline" mortgages will be going down soon. A streamline refinance is for borrowers who have an existing FHA mortgage and wish to reduce the rate, or change from an Adjustable Rate Mortgage (ARM), with a minimum of paperwork and WITHOUT an appraisal. Many borrowers have not been able to take advantage of this because of the increase in the monthly mortgage insurance premiums offset any of the gains produced by refinancing.

The proposed changes for FHA refinances is to reduce the current upfront mortgage insurance premium from 1% to .01%, and the annual premiums paid monthly from 1.15 to .55%. On a $200,000 mortgage, the upfront premium would decrease from $2,000 to $200, and the monthly mortgage insurance would decrease from $192 per month to around $92.

The only catch, so far, is that the new fees only apply to loans taken out before June 1, 2009. I have no clue why this cutoff date was chosen.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                   

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

FHA will increase the upfront mortgage insurance premium by 75% on April 1, 2012. The current upfront fee is 1% and will be increasing to 1.75%. This means that the upfront mortgage insurance on a $300,000 FHA mortgage will increase from $3,000 to $5,250. Additionally, the monthly mortgage insurance, which is currently 1.15% for a mortgage with a loan to value over 95%, will be increasing by 0.1% to 1.25% annually.

At a Senate Hearing last week on the state of the housing market, Secretary Donovan indicated that FHA would be reducing premiums for FHA loans that were endorsed on or before May 31, 2009. The logic behind this is to help people, who have demonstrated a track record of performance, refinance their FHA loans.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                   

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

Refinancing an existing mortgage that is either a Federal Housing Administration (FHA) or Veterans Administration (VA) loan it is far simpler than a property that currently has a conventional mortgage. The main reason is that in most cases it will not require a project approval of the Homeowners Owners Association. But the situation may not be hopeless, even if you have a "condotel".

Non agency portfolio products are a great option for someone who has a condo with a mortgage that is not FHA or VA. A portfolio product is a mortgage that a company will hold and service, giving them more flexibility in the underwriting requirements. Examples of this flexibility are: a loan to value up to 90% without mortgage insurance, projects up to 8 stories may be acceptable, etc. While project approval will still be a consideration, the guidelines are often less stringent than required to for other mortgage options.

A "condotel" is a building that is used both as a condominium and a hotel, which are popular in resort areas. Condotels are characterized by a "front desk" to rent the unit out when the owners are not using it. They are different than a time share because the owner is not restricted to using the property for specified time frames. Condotel financing is a rare product, but available. A consumer should be very careful to identify this upfront so that they do not waste time and money on appraisals and application fees only to find out the property is ineligible.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                   

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

Unfortunately, some of the terms in the mortgage industry are not applied uniformly. My favorite example concerns a mortgage that supposedly has no closing costs. For a true no cost loan, the math is very simple. Take your payoff, add the amount for escrows (such as property and insurance), and the upfront mortgage insurance premium / funding fee, if it apples. This should equal your new loan amount, with appropriate adjustments if you are bringing cash to the closing or receiving cash back. Sometimes the lender may be able to pay the upfront FHA mortgage insurance premium or funding fee for the borrower. Ask your lender about this. If they do not know about this, find a competent lender. 

Once again I am encountering lenders who utilize a different definition of a no cost loan that creates a false impression and confuses the borrower. With their definition, the loan costs are added to the loan, but they define it as a no cost loan because the borrower does not have to bring the closing costs to the closing in cash. I feel this is deceptive as the borrower is incurring a cost that will someday have to be paid back. Deferring a cost does not mean it did not happen, only that you will have to pay it back at a later date. 

As always, do the numbers to determine what is best for your unique personal situation. If you need help on your mortgage analysis, let me know. 

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life! 

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

One of the many great benefits of working for Crestline Mortgage Bankers, a division of Universal Lending Corporation, based in Denver, Colorado, is the information put out by the underwriting department to help avoid problems on the front end, so the deal does not blow up before closing when it could have been avoided.

"After confirming with two separate sources at the Denver HOC office, we have learned any home, including HUD Repos, which have any evidence of the use of meth or creation of meth or even if a police report has been issued stating meth was in use in a home is ineligible for FHA insurance. Even if remediation has been done, they will not accept the property. The appraiser is to reject the property if they have knowledge of meth use or creation in the home or if they have been informed of remediation. It is important to know that HUD Washington has not issued anything in writing but has left this particular issue up to the individual Homeownership Centers. The Denver HOC has decided they will NOT accept properties impacted by meth until further notice, although this is not in writing either but is an internal order. Please keep in mind the Denver HOC has authority over 17 western states and this order applies to all the states reporting to the Denver HOC. Please make sure your Real Estate agents are aware of this as well. We have not received any notification from any of our investors regarding this issue, but if the loans cannot be insured, they will not be purchased."

