Before you start yelling at me about ‘oh no, here we go again’, hear me out on this. The biggest obstacle I see with first time home buyers and move up buyers is the money it takes for a down payment. First time home buyers are obviously cash tight and move up buyers are having the same issues because their current home has not fully recovered from the real estate recession of 2008. They are not necessarily upside down with the equity in their home but they are strapped. After paying the realtor fees and closing fees a lot of these borrowers need the option of a no down payment loan. If Fannie and Freddie would come up with a good no down payment mortgage I believe this would jump start housing and really bolster the economy and help everyone.
So many of the customers I prequalify have good jobs, good credit, but no money. After hearing that they will need at least 3% to 3.5% to buy a home they give up the process. My suggestion is that Fannie and Freddie develop a program for these borrowers. I would like to see at least a 700 credit score with no more than a 45% back ratio (monthly mortgage payments and debts divided by monthly income). I also would not have an income limit or have it restricted to just first time home buyers.
Here are the reasons this program would be different than the zero down payment loans that were available in the mid 2000’s that helped create the real estate crisis. First of all, we now have QM (Qualified Mortgage) and ATR (Ability-To-Repay). Both of these rules were put into place to make sure borrowers can afford their mortgages and both rules eliminated certain features that lead to risky loans and higher default ratios (interest-only, negative amortization, balloon features, stated income, etc). I can remember back in 2005 there were mortgages available that were zero down, stated income, interest only, with 680 credit scores. And if you could prove your income then you could get a no down payment loan with as little as a 580 credit score! Talk about a train wreck. The only thing this new loan would have in common with the loans of 2005 is the zero down. The income would be verified, ratios limits would be followed, and credit scores would have to be high.
I understand peoples trepidation and hesitancy with the zero down payment mortgages. But, if handled in the correct way, these loans would be a big boost to the housing market and overall economy without increasing the risk of another real estate crisis.
It has been reported that Donald Trump may issue an executive order freezing a number of actions by the Obama administration including reducing the monthly FHA mortgage insurance premium. The premium cut was supposed to take place January 27th reducing the monthly mortgage insurance to .6% from .85%. Assuming Trump signs the executive order, this will give the new HUD secretary, Ben Carson, time to review the mortgage insurance reduction and make a decision on whether it should take effect. We will keep everyone updated on what transpires.
Starting January 27th, FHA will lower their monthly mortgage insurance to .6% from .85%. On a $200,000 mortgage that would be a reduction of approximately $41 a month. It looks like we are starting to see the housing and mortgage market remove the roadblocks of first time home buyers. Although FHA is not solely a first time home buyer program, it does help first time home buyers get into the housing market by offering a 3.5% down payment option.
This is the 2nd sign we’ve seen this year that the powers that be look like they are all in for kick starting the housing market and getting the economy moving. Yesterday I posted a blog about Freddie Mac offering a new 1% down program and now FHA reduces their monthly mortgage insurance. These both look like positives signs. I will continue to keep you abreast of any new changes that occur in the mortgage and housing markets.
Freddie Mac has come out with a new program designed to help more borrowers obtain financing with lower down payments. Since the real estate crash of 2008 Fannie Mae and Freddie Mac have increased their down payment rules. It now looks like it’s starting to soften a bit. Under this new program the borrower only has to contribute 1% down payment which can come from their own funds or a gift. Below are some of the parameters of the program:
- Minimum 700 credit score.
- Maximum debt-to-income ratio of 43%.
- 3% seller concessions for closing cost and pre-paids.
- Program available with or without monthly mortgage insurance.
- Borrower can not make more than 100% of area median income (roughly $77,000 in Albemarle County).
This should help open up the first time buyer market. While FHA has been consistent with the 3.5% down program and Rural Development is available in rural areas with 0% down payment, it is now nice to get Freddie back in the ball game!
When our 25 year old son, Alex, broke the news to Penny and me that he was going in The Peace Corps we were stunned to say the least. We are a close knit family and the idea of our oldest son going to Africa for 27 months was a gut check. He went to James Madison but was home for the weekends at least once or twice a month. Plus we could go visit him anytime for lunch. He then went to Arlington and worked for the AmeriCorps for the last year, but same thing, we saw him almost every weekend. But yesterday, after 17 hours on the plane, he landed in Zambia (see picture below, Alex is the one right under the lion’s nose). So Penny and I, as well as Alex’s brother and sister, Drew (22), and Emma (20), have to deal with not seeing Alex for at least the next 15 months (Alex is scheduled to come home for a week next September to be in one of his best friend’s wedding, Joe Cady. Thank you Joe for getting married and having Alex in your wedding!) So how do we deal with it?
