Dennis' Mortgage Blog

Weekly Rate & Market Update 3-2-12
March 2nd, 2012 11:12 AM

Question of the week:  What property and other limitations are there using FHA financing to buy our home?


Answer: Many people have many misconceptions regarding FHA financing to purchase a home that there are several hurdles and restrictions to surpass.  FHA guidelines do have some property requirements that are more detailed than those on conventional mortgages, but otherwise FHA has fewer limitations than Fannie Mae and Freddie Mac and enable more families seeking home ownership the opportunity to purchase a home. 


Here are some comparisons between FHA and conventional mortgages:


Property: The FHA appraisal includes a somewhat more detailed inspection than conventional.  FHA appraisers will call out items that require repair before a loan can be funded, typical items are interior or exterior paint that is chipping, peeling or scaling that must be scraped and repainted, water heaters that are not properly vented above rooflines, have earthquake straps and/or are sitting on the ground, heating systems must be functional and adequate for the size of the property, any cracked windows must be replaced.  Other items such as holes in the wall, missing floor coverings, missing sinks, would need to be repaired for either FHA or conventional mortgages.  The basic rule for FHA and property requirements is any issue with the property that is considered a health or safety issue must be corrected.


Condominiums: Many condominium buyers are perfect candidates for FHA financing, but many condominiums are not FHA eligible.  FHA maintains a list of approved condo homeowners associations (to see if a condo is approved or not go to the HUD condo website).  In 2010 FHA tightened condo criteria and removed thousands of HOAs from the approval list requiring them to get reapproved.  Conventional loans also have requirements for condos but they are a bit less stringent.


Loan limits: Some counties enjoy a higher loan limit for FHA than for conventional loans with a maximum single family loan up to $729,750 as opposed to the conforming limit of $625,500. 


Down payment: The minimum down payment for FHA is only 3.5%.


Income qualifying:  FHA allows non-occupant co-borrowers that are family members and use what are known as “blended ratios,” meaning that the income to debt ratios of the primary applicant who will occupy the home do not matter as long as the total ratios fit the guidelines.


Gift funds: FHA and conventional mortgages allow gift funds for down payment and closing costs to come from a relative or employer.


First time buyer:  FHA financing is not limited to first time buyers, any qualified applicant can use FHA financing to purchase a home regardless of whether it is their first home or fifth.


Occupancy:  FHA financing cannot be used to purchase investment property or second homes.


Location:  FHA is not restricted to any geographic location, the only restrictions based on the property location is the maximum loan amount for the county where the property is situated.


Mortgage Insurance:  Required on all FHA mortgages regardless of loan to value.


Credit scores:  FHA guidelines require a credit score of 580 or greater for maximum loan to value, however many (most) lenders have an overlay on the credit score to require a score of 620 or greater.


FHA financing has more paperwork to sign than a conventional mortgage but otherwise is generally an easier qualification process.


More changes are coming to FHA that impact the total cost of FHA mortgages in the future, I will cover that next week.


Major news in the mortgage industry was the announcement that Fannie Mae and Bank of America have severed their relationship—BofA announcing it decided not to renew their agreement to sell mortgages to  Fannie Mae and Fannie Mae announcing it had cut off BofA.  Regardless of who broke up with who the end result is the same and that is BofA will no longer be originating or funding Fannie Mae mortgages. The core of the dispute is BofA’s failure to buy back about $1 billion in as requested by Fannie Mae under their seller agreement.  A significant portion, vast majority?, of the bad mortgages that BofA has had to buy back from Fannie Mae in recent years were funded and sold to Fannie by Countrywide, who BofA took over in 2009.  With the severing of the relationship BofA’s significant conventional mortgage volume will be directed solely to Freddie Mac.  Historically Freddie Mac has higher rates for borrowers, with the tremendous influx in new volume to Freddie it will be interesting to see how or if the cost of Freddie mortgages improve.


Bank of America has announced previously to its retail loan originators that it would no longer fund cash-out refinances and in anticipation of being flooded with inquiries for refinances under the new HARP guidelines set to go into effect later this month has instructed their branches that they will be setting up hotlines for clients to call to make appointments to discuss their situation with a loan office and anticipate up to ninety days for appointments and processing of the applications. 


In other major lender announcements Provident Mortgage announced it will no longer accept applications for conventional financing for condos due to the costs the lender incurs to process and approve condominium documents as well as the extra burden placed on lenders for guaranteeing the insurance coverage for the HOA.  Provident is not a household name like BofA to most consumers but is well known in the industry and a very big wholesale lender.  Their decision caused the industry to take note and you can bet other lenders are looking at the decision themselves.  If more lenders follow Provident’s lead combined with the diminished number of condo complexes that are eligible for FHA financing then condo financing will be more difficult to come by which will have a tremendous impact on condo values.


A busy news week for the mortgage and rate markets.  Existing and pending home sales increased in January, while the S&P/Case-Shiller index that tracks home prices released on Tuesday showed housing prices in major markets it tracks hit new lows in December.  On the plus side for values is that the amount of homes on the market for sale is decreasing in many markets reducing supply.  Whether this trend will continue depends on how lenders will bring their foreclosures to market, it are those properties that have had the biggest impact on home values.  Today retail sales for  February were released and consumers opened the wallets and slapped down the credit cards pushing sales up 4.3% over January.  Credit card debt rose $21 billion in February, but we’ll pay that down/off later….


Rates for Friday March 3, 2012: After a strong start to the week mortgages got hit pretty hard on Wednesday and opened higher yesterday.  There has been some gains made towards lower rates through the day yesterday and so far today (as of 11:00 a.m. Pacific) but not enough to overcome the losses earlier in the week.  Rates are up on conventional from last Friday and down a bit on FHA.



30 year conforming                               3.625%             Up 0.125%

30 year high-balance conforming           4.00%               Up 0.125%

30 year FHA                                         3.375%             Down 0.125

30 year FHA high-balance*                   3.75%               Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.



In elementary school, first in Tulsa, Oklahoma and then outside of Philadelphia, every March we would decorate the class with lions and lambs as we wondered if March would come in like a lion and go out like a lamb bringing Spring or tease us coming in like a lamb and hitting us with more Mr. Winter as it left like a lion.  Looking at the weather yesterday and today and what is expected through the weekend and recalling Marches past I have come to realize there is no lion in Southern California.


My condolences to all the women out there of my generation whose first heartthrob crush was Davey Jones, I know my big sister had the Monkees lunchbox, personally I was  bigger fan of Mickey Dolan.


A great weekend to buy a home, give me a call if I can be of service to you running numbers for your new home purchase or calculating savings for a refinance.


Have a great week,




Posted in:General
Posted by Dennis C. Smith on March 2nd, 2012 11:12 AMPost a Comment

March 30th, 2012 3:20 PM

Question of the week:  Why is it a problem for me to get money from my parents? Whose business is it what they do with their money?


Answer: Fund verification is a topic I revisit two or three times a year and it is that time again.  Besides appraisals the primary area of a loan application file that delays and causes issues in getting final loan approvals is verification of funds for closing and funds in applicants’ bank accounts.  Whether funds in your account have come from mom and dad, winnings in Vegas, your employer or you found it in the street, any deposit into a bank account needs to be traced for the lender.


Why?  Why should the lender care where I get the money that is put into my account?


Part of your loan application is determining your debt payments to ensure you can afford the total house payment for your new loan.  Lenders need to be sure that the mystery deposit into your account is not borrowed, if the funds are borrowed then they need to account for the payment to repay the loan.  Because of this deposits into your account need to be traced.


To answer my client’s question, it is not a problem to get money in the form of a gift from your parents, but getting that money does require some paperwork so the entire loan does not get declined for undocumented funds.  Any gift needs to be from an acceptable party (relative or employer), from whom we will need a gift letter stating funds are a gift, are not expected to be repaid, the relationship of the donor to the borrower and where the funds will be coming from (we have a form for this).  We will then need a copy of their account statement showing they have the funds to gift, a copy of the gift check or wire transfer showing funds leaving their account, a copy of the deposit receipt into your bank account and then a copy of the cancelled check or statement from donor showing check cleared the account.  This is the only way to prove your parents wrote a check and you deposited it into your account---otherwise they could copy a check and then you could make a deposit from another source, say a credit card cash advance, for the same amount….believe me it has been tried before.