The scourge of meth is an equal opportunity plague that can impact any property, no matter what price range or location. A retired fire department captain remarked that he had seen meth labs in uber-expensive lofts in one of the trendier areas of Denver. One source of information is the National Clandestine Laboratory Register, published by the U.S. Drug Enforcement Agency, at www.justice.gov/dea/seizures. It is also is worth the time to contact local law enforcement agencies as they may have information that has not been shared with the DEA.

Listing agents will want to address this so that they do not waste time and money on a property that has limited mortgage options. I expect VA and conventional mortgages to adopt these guidelines in the future. Selling agents need to address this so they do not waste their time, and the borrowers' money for an inspection, appraisal, etc., on a deal that will not close. While no one wants more research to do, I feel this is another justification for the real estate agent's commission and another reason for buyers to avoid For Sale By Owner properties. A number of years ago I saw an investor who only looked at FSBO properties because he thought he would be saving money if real estate agents were not involved. Turns out the property he purchased had been used as a meth lab and it took close to $ 40,000 to mediate.  Ever notice how stupid and greedy are a bad combination?

CHarles A. “Chip” Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                     

Direct: 303.947.2109 

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret.

Is a loan with no fees or origination charge the best deal? Maybe. Never forget that interest rate is only half of the equation. Rate AND fees are the whole equation upon which you should make a decision. When talking to borrowers who have been shopping rates, I always ask the same questions. What is the term of the mortgage, are both mortgages fixed rate, and what costs are associated with the mortgage. Sometimes a borrower is comparing a 10 year fixed rate mortgage to a 30 year fixed rate mortgage. We need to make sure we are comparing apples to apples. The longer the term of a fixed rate mortgage, the higher the rate. It is very common when I inquire about the exact dollar amount of the closing costs or fees associated with the mortgage, the borrower does not know the answer because they either were fixated on the rate or it was not properly disclosed.

Fees to obtain a mortgage are referred to as closing costs. Closing costs are defined as all costs associated with a borrower obtaining a mortgage. These costs include, but are not limited to, origination fee, discount points, appraisal, title insurance, flood cert, doc prep, processing, etc. Prepays are charges for property insurance and funds put into the escrow account for property taxes, insurance, etc. Borrowers should always be careful to make sure that they are looking at a true no fee loan, and not one where the closing costs are added to the loan amount. On a true no cost mortgage, except when there is mortgage insurance or a VA funding fee, the interest rate should match the annual percentage rate (APR) as disclosed on the Truth-In-Lending disclosure statement (TIL). If mortgage insurance or a VA funding fee is required, the APR will be higher than the note. 

Analyzing the mortgage choices to see what is best for the borrower is simple. Look at the difference between the costs associated with a mortgage and examine how long it will take you to break even. For example, lets compare two thirty year fixed rate mortgages with a mortgage amount of $300,000. One mortgage has a 4.25% interest rate and $6,000 in closing costs and the other option is 4.75% with no closing costs. Principal and interest for the 4.25% mortgage is $1,476 and $1,566 at 4.75%. By dividing the difference of $90 per month into the $6,000 for closing costs, we see that it will take the borrower 67 months to break even. This simplified analysis does not take into account the possible income tax ramifications or the time value of money.

Another important thing to consider is if the money used for closing costs could be better utilized paying off credit cards, kept for liquidity, used to fund a retirement account, etc. A borrower does not want to be equity rich and cash poor. As I know personally, it is very hard to eat equity. Borrowers should always remember to look at the whole forest, and not just one tree. I have noticed mortgage professionals almost always do their personal mortgage on a no cost basis. As always, the answer is to do the numbers and see what is best for your personal situation.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret.

With a 5% down payment, is FHA still the best way? Maybe. As always, your choice on a mortgage depends on your unique personal situation. I detest rules of thumb and broad generalities when it comes to what type of mortgage is best for a borrower. One size does not fit all. A mortgage should be custom tailored for a borrower like a fine suit.

A conventional mortgage could be a better deal for a borrower than a FHA mortgage if the borrower is making a 5% down payment. If a borrower has or only wants to make the lowest possible down payment, currently FHA is a better choice as it allows a 3.5% down payment. However, this may be changing. Many industry analysts predict that FHA will be raising the down payment to 5% in the near future. This is the result of the Obama administration "white paper" on housing reform that was released in February 2011, that called for higher down payments across the board. Even though VA loans, which require no down payment, have the lowest default rates now, policy makers want to see borrowers have "more skin in the game".

The key is determining if the borrower would qualify for the conventional mortgage with private mortgage insurance. Conventional loans, requiring mortgage insurance, have far more stringent underwriting standards than FHA mortgages. Remember that a high ratio conventional mortgage is approved contingent upon the borrower obtaining private mortgage insurance. Many clients who would easily qualify for FHA will not fit into the private insurer's more stringent underwriting model. These requirements include higher credit scores, lower debt-to-income limits, and higher cash reserves.

Your mortgage consultant should analyze your situation to determine which choices are available for you. If you are one of the fortunate few who may go in either direction, a conventional mortgage with private mortgage insurance may be a cheaper alternative. As always, examine what your options are and then do the numbers.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                     

Direct: 303.947.2109 

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret.