Specifically, in a letter released today (PDF), HUD has announced that those changes will only go into effect for case numbers issued on or after October 4, 2010, rather than September 7th as originally announced.

As noted before, case numbers are assigned to a specific borrower for a specific property, so borrowers who have a specific property identified to purchase or refinance can contact their lender to inquire about getting a case number assigned for them before the new deadline of 10/4/10 in order to avoid paying the higher premiums that this change will cause.

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As you know, FHA lending has become the lifeline for both the lending industry and the real estate industry. Without it, the activity that we have seen over the last 2 years would have been substantially reduced. With that increase in deal flow, FHA has taken on additional financial risk and exposure, and these new changes are an effort by FHA to reduce that excess risk.

FHA loans normally require two types of mortgage insurance for each loan: an “Up Front Mortgage Insurance Premium” (UFMIP) that is charged at the time the loan is taken out, as well as a monthly Mortgage Insurance Premium (MIP) that is added to the monthly mortgage payments. The UFMIP has historically been a fairly large fee, but one that the borrower could roll into their loan so that they would not have to increase their out-of-pocket expenses, with very little effect on their monthly payment; the MIP, on the other hand, was smaller in absolute terms but had more of an impact on the borrower’s monthly payments.

You may recall that on April 1, 2010, the UFMIP was raised from 1.75% of the borrowed amount to 2.25% of the borrowed amount. FHA’s new requirement will actually reduce the UFMIP to even less than it was previously–down to 1.00% of the borrower amount for most loans; that reduction will for most FHA borrowers reduce their monthly payment by about $6/mo for every $100,000 of their loan (assuming the most common current interest rates, of roughly 4.000%-4.500% for a typical FHA borrower).

However, FHA is at the same time imposing a significant increase in the monthly MIP, from an “MI factor” of 55 on most FHA loans to an MI factor of 90. The MI factor is a way of measuring the size of a monthly MIP; with each MI factor increase of 1 corresponding to an increase in the borrower’s monthly payment of roughly $0.83 per $100,000 of the loan. (Unlike w/ UFMIP, the MIP’s effect on monthly payment is independent of interest rates.) With the MIP nearly doubling because of this increase, the change to a borrower’s monthly payment because of the MIP increase will be about $29/mo per $100,000 of the loan.

The net result of these two changes is that borrowers will see their monthly payments go up by roughly $23/mo for every $100,000 of money borrowed; for a typical DC-area buyer taking out a $400k loan, that would result in an increase in monthly payments of nearly $100/mo. That’s not the end of the world, especially given current historically low interest rates, but it could still reduce the ability of some borrowers to qualify for loans and/or afford the properties that they intend to purchase.

These new changes should go into effect starting with all FHA loans w/ casefile numbers issued on or after September 7th, 2010. Casefile numbers are issued to a specific borrower for a specific property, but do not require having a ratified purchase contract. If you’re thinking of purchasing a specific property or refinancing an existing property using FHA financing but think that you may not be ready to act until after 9/7/10, you may want to talk to your lender to see if they can issue you a casefile number now so you can avoid paying the new UFMIP/MIP fees when they go into effect in September.

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Many people are aware of the tax credit of $8000 that was available to some homebuyers who got a contract to purchase a home before April 30, 2010, and closed on that purchase by June 30, 2010 (recently extended to September 30, 2010). Since members of the military, intelligence, and diplomatic communities who were posted abroad during the main eligibility period for that tax credit did not have the same opportunity to take advantage of it, Congress also extended the eligibility period for those communities; even though it is the same tax credit as the original one, and even though it applies to groups other than the military, many people in the press are referring to it as the “Military” homebuyer tax credit.

Here’s the full response that I sent to Deborah when she inquired about the “Military” tax credit and whether we were expecting surges in homebuying activity as a result of that credit and/or the BRAC base relocations that will be bringing thousands of new military jobs to the DC area:

I work with a lot of clients who are eligible for the extended homebuyer tax credit, which actually applies to not just the military, but also to members of the Foreign Service and the intelligence community.

Members of those groups moving to DC have been using the original tax credit in about the same amount as other groups up until now; we’re expecting that usage of the new extended credit will drop somewhat among military folks, though, because one of the requirements for using the new extended credit is that the buyer needs to have been deployed abroad for at least 90 days at some point in 2009-2011 to be eligible to use it–many of the folks who are moving to the area for BRAC have not been actively deployed during that period, and thus can’t take advantage of the credit. We do expect to see an increase in members of the FS and intel communities using the credit this summer, though, as people posted abroad often rotate back to DC, and frequently want to purchase a residence in the area when they do; those rotations tend to happen during the summer, and the extended credit requires contracts to purchase by April of 2011, so the majority of FS/intel buyers using the credit will probably be doing so in the summer of 2010.