Obviously, we will all miss Alex dearly. We all have our special bond with Alex and not being able to spend time with him is going to be hard. Not having him at the UVA basketball games with us, not being able to play golf together, or just not being able to hang out together will be tough. But for me, the way I get through it is to stop and think about what an amazing young man he is. As one of my golfing buddies said to me, he is doing god’s work. How true. Not many people give up 27 months of their life to help the less privileged. Most won’t give up 5 minutes. So the best way I can put it is that Alex makes you want to be a better person. Every time I tear up and start missing him I just have to say, “stop thinking about myself!” There are people dying, starving, and struggling to get through the day and it is people like Alex that make this world a better place.
I will pray that Alex stays safe and has an amazing time in Zambia. I also know that he will change lives there along with all the other amazing people in the photo above. But most of all Penny and I are just proud and honored that Alex is our son.
Photo: Alex at age 6 with Emma and Drew
Every 6 months I give my prediction on what will happen with 30 year fixed mortgage rates for the next 6 months. Before I give my prediction and discuss the reasons, lets see how I did with my prediction 6 months ago (feel free to go back through my blog over the last 2 years and look at all my predictions). 6 months ago Freddie Mac’s weekly survey had rates at 3.84% with .7 points. I predicted rates would rise .25% to .375%. The weekly average this week had rates at 3.92% with .6 points. Not quite a .25% increase but not a bad prediction. I basically predicted rates would rise slightly and they did. So, what is my prediction for the next 6 months? RATES WILL RISE TO 4.25% BY JUNE.
Why the increase? There are many, many factors that go into what direction mortgage rates will go including the global economy, gas prices, inflation, unforeseen global events, politics, etc. But to predict rates just listen and watch the FED. The FED increased the FED funds rate in December and has indicated that they will continue to raise rates gradually. This is the strongest indication of what will happen with rates. The FED has been itching to raise rates for the last year and finally felt that economic indicators warranted an increase in December. With the FED eager to raise rates they really do not need robust economic figures to accomplish their goal. Any slight plus news and rates will rise. Any negative news will probably be reasoned away. In my opinion, it will take some horrible economic numbers for rates to fall over the next 6 months. I don’t foresee that happening. I think we are currently at the bottom with rates hovering slightly under 4%. I believe the days of 30 year fixed rates in the 3’s is about ready to say goodbye for a long, long time!
Now that TRID ( TILA-RESPA Integrated Disclosure rule) has been in place for two months, how is it going? I LOVE IT! I stated in a blog before TRID came out that I was in favor of TRID, especially getting the Closing Disclosure (old HUD1) out 3 days prior to closing. I’ve been in the mortgage industry since I graduated from George Mason University in 1986. That’s 30 years. My biggest beef with how the industry operates has been the last minute nature of everything. A customer going to closing and not knowing how much money they need is just unacceptable. Finally this has been resolved. With TRID, closing can not occur any sooner than 3 days after The Closing Disclosure has been sent out. And on top of that The Closing Disclosure needs to be correct. There are tolerances allowed but only slight ones. No more closings where the customer thinks they need $10,000 only to find out it’s $15,000, therefore basically forcing the customer into making a decision under severe stress. The other great aspect of TRID is that The Closing Disclosure has to be in line with the initial disclosure, The Loan Estimate. The Loan Estimate has to go out within 3 days of application so this rule also helps eliminate surprises before closing.
There has been a slight learning curve but all in all the implementation of TRID has been going well. I do have one tip about TRID when it comes to picking a mortgage company that I believe is essential:
When picking a mortgage company for a purchase make sure the mortgage company sends out The Closing Disclosure before the loan is clear-to-close. Some mortgage companies will not send out The Closing Disclosure until the loan is clear-to-close and this can delay closing. There is no reason for the company to wait that long, it is just not acceptable.
If you’ve closed a loan under the new TRID rules please share your experiences.