There is some tolerance for smaller deposits, but not a lot so be sure to source any unusual deposits you have into your bank account, not just during your escrow period but before you enter escrow. This is the challenging part because you may have had a bridal shower for your sister in June and received some checks and cash to help pay for the party and deposited them in your account.  In July you find the home of your dreams and complete a loan application.  Guess what shows on your bank statement?  Correct, the miscellaneous deposits from the shower and wedding.


So if you are thinking of buying a home and have any unusual deposits photocopy your checks and be ready to explain where they came from.  Lending has gotten tighter and a primary area where it has become very tight is fund verification.  If you are getting gift funds, bonuses or otherwise getting money that is not from your normal stream of income be prepared to show the source of those funds.  And photocopying cash does not work like it did in the old, old days!


I won’t even get into the Homeland Security aspect the industry is beginning to deal with on this issue……..


Have a question?  Ask me!


Carbon monoxide detectors are mandatory outside all bedrooms in California effective July 1, 2012. As such lenders are starting to require appraisers to note on their appraisal reports if there are carbon monoxide and smoke detectors (there are combo units) properly installed.  If the appraiser does not notate the presence of the mandatory detectors the underwriter can/will require the appraiser to reinspect the property to ensure they have been installed.  This reinspection generates a fee of $150 to $200 to the borrower.  If you are refinancing your home make sure you put some detectors up as required by law prior to the appraiser inspecting your home, and when the appraiser comes out make sure s/he takes a picture for the report.  If you are buying a home look to see that the seller has properly installed the detectors and request that whoever is meeting the appraiser makes sure the detectors are noted.


A whole bunch of economic news this week.  Rather than going through all of it and having your eyes glaze over here are some highlights: Case-Shiller home price index dropped showing the continuing trend of lower priced homes selling in markets across the country.  Gross GDP for the 4th Quarter showed an annualized increase of 3.00% which was higher than expected, but a lot lower than personal consumer expenditures for the year (up 1.3%); showing most of the GDP growth was due to companies spending money and not consumers—good news for future job growth.  Not great news for future economic growth is the drop in personal income growth in February to only 0.2% while personal consumption increased increased 0.3%.  While increased personal spending is generally good for the economy since consumers shopping makes up 70% of the economy, spending more than they earn is not such a great trend.


Mortgage Backed Securities, which determine mortgage rates, continued their slow progression up (rates down) most of the week, until they hit a very strong price resistance yesterday and again today causing some bounce back (rates up).  Earlier in the week Fed Chief Bernanke commented that economy is not without concern and reiterated the Fed position to maintain low rates, that buoyed rates.  Traders however have not been eager to buy above a certain price points causing rates to be at/near bottom in the current cycle.


Rates for Friday March 30, 2012: A slight improvement in rates, seen mostly in price and not in rate, from last Friday despite a pullback mid-day today that lost most of the gains that had been made through Thursday.  If rates cannot break through the resistance that has held them up yesterday and today by Tuesday or Wednesday of next week we will most likely see another cycle of rates inching up. 



30 year conforming                               3.75%               Down 0.125%

30 year high-balance conforming           4.00%               Flat

30 year FHA*                                       3.75%               Flat

30 year FHA high-balance*                   3.75%               Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.



Having spent all week fighting a nasty chest cold brought home by one of the resident school kids I feel ready to participate in the Walk For Kids to support the Ronald McDonald House in Long Beach.  Leslie, the girls and I are joining our the team of our good friends Karin and John Maligie and hundreds of others to raise awareness and money for the special place.  I am hoping my faithful clients and readers of the Weekly Rate and Market Update will participate by clicking the link below and the clicking the “Donate Now” button and make a contribution—no amount is too small so please help me reach my goal!


