President Obama to announce drop in FHA Mortgage Insurance Premiums

President Obama is expected to announce a reduction in the mortgage insurance premiums for new FHA mortgage loans tomorrow.

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From Bloomberg News:

As part of an effort to expand homeownership among entry-level buyers, President Barack Obamawill announce a cut in Federal Housing Administration mortgage-insurance premiums during a speech in Phoenix tomorrow, according to three people with direct knowledge of his plans.

The annual fees the agency charges to guarantee mortgages will be cut by 0.5 percentage points, said two of the people, who asked not to be identified because the White House hasn’t yet made the announcement.

This reduction will bring the annual mortgage insurance premium down from 1.35% to 0.85% on a minimum down FHA loan. The annual FHA mortgage insurance premium is part of the borrower’s monthly mortgage payment. On a $400,000 loan amount, a borrower currently pays a whopping $450 a month in just mortgage insurance premiums (400,000 x 1.35% = 5,000, divided by 12 months). With the proposed mortgage drop, the monthly premium would be reduced to $283 (400,000 x 0.85% = 3,400, divided by 12 months), a savings of $167 per month.

This is great news for those who need FHA mortgages as the mortgage insurance premiums have become increasingly expensive over the last few years. A reduction in FHA mortgage insurance premiums will help borrowers who need an FHA loan qualify for a mortgage. This is especially helpful for borrowers who have had a short sale or foreclosure in recent years as FHA has more forgiving guidelines than conventional, allowing one to buy a home again after 3 years since the distressed sale.


Filed under Loan Programs, Regulations

Remembering my Hero, My Dad

This past Thursday, my Dad, David Mahone, passed away. He was 87. My wife, Penny, and our 3 children, Alex, Drew, and Emma all said good bye to Dad on Christmas Day. We were going on a week long vacation and as we left his room Penny said it might be the last time we would see him. She was right. He was a wonderful man and I loved him so much. I told him on Christmas that I loved him but I didn’t get the opportunity to tell him everything I wanted. So I’ll tell him now because I know he’s reading this along with you.


First, you were my inspiration and role model. From the first day I can remember you always had the utmost confidence in me. You made me feel special and I always felt I could accomplish whatever I set my mind to. I felt that way because of the faith you had in me.
You always loved me no matter what and not only did you show it, you also said it.
You never missed one high school tennis, basketball or football game I ever played in. I could always depend on looking up and seeing you there. That meant the world to me.

You loved Penny like a daughter. I’ll never forget my wedding day driving to the church with you and mom. I ask you why you had such a big smile on your face and you said it was because I was marrying a wonderful person. I’ll always remember how special that made me feel.

I also want to thank you for being such a loving grandfather. I remember when I was little and I would run and jump into your lap and sit with you for hours. To see you do the same thing with my kids brought such a huge smile to my face.

I will miss so much being able to talk to you about my golf. No matter how I played,  you wanted to know every detail. Win or lose you were always there, either on the bag caddying or waiting on the 18th green. In the last few years when you couldn’t make it to the course you were always the first person I would call.

Most of all I want to thank you for being such a wonderful loving person. I try every day to live like you. To love Penny the way you loved mom and to love my kids the way you loved all of us.

I miss you dad. But you are with me and I’m so lucky that you are my dad. I love you and I’ll see you again in heaven one day.


Filed under Personal

Fannie Mae Rolls Out 3% Down Program

It took awhile but Fannie Mae will roll out it’s new 3% down program on Monday. Since FHA increased their monthly mortgage insurance premiums last year to 1.35% there has been a large demand for a good low down payment loan. I’ve said on my blog for the past year that in order for the housing market to really get going there needed to be an affordable program that allowed low down payments to credit worthy borrowers. Now it’s here!

Below are a few parameters you need to be aware of with Fannie’s 3% down program .

*  At least one borrower has to be a first time home buyer (can not have owned a home in the past 3 years).