With regards to BRAC movements, we’re expecting a fair amount of homebuyer activity around Ft. Belvoir, Andrews AFB, and Ft. Meade. Based on the estimated schedules available for BRAC moves, though, it will be a while before we see that activity really pick up: we expect that the moves will happen in two surges, with one in fall/winter ‘10 (about 25% of the moves scheduled) and another in summer/fall ‘11 (the other 75%). The commercial market seems to be matching that expectation; COPT just announced yesterday that they were going to be building nearly a million square feet of commercial space in Springfield to serve vendors working with BRAC-relocated agencies such as NGIA, but they aren’t even starting construction until the end of 2010.

(I talk about the summer of 2010 as if it’s in the future because this conversation was happening back in May, before DC became a fetid crockpot that braised us into knowledge that summer had, in fact, started.)

If you’re a member of the miiltary, intel, or diplomatic communities and have any questions about the tax credit eligibility extension or about buying a home in the area as part of a BRAC relocation, feel free to contact us. And if you’re a reporter with a question about the mortgage or real estate market in the Metro DC area, we’re always glad to answer your question or put you in touch with someone who can. (Note, however, that we prefer not to opine for the media on the national real estate market as a whole. For one thing, there really isn’t a national real estate market per se. For another, what few trends there are in a national market like ours are so complex that our answer would be full of caveats and statistical jargon that most reporters would be forced to elide, and then we’d be grumpy about the result.)

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In February 2009, Congress passed the American Recovery and Reinvestment Act, which created the homebuyer tax credit for first-time buyers, and later expanded the credit to apply to some buyers who had previously owned homes, as well as extending the deadlines for when those buyers had to get a home under contract and then close on their purchase by in order to qualify. Those extended deadlines were originally April 30, 2010 (for the contract) and June 30, 2010 (for closing), but after reports that nearly 200,000 buyers who had met the first deadline were experiencing delays with obtaining their loans because of the increase in demand that the tax credit and low interest rates had caused, and would not be able to meet the second deadline, Congress stepped in again at the last minute, and pushed back the closing deadline until September 30, 2010.

This extension only applies to buyers who had a property under contract by April 30, 2010, and who were otherwise eligible for the tax credit.

(In addition, Congress had also previously granted an extension for members of the military, diplomatic, and intelligence communities who were posted abroad during the original eligibility period.)

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HomePath mortgages are available in most of the “normal” flavors available for other conventional mortgages (e.g. 15-, 20-, and 30-yr fixed rate, and 3/1, 5/1, 7/1, and 10/1 adjustable rate); they allow up to 97% LTVs (i.e. only 3% down) for buyers intended to occupy the property as their primary residence, or up to 90% LTV for second-home or investor buyers. Among the advantages of HomePath mortgages are:

• They don’t require an appraisal; the negotiated sales price is used as the property value. Since appraisals are one of the biggest unknowns in the underwriting of most modern purchase loans and the piece of the process whose timeline is least predictable, not having one makes the mortgage financing process both more certain and faster.

• They have lower upfront costs. As noted above, the buyer does not have to pay for an appraisal, and most HomePath lenders also have lower overall fees on HomePath loans versus conventional mortgages.

• They do not require mortgage insurance, which usually lowers the effective rate of HomePath loans. HomePath loans do have slightly higher base rates than conventional mortgages, but for LTVs up to 95%, the effective rates when looking at total monthly payment as compared to FHA loans or conventional loans with MI are usually much lower to HomePath.

• They do not require mortgage insurance. which smooths the underwriting process. Conventional loans that require mortgage insurance usually must go through two rounds of underwriting–once by the lender, and again by the mortgage insurer; HomePath mortgages can skip that second round of underwriting, which can often be more stringent than regular mortgage underwriting.

• They allow LTVs up to 97%, which is slightly higher than FHA. Due to recent changes, FHA loans normally have a maximum LTV of 96.5%; thus, while FHA often has a better rate for borrowers with LTVs of 95% or higher, for borrowers for whom that extra 0.5% down payment to bring the LTV from 97% down to 96.5% would be a deal breaker, HomePath can often save a purchase that would otherwise fall apart.

• They have slightly looser underwriting guidelines for condo developments. Issues with budgets, delinquent association fees, and/or high investor ratios at condo developments are one of the biggest reasons that purchase loans in the DC area don’t get approved these days, and HomePath’s condo guidelines are slightly less stringent than those for other conventional mortgages.

For all of these reasons, HomePath mortgages can be a great tool for borrowers interested in FNMA-owned REOs. How can you tell if a property is eligible for HomePath financing? Most agents listing FNMA-owned REOs will advertise that they are HomePath-eligible, but you can also always double-check (or search for FNMA-owned REOs in your area) at Fannie Mae’s HomePath.com website.