Please click here to donate.  Thank you in advance for your generosity and support of the Ronald McDonald House in Long Beach, helping families in a time of need.


Have a great week,




Posted in:General
Posted by Dennis C. Smith on March 30th, 2012 3:20 PMLeave a Comment

March 23rd, 2012 5:06 PM

Question of the week:  Can I refinance with the new program from Fannie Mae and Freddie Mac?


Answer: Yes, no, maybe…seems like I answer a lot of questions that way.


Earlier this year HARP 2.0 was announced with much fanfare that the new HARP (Home Affordable Refinance Program) revisions would eliminate loan to value requirements for homeowners looking to refinance.  Great news for upside down homeowners right?  Well, for some upside down homeowners. 


Homeowners, originators and lenders have been waiting for Fannie Mae and Freddie Mac to revise their automated underwriting systems to include the HARP 2 guidelines so applications could be taken and more importantly the loans can be approved and funded.  The revisions were rolled out on Monday March 19th and now we know the details of the program.


To be eligible all the following criteria must be met: 

  • Your loan must have been purchase by Fannie or Freddie on or before May 31, 2009.  You funded your loan with a lender, and that lender may or may not have sold our loan to Fannie or Freddie, and may or may not have sold your loan prior to May 31, 2009.  As a rule this means your loan must have funded before April 2009. 
  • The first step in determining if your loan is eligible for the program is if you receive a positive response from either the Fannie Mae or Freddie Mac websites set up to show eligibility for the HARP programs.  Just because you receive a positive response on this step however does not necessarily mean that you are eligible.  There have been instances of borrowers who funded their loans well before April 2009, in some cases a year or more prior, and their mortgage was not sold into the GSE pools until after the May 31, 2009 deadline.
  • If your mortgage is eligible due to it being owned by one of the GSEs (Government Sponsored Entity—Fannie or Freddie) then your refinance will be through the same entity, i.e. if you loan is owned by Fannie then you will refinance through the Fannie Mae DU Refi Plus program, if Freddie Mac then the Open Access program.
  • The next step of eligibility is that your loan must be current, any loan currently in default is not eligible.  As well this is for Fannie and Freddie mortgages only, no government mortgages (FHA or VA), no reverse mortgages and no second or third liens.
  • You must receive at least one of the following benefits from the refinance:
  • Lower payment of at least 5%
  • More stable payment, i.e. going from ARM to a fixed rate
  • Interest only to fully amortized
  • Reduced term, i.e. from 30 year to 20 or 15
  • If you have a second lien, such as an equity line, on your home you cannot use any proceeds from the HARP refinance to pay down or off the loan.
  • The only addition to the current loan balance through the refinance is for closing costs, pro-rated taxes, insurances for impound account or payment of interest.  No cash out is allowed.
  • Regarding loan to values (LTV), different lenders have different guidelines depending on whether the loan being paid off is one they are servicing or not, other lenders are going with the unlimited loan to value being offered under the program. 
  • There are no property limits or occupancy requirements for the program, if you mortgage is eligible due to the sale date to Fannie or Freddie then you are eligible, whether a single family home, fourplex, owner occupied or investment.  Whether your property and loan to value is eligible is determined by the automated underwriting.  Some properties or profiles may require an appraisal.
  • While there is no requirement for loan to value, hence property value, this does not mean that this is a non-qualifying mortgage.  All applicants must still qualify for the payments and your income must be verified and you will need to have acceptable debt to income ratios approved by the automated underwriting of Fannie or Freddie.
  • There is no minimum credit score requirement and other than your mortgage being current you can have had late payments in the prior year with the Fannie version, but for Freddie you cannot have had a late payment in the past six months or more than one in the prior twelve. 
  • If you currently have mortgage insurance then you will need to continue the mortgage insurance, the results from the automated underwriting will determine the new MI company and you will need to provide statement showing your current MI company. 


There will be a lot of misleading marketing and advertising, including mailers to your home, regarding this program. Many origination shops have geared up their personnel just to solicit homeowners who may be eligible for the program.  As with any advertising or marketing, if it seems too good to be true….