* Where the program is especially strong is if the borrower can qualify for the My Community Mortgage (MCM). In our area that means that the income of the borrowers on the loan can not exceed $82,600. If the borrower qualifies for the 3% down Fannie My Community then the mortgage insurance is discounted which will help dramatically with the monthly payment. Note that if the borrower makes more than $82,600 then they can still do Fannie’s 3% down program but the mortgage insurance will be more expensive.

* Only fixed rate loans, no adjustables.

So, how good is the program? Lets take a $200,000 purchase price and see what the differences are between the Fannie 3% down My Community compared to FHA:

1) Down payment. Fannie 3% down = $6000. FHA 3.5% down = $7000.

2) Monthly payment for Fannie 3% down My Community = $1225. FHA = $1350.

3) Equity in property with Fannie 3% down = $6000. FHA $3623 (FHA has an up front mortgage insurance of 1.75% added to the loan which reduces the borrower’s equity).

I applaud Fannie for stepping up. Hopefully FHA will wake up and start being competitive and get back in the game by lowering their mortgage insurance. We will see. I believe this program will be successful and if all goes well the next step will be a zero down payment Fannie loan to borrowers that have strong incomes and great credit but lack the down payment money. But for now, good job Fannie!

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Strong Employment Numbers Push Rates Up

The stronger than expected employment numbers pushed rates up a bit this morning. November non-farm payrolls were up 321,000, the biggest gain since January 2012. Also, upward revisions added 44,000 jobs to September and October. The unemployment rate held at 5.8%. The mortgage bond market initially plunged on the news (good economic news usually means higher rates) dropping 75 basis points. 75 basis points equates to .75 points or on a $100,000 loan $750. This afternoon the market is currently off 47 basis points so it has come back some. So, what does this mean for rates going forward?

If you follow my blog you will know that last month I predicted rates would rise over the next 6 months. These numbers are a good indication of that coming to fruition. I see an overall steady improvement in the economic numbers as we go into 2015. There might be a down month but overall I see the economy improving and rates continuing to increase. Not dramatically but I do see an increase.

Stay tuned. I will continue to keep you updated.


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How Was My 6 Month Rate Prediction and How About the Next 6 Months?

I have to brag a little. I’m on fire with my rate predictions! Every 6 months I have a rate prediction for the next 6 months. 6 months ago Freddie Mac’s survey showed 30 year rates at 4.12% paying .6 points. I said rates would fall. What are they today? Freddie Mac’s survey says 3.92% paying 0.5 points. I also correctly predicted the previous 6 months (Dec 2013 -June 2014) when rates stayed flat. So, now it’s time for the next 6 month prediction. I predict rates will rise slightly.

What is my reason?

I’ll keep it simple. The government is finally waking up a bit when it comes to the housing market. I believe a strong housing market is one of the most important elements in having a thriving economy (in general, the better the economy the higher the rates). There’s been a few real problems with the housing market over the last 2 years. First, the regulations have become way too tight. There was an over correction to the mortgage collapse and the government is finally starting to see that and the process of loosening up has begun. Second, the government basically took the first time home buyers out of the equation. Other than Rural Development loans, there really are no good options for first time homebuyers. FHA has become ridiculously expensive and conventional requires 5% down. That’s a ton of money to come up with if you are buying your first home. But this week Mel Watt is announcing that Fannie and Freddie are reducing their down payment requirements to 3%. That’s a start. I predict the regulations will continue to loosen and the government will continue to come up with ways to help the first time home buyers get the housing market going.

The housing market will continue to improve with more first time homebuyers getting in the market. This will help improve the economy therefore driving rates up a bit. I don’t see a dramatic improvement in housing right away but I do see the government waking up and by the spring, I believe you will really see the housing market starting to thrive.