Once you’ve found a HomePath-eligible property, feel free to contact us about getting HomePath financing; our wholesale lending sources are among the strongest in the country, and we are thus on the select list of mortgage brokers who can provide HomePath mortgages.

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HARP refinances allow homeowners who are “underwater” on their current mortgage to potentially refinance and take advantage of current low interest rates, and also allow borrowers who are not underwater to potentially streamline their refinance process and/or reduce the costs or documentation needed for their new loan.

HARP loans, however, are only available to homeowners whose mortgages are currently owned by either Fannie Mae or Freddie Mac, so the first step in determining if you are eligible is to check to see if either of those Government-Sponsored Agencies (GSAs) does own the first mortgage on your property. (Note that the ownership of your mortgage is completely independent of the servicing company that you send your mortgage payments to, or the lender who initially issued you your loan; most loans in the current mortgage market are bundled up and re-sold behind the scenes without the borrower knowing or in any way being affected by that change, and Fannie Mae and Freddie Mac are the largest purchasers of those mortgage bundles in the US.)

Fannie and Freddie have set up websites where you can check to see if they own your mortgage:

• Fannie Mae Lookup

• Freddie Mac Lookup

Be sure to check both sites, and when using those sites, first use the name and address that appear on the billing statement for your mortgage, even if those might not be exactly correct. If you don’t find a match that way, also try other common variations of your name/address that might have ended up in Fannie/Freddie’s databases; in particular, if you still have the settlement docs from when you got your mortgage, try any variations that appear on those documents.

If your mortgage does appear to be owned by one of those GSAs, then you may be eligible for a HARP refinance. Feel free to contact us and we’d be glad to help you figure out the rest of your potential eligibility for a HARP refi.

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After passing the recent health care reform bill, Congress adjourned for recess–but in so doing, forgot to reauthorize the NFIP, which was scheduled to expire at midnight on the night of Sunday, March 28, 2010. NFIP is the program that issues flood insurance on homes that are in Special Flood Hazard Areas as determined by FEMA, and lenders require that any property in one of those flood areas have flood insurance before they will issue a loan for the property. As a result, buyers of those properties will not be able to close on their financing until such time as Congress renews NFIP; they are currently scheduled to reconvene on April 12, 2010, so hopefully NFIP will be renewed shortly thereafter.

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That website, Rent My DC Basement, features a comprehensive checklist of everything that you need to know to make sure your basement unit is rentable, including links to zoning maps so you can make sure that you’re even allowed to rent out your basement apartment in the first place. DCRA is also being very responsive to suggestions in the comments on that site and via their Twitter feed, so expect more useful info to show up on the site.

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As a recent series of articles on CNNMoney points out, some homeowners in distress are able to have some or all of their debt forgiven, or have their interest rates on their mortgages reduced to as little as 2% fixed for the remaining life of their loan.

Getting those modifications can be very difficult, however–according to Treasury Department statistics, only 4% of homeowners in distress have been able to get permanent modifications to their loans.

One key word in that statistic is “permanent”. Many lenders are currently putting distressed owners in “trial” modifications, to confirm that the owners can at least make the new, smaller, payments–but during that trial period, the owners are technically not making their full payments, which is in turn causing them to be reported to credit bureaus as delinquent; the end result is that borrowers who are in good faith complying with lenders’ modification plans are finding that they’ve ruined their credit history.

Anecdotally, we’ve found that owners who retain professional help to negotiate with lenders on their behalf tend to have much better results in terms of getting their modifications approved. Those modifications often do still result in damaged credit (often because of deficiency judgments obtain against the homeowners, or “P&L loss writeoffs” that the lenders declare on the homeowners’ credit reports), but for some owners they can still be worth it if they result in avoiding foreclosure or bankruptcy.

If you’re contemplating a loan modification and would like to first explore your options for a traditional refinance, we may be able to help; we can also provide you with referrals to lawyers and negotiators who can help you with your loan modification, bankruptcy, or short sale. If you’re interested in any of those services, please fill out the form below and we’d be glad to assist you.

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We’ve previously commented on serious issues with this drywall, often called “Chinese” drywall since most initial reports related to drywall that had been imported from China, although later reports have indicated that similar issues may exist with some domestically-produced drywall as well. In HUD’s mortgagee letter 02-17, released today, HUD and FHA ordered lenders to provide reduced or suspended payments to affected homeowners who have FHA-insured mortgages.

“We’re instructing our FHA mortgage lenders nationwide to extend temporary relief to allow these families time to remove problem damaging drywall and repair their homes,” said FHA Commissioner David Stevens. “We want to remove additional pressures for these families as they find solutions to allow them to return to a safe, decent and sanitary home.”

Affected homeowners who have FHA financing on their property are advised to contact their loan servicing company to explore their options under the new mortgagee letter.

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