The keys to remember are that your mortgage must show as eligible on the Fannie or Freddie sites, it also must show eligible with a specific code after running the automated underwriting and getting the results.  A quick phone call giving the standard details needed for a loan application will enable us to determine if you are eligible and the details to see if you can benefit from the HARP program.


Have a question?  Ask me!


Bonds, and mortgages, got hammered on Monday and the assault continued on Tuesday. With no news moving the markets, technical trading kicked in and pushed investors to sell bonds which dropped prices and pushed up yields (rates).  Some rebound on Wednesday, Thursday and today brought us almost back to neutral.  The whipsaw on prices shows the volatility of the current market and reinforces my constant mantra to lock your rate and terms as soon as you are able. 


One piece of news that supports higher rates is the Federal Reserve not going to initiate QE3 and put more money into the economy—not unless something drastically bad happens to the economy.  Fed governors and the Chair have been on the record recently saying while the economy is facing some challenges it is not necessary to pump more money into the economy, this leads investors to think higher rates are more likely than lower rates in the future.  Keep in mind that even though the Fed has said it will keep its rates near zero through 2014, they do not control interest rates for mortgages—those are determined by the market.


Housing news this week shows new housing starts are down more than anticipated, which is not good news; it was also reported that sales of existing home sales increased, which is good news.  Though existing home sales continues to improve in markets across the country, median prices are not moving or are dropping still due to the homes being sold.  Lower priced inventory is being cleared off the market with significant help from investors.  While in the short term this drops median values, in the long term it pulls inventory off the market clearing the way for housing recovery.


Speaking of clearing inventory, BofA has announced a pilot program where they will allow delinquent homeowners to turn their deeds over to BofA in exchange for forgiveness of the loan and a lease agreement.  Those homeowners chosen to participate in the program will no longer own their homes but will get to remain in them as tenants.  A few years ago I was speaking with a friend who is a senior executive in one of BofA’s numerous departments and suggested they retain their foreclosures as rental properties, he said at the time they were not set up to be landlords.  Maybe they are setting themselves up to be landlords with this program.  If it takes hold on a bigger scale it will greatly help the housing market recovery.


Rates for Friday March 23, 2012: Rates are a lot better today than they were Tuesday afternoon.  High balance gained some ground from last Friday, other rates hang on.  Remember on April 9th mortgage insurance premiums on FHA mortgages go up again.



30 year conforming                               3.875%             Flat

30 year high-balance conforming           4.00%               Down 0.125%

30 year FHA*                                       3.75%               Flat

30 year FHA high-balance*                   3.75%               Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.



Our home has been abuzz with “Hunger Games” talk for several weeks, how about yours?  Our eldest who devoured all three books is going to see the movie tonight—I think mom is jealous.  Will the movie out gross a Harry Potter debut?


Have a great week,




Posted in:General
Posted by Dennis C. Smith on March 23rd, 2012 5:06 PMLeave a Comment

March 16th, 2012 12:40 PM

Question of the week:  Is it bad to have mortgage insurance?


Answer: No it is not as mortgage insurance allows you to purchase, or refinance, a property that you otherwise would not be able to unless you had more money available for down payment, or equity for refinancing.


The past few weeks I have gone through FHA mortgages covering guidelines, eligibility and FHA’s mortgage insurance.  The alternative to FHA for those with less than 20% down payments is financing with private mortgage insurance (PMI).


Mortgage insurance does not insure you, it insures the lender.  Should you go into default and foreclosure the PMI company will pay a certain percentage of the loan amount to the lender to defray the costs to the lender of missed payments, lost principal and fees for going through the foreclosure process.


With FHA there is only one mortgage insurance option, an upfront premium that is financed and a monthly premium.  With PMI there are many options available for borrowers: borrower paid monthly, single premium, split premium and lender paid.  Here is an explanation of the different options followed by a comparison in costs.