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Fannie and Freddie Finally Stepping Up To the Plate For First Time Home Buyers

Since I started my blog almost 1 year ago (November 1st, 2013 to be exact) I have been calling for Fannie and Freddie to step up to the plate and help out first time home buyers. It looks like they are about to do just that! Director of the Federal Housing Finance Agency, Mel Watt,  is expected to announce this week programs that will allow borrowers to put down as little as 3 percent of the purchase price on loans backed by Fannie Mae and Freddie Mac. Currently the only low down payment loans available are Rural Development and FHA. But RD loans have income and property restrictions and FHA is just downright too expensive. While we don’t know the details of Fannie and Freddie’s new programs it has to be better than FHA. For one it’s 3% down instead of 3.5%. Second, we can assume it will not have the 1.75% up front mortgage insurance that FHA has. Third, there is no way the monthly mortgage insurance will be as expensive as FHA’s 1.35% monthly fee. My prediction is that the monthly fee will be based on credit scores and if a borrower has over 740 scores I’m thinking the mortgage insurance will be around .6%. Just a guess of course. I will keep everyone posted and as soon as the program is out I will have a blog with all the details.


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Are There Any Good Lenders Left?

Last week I received a call from a realtor I’ve done business with for years. Her clients had gone to their bank where their money is (I’ll leave that bank un-named) for their mortgage on a new home they were buying. The day before closing the bank called the borrowers and told them their mortgage had been denied. To make matters worse the bank did not give a reason for the denial. The bank said they would put the adverse action in the mail. So the borrowers called me and we started the process. They had great credit, great income, and plenty of assets. I saw no problem what-so-ever. To make matters even stranger, when the adverse action came, the reason for denial was insufficient income and assets. What? Not only was it baffling, the bank also didn’t even try to save the mortgage by asking questions as to whether the borrowers had any additional assets or income. By the way, the borrowers did have additional assets. Guess where? That’s right. In their very own bank that was denying them!!

So, what’s going on out there in the lending world? Are there any good lenders left? That’s a tough question and the answer is coming. There are 2 things driving the mortgage world right now. QM (Qualified Mortgage) and ATR (Ability-To-Repay). What that means is all lenders have to play by the same rules to avoid buybacks and penalties. No lender gets to bend or warp the rules to gain an unfair advantage over the rest of the lender universe and every lender offers up the same mortgage approval gauntlet. It also means that lenders are going to scrutinize the files like never before. The lenders will make sure the borrowers actually file their income taxes by checking with the IRS. The lenders will want to know where any large deposits came from. Was it a gift, was it a loan, was it terrorist activity money? The lenders will double check the borrower’s employer before closing to make sure they are still on their jobs.  The lenders will double check to make sure the borrowers are not using a fake social security number. They will re-pull the borrower’s credit before closing to make sure they have no new debts. You get my drift. Whatever trust there was before is now gone. On top of that add in the over-the-top compliance now in effect from the Dodd-Frank bill and you have an atmosphere like never before. In my 27 years in the mortgage business this is the worst I’ve ever seen it.

Now, back to my question. Are there any good lenders left? Answer…….NO. The only thing left are good loan officers and support staff. And if you don’t have them you’re in trouble. Good loan officers and their support staff get as much information up front as possible. They also see potential issues and address them up front. They also look at the approvals and deal with meeting the conditions long before the day of closing. The lenders are all basically the same. The condition sheets and the rules will be similar. The days of using any bank and any loan officer are over. If you can not immediately get your loan officer and support staff on the phone then don’t use them. If they are out of town, don’t use them. If they are inexperienced, don’t use them. If they are not recommended by someone, don’t use them. Buying a home is one of the biggest decisions and experiences in your life. Make sure you make the right decision. Don’t choose by bank, choose by loan officer.


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Why Is The First Time Homebuyer Market Struggling?

Why Is The First Time Homebuyer Market Struggling? There are numerous reasons and below are a few:

1) Buybacks. It seems like the authorities are now forcing buybacks and fines over relatively minor errors, and as a result, lenders are refusing to extend credit to low-income / low FICO borrowers. Many first time homebuyers fall into the low-income / low FICO category. Of course the Administration continues to exhort the industry to loosen standards at the same time it announces record settlements.

2) Tougher on credit scores. Most first time homebuyers are young and nearly 70% of individuals under age 30 have FICOs less than 680. Lenders are tougher on lower credit borrowers, therefore hurting many first time homebuyers.