Borrower paid is the most commonly used PMI premium, it is paid monthly and if certain conditions are met you may request the PMI premium and coverage to be waived thereby reducing your monthly mortgage payment.  Typical requirements for having PMI lifted (varies by lender) are: you have made 24 payments since the loan funded, no payment more than 30 days late in last 12 months, current loan balance is 80% or less of the original purchase price or appraised value at the time (whichever is less), or if you have made significant improvements to the property and can show proof of costs a new appraisal can be ordered to show appreciation.


Single premium is a one-time payment of the premium and it can be financed and added to the loan amount (which can impact loan to value considerations and pricing) or paid by the seller or other party to the transaction.  Single premium programs have the option of refundable or non-refundable premium options.  The refundable option allows for a declining amount of the premium available to the borrower if the loan is paid off through sale or refinance, the premium however is significantly higher than the non-refundable option.  Some do not like this option because they pay interest on their mortgage insurance premium, for others this is a benefit (see below).


Split premium is a hybrid payment option that is similar to the FHA program with a certain amount financed with the mortgage and also a monthly payment.  This option lowers the amount being finance compared to the single premium option and has a lower payment option than the traditional borrower paid option.


Lender paid premiums are just that, the lender pays your mortgage insurance premium to the PMI company for you.  You pay for the premium by taking a higher interest rate on your mortgage, the lender can sell your higher rate mortgage at a higher price in the secondary market and uses that higher price to pay for your mortgage insurance. 


As noted in an earlier Weekly Rate and Market Update the deduction for mortgage insurance premiums on your federal income taxes expired on December 31, 2011, because of this the financed single premium and lender paid options are a bit more attractive to some borrowers due to the deductibility of interest.

Here is a comparison of the costs for the different mortgage insurance options.  For our example we will use a $400,000 purchase price with 10% down and borrower has a 740 FICO score. 













 $ 1,692.85

 $    162.00

 $  1,854.85





 $ 1,723.49

 $             -  

 $  1,723.49





 $ 1,705.55

 $      87.65

 $  1,793.20





 $ 1,797.00


 $  1,797.00


Depending on your long term goals, qualifying abilities and what makes sense for your transaction there are several mortgage insurance options for you.


Have a question?  Ask me!


Plenty of news this week on the economy, leading the way perhaps has been the sharp increase in bond yields, i.e. interest rates.  Treasury issues for the 10-year bond have risen sharply as have mortgages.  Most of the movement was the result of technical trading and investors pouring money into stocks and taking it out of bonds, spurned on by economic data supporting past data showing economy is continuing slow movement in a positive direction.


Gas and oil cost increases have worked their way into all aspects of the economy.  Both the Producer Price Index and Consumer Price index for February saw increases for the broad indexes due to the hike in gas prices.  With consumer prices increases 0.4%, the most in almost a year, as a result of a 6% increase in gasoline prices, consumer sentiment turned sour.  Prices outjumped a 0.1% increase in real wages, so while the average worker earned a bit more s/he also paid more to run the household.


Home sales increased yet again in the state and Southern California region, and yet again we had a month where the median sales price fell as the increase in home sales was largely due to investors purchasing lower priced homes to either convert to rentals or “flip” after rehabilitating/remodeling. 


Tighter housing supply?  Some anecdotal evidence regarding homes sales in the Greater Long Beach areas are comments made on some recent appraisals that no adjustments were being made to active listings due to reduced time on the market and properties selling at list price in many instances as well as comments from several real estate agents that there are fewer homes in the market to show their clients looking to buy.  These are comments we have not heard in several years.


Rates for Friday March 16, 2012: Even after a strong rally today in Mortgage Backed Securities the current trading price (12:00 PM Pacific) for the Fannie Mae 3.5% coupon is almost 100 basis point below last Friday’s close.  The chart for MBS this week is a steep stairway down.  As a result we see the biggest single week increase in conforming rates since July 2009.  Will they rebound and give the market another dip?  They did after that July 2009 spike dropping two weeks later.  Some watching China slow down, Europe still struggling and feeling domestic stocks are over bought think we will see such a correction with current rates.  Personally I maintain the same position I always do and that is to lock when you can—those who locked earlier in the week are better off than those who waited.



30 year conforming                               3.875%             Up 0.375%

30 year high-balance conforming           4.125%             Up 0.125%

30 year FHA*                                       3.75%               Up 0.375%

30 year FHA high-balance*                   3.75%               Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.



Two Irishmen, Patrick Murphy and Shawn O'Brian grew up together and were lifelong friends. But alas, Patrick developed cancer, and was dying. While on his deathbed, Patrick called to his buddy, Shawn, "O'Brian, come 'ere. I 'ave a request for ye." Shawn walked to his friend's bedside and kneels.

"Shawny ole boy, we've been friends all our lives, and now I'm leaving 'ere. I 'ave one last request fir ye to do."

O'Brian burst into tears, "Anything Patrick, anything ye wish. It's done."

"Well, under me bed is a box containing a bottle of the finest whiskey in all of Ireland. Bottled the year I was born it was. After I die, and they plant me in the ground, I want you to pour that fine whiskey over me grave so it might soak into me bones and I'll be able to enjoy it for all eternity."

O'Brian was overcome by the beauty and in the true Irish spirit of his friend's request, he asked, "Aye, tis a fine thing you ask of me, and I will pour the whiskey. But, might I strain it through me kidneys first?"


Happy St. Patrick’s Day from the grandson of Mary Cleary on my Pa’s side and Bud Kennedy on my Ma’s!


Have a great week,




Posted in:General
Posted by Dennis C. Smith on March 16th, 2012 12:40 PMLeave a Comment

March 9th, 2012 2:48 PM

Question of the week:  What changes are happening with FHA mortgage insurance?


Answer: FHA mortgages have a dual mortgage insurance component an upfront mortgage insurance premium (UMIP) and a monthly mortgage insurance premium (MMI).  The UMIP is traditionally added to the loan amount and is financed (though it may be paid in full at closing by anyone involved in the transaction) and the MMI is paid monthly.  FHA has tinkered with the costs of these premiums frequently over the past several years as it has tried to find a balance between ensuring the program is available to meet its mission to provide affordable financing to American home buyers and the program has enough in capital reserves to meet its Congressional mandate and be able to withstand reimbursing lenders for their losses on FHA loans that go into default and foreclosure.


Currently the premiums for all FHA mortgages are a one percent (1%) premium added to the loan for the UMIP and for mortgages with more than 95% loan to value a MMI premium of 1.15% of the loan amount.  For a $300,000 mortgage this equates to $3000 added to the mortgage for UMIP and a monthly cost of $287.50 for the MMI; for a $600,000 FHA mortgage the amounts are $6000 for UMIP and $575 per month for MMI.  For loans less than 95% loan to value (LTV) the MMI is 1.10%


Effective for all FHA case numbers assigned on or after Monday April 9, 2012 (all FHA mortgages are assigned a case number when the application is taken) the UMIP is rising to 1.75% of the loan amount and the monthly premium is rising to 1.25% for loans with more than 95% LTV (for loans less than 95% LTV it will be 1.20%).


For our above examples on a $300,000 the insurance premiums become $5250 for UMIP and $312.50 per month for MMI; for $600,000 the amounts are $10,500 and $625 per month. 


These premiums will last for only two months on mortgages over $625,500.  For FHA mortgages with case numbers pulled on or after June 11, 2012 and a loan amount greater than $625,500 the monthly mortgage insurance will got to 1.5% for loans with 95% or higher LTV.  For a $700,000  FHA mortgage this raises the MMI from $670.83 per month today to $875.00 after June 11, 2012.


With the tiered pricing based on loan amount FHA is signaling it is not excited about insuring mortgages for high priced homes and higher income borrowers. 


Why the increases?  FHA is leveraging current and future home owners using FHA mortgages to pay for the defaults and foreclosures of prior home owners.  Initially established during the Great Depression by President Roosevelt to assist home owners purchase homes with long term thirty year mortgages the Federal Housing Administration for decades has been a positive influence in the economy fulfilling its mission and not a burden to the Treasury.  With the changes made to FHA and Fannie Mae and Freddie Mac by Congress in the wake of the collapse of the housing and mortgage markets in 2007 and 2008, most notably the Treasury backstopping the losses of Fannie and Freddie, the concern that losses in the FHA insurance pools will become a burden to tax payers in the future has resulted in the increases in the mortgage insurance.  As a result a program that for more than seventy years has helped millions of Americans purchase their homes with affordable financing has become less affordable.