3) Tight lending standards have discouraged borrowers with low credit score from applying for mortgages. In the last year borrowers with FICO scores below 680 were rejected 6 times the rate of those with FICO score of 760 or above. This has caused a fear and a feeling of ‘why bother’ in many first time homebuyers.

4) The Qualified Mortgage Rule under Dodd-Frank. The Qualified Mortgage standards regulate borrowers’ total debt load can’t climb above 43% of their monthly income without being backed by Fannie Mae, Freddie Mac or a federal housing agency. This has taken some first time homebuyers out of the market.

5) Lack of excitement with appreciation. Prior to 2008 many first time homebuyers would follow the advice of their parents. That advice would be to buy a house. Even if they were only going to have it a short time the general feeling was it was a quick way to make some money. Prior to 2008 parents were much more willing to gift or lend their children money for a house, knowing it would be a great investment. Now that feeling has changed. Buying a home now is more of a long term investment and when many first time homebuyers are not sure how long they will be in a particular area, their excitement of owning a home declines somewhat.

So why is it important that the first time homebuyer market picks up? In a normal healthy housing market the first time homebuyer rate is roughly 40% of total housing. It currently stands around 30%. This hurts the whole housing market. Without the first time homebuyer the move up buyer is stalled, therefore affecting the entire housing market. If the housing market is not healthy the whole economy is negatively impacted.

What can be done to turn things around? Time will help. The further we get from the housing crisis the more things will improve. There has been a major over reaction from the government and this will let up eventually. It’s also a supply and demand issue. With all the refinances basically gone banks need more loans. Therefore, credit will loosen and new programs will become available.



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Personal Property on The Real Estate Contract

On just about every purchase we do at Mahone Mortgage there is personal property in the contract. Normally it’s just a refrigerator or stove and it’s no big deal. But lately we’ve seen tractors, boats, tools, TV’s, stereos, furniture, etc. When those types items are in the contract 2 things can happen. The underwriter might want photos of the items but more important, the underwriter might want a value for those items. And a value of $0 will not fly. The underwriter could ask the appraiser to put a value on the items or the underwriter might go to ebay to get a value. You never know. After a value has been obtained the sales price is reduced. Depending on the down payment the borrower is making, this could affect the loan.

So what is the best thing to do with personal property? My advice, put all personal property of a separate addendum. Even if it’s a stove or refrigerator I would suggest getting into that habit. It is just one less headache you can avoid down the road.

Leave the yachts off please!!

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Monday Morning Tidbits!

The percentage of all cash transactions in the U.S. housing market in December of 2013 was 47%, up from 27% a year ago. According to Michael Simonsen, co-founder and CEO of Altos Research, less of these transactions were by big institutions on Wall Street and more were from cash-rich consumers buying a second or third property.

Credit scores are easing for FHA mortgages but not conventional. The average credit score for FHA loans this year has been dropping steadily while conventional loans are roughly the same as 2013. The average score for conventional loans is currently 755.

New regulation stemming from the financial crisis has cost the six largest U.S. banks $70.2 billion as of the end of last year, according to a new study from policy-analysis firm Federal Financial Analytics Inc.

The number of appraisers dropped Nationwide to $80,500 down from $90,500 in 2010.

Freddie Mac has officially declared that the refinancing boom is over.  The company’s Refinance Report for the second quarter of 2014 said that the longest refinance boom in the 24 years since it started keeping records officially ended in the second quarter.  That occasion was marked when the share of mortgages originated for refinancing fell below 50% for the first time since the third quarter of 2008.

The number of loans from $1 million to $10 million to buy single-family homes in the 100 largest metropolitan areas surged to more than 15,000 in the second quarter, the highest ever, according to property data firm CoreLogic.

Fannie Mae and Freddie Mac have changed their large deposit rule. Borrowers now have to source deposits that are 50% or more of their qualifying income. The old requirement was 25%.

There was talk before the Friday jobs report that rates would rise because the jobs report would be awesome. Didn’t happen. The report was a bit worse than anticipated therefore keeping rates down again for at least another month.


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Filed under Interest Rates, Opinion, Regulations, Underwriting guidelines