Please keep in mind that unlike Fannie Mae and Freddie Mac, FHA does not purchase any mortgages.  FHA insurers mortgages which are then sold on the secondary market to Ginnie Mae.


Next week we will look at the other options for low down payment or low equity financing using mortgages with private mortgage insurance.


Have a question?  Ask me!



In what has become a bimonthly event President Obama has announced yet another plan to assist current home owners with another refinance program.   This time he is targeting home owners with FHA mortgages announcing a reduction in the mortgage insurance premiums if they refinance.  But not all FHA mortgagees just those whose mortgages originated prior to June 1, 2009.  While this is a good deal for those with these mortgages the impact on the housing markets will be minimal for two reasons: 1) prior to June 1, 2009 the percentage of new mortgages funded that were FHA insured was considerably less than the percentage of new mortgages funded after June 1, 2009 and 2) with the drop in FHA rates in 2010 and 2011 and the still reasonably low premiums for MMI a tremendous amount of FHA mortgages funded prior to June 1, 2009 have already been refinanced. As a result Obama’s announcement has more political benefit than practical benefit to the housing markets.


What would provide greater benefit would be FHA allowing all existing FHA mortgagees, regardless of when their loan funded, to carry forward their current mortgage insurance premiums.  This would provide no net gain to the insurance pools but would reduce the default risk on millions of FHA mortgages by lowering payments.  Since these home owners are current on their mortgages and refinance to lower their payments and make staying current even easier it would retain insurance premiums without increasing risk of defaults.  But since I am not a member of the Administration or employed by the Department of Housing and Urban Development my make-sense solution is somewhat irrelevant.


Big news this week on the employment front.  Yesterday initial unemployment claims went up for the first time in several weeks to 362,000 filings, continuing unemployment are holding pretty stable over 3.4 million.  Today the Labor Department released employment numbers for February and for the third month in a row private non-farm payrolls increased by over 200,000 (227,000 in February).  The unemployment rate for February held at 8.3% from January.  The news has been met with mixed reaction, not surprisingly.  The Administration and its allies are declaring the increase in jobs a tremendous success.  Those not affiliated with the Obama Administration and economic pundits are a bit more blasé about the news as it represents a decline from the number of jobs added in January and is not a big enough gain to lower the unemployment rate or reduce the number of unemployed workers.  But any gain is better than a loss and averaging 245,000 new jobs over the past three months is good news, not great; but you have to go through good to get to great.


Rates for Friday March 3, 2012: Of greatest importance to those looking to get a new mortgage to purchase a home or refinance an existing mortgage is what investors think of the employment news.  Based on trading today the answer is not much.  Had the employment numbers been significantly good news we would have seen rates jump up today on the news, instead they remained flat. Conforming rate slightly improved from last week, others flat.



30 year conforming                               3.5%                Down 0.125%

30 year high-balance conforming           4.00%               Flat

30 year FHA                                         3.375%             Flat

30 year FHA high-balance*                   3.75%               Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.



I have long time maintained that a routine is being consistent in repeating a positive action and a rut is being consistent in not repeating a positive action.  A good routine is key to success in any endeavor, be it running a smooth household, running a business, or getting in shape.  I share this because perhaps my actions this morning will help you with your routine some day when you are close to breaking your routine, which is how you can start a rut.


For the past seventeen weeks I have been going to the gym every weekday morning to get back into a healthy shape.  This morning when I woke I started to do a roll-over and break my commitment for the morning and get some additional sleep.  As I was reaching to turn off the alarm I thought, “fat never takes a day off.”


I got up and swam my laps.


Temptation never takes a day off, stay focused on your goals and committed to your routine and you will achieve success in your endeavors.


Have a great week,




Posted in:General
Posted by Dennis C. Smith on March 9th, 2012 2:48 PMLeave a Comment



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