Dennis' Mortgage Blog

Higher loan limits are back in qualifying counties: $729,750

Question of the week:  Can you explain how the $8,000 tax credit advance from the Federal Government will work?

Answer:  No.  Next question?  Okay I'll try....On Tuesday HUD Secretary Shaun Donovan announced at a meeting of the National Association of Realtors that HUD would allow lenders and other entities to provide short term loan to FHA mortgage applicants so they can use all or part of their $8000 tax credit for down payment and closing costs.  Earlier this year it was announced that new homeowners eligible for the $8000 Tax Credit Assistance Program (TCAP) could apply to receive the funds in the current year rather than wait until tax returns are filed for 2009.  Now with the announcement that HUD will all FHA applicants to receive loans against their TCAP funds more applicants will be able to take advantage of the credit to actually purchase a new home.

How will the new program(s) work?  I have no idea and neither does anyone else at this point.  With the announcement that HUD will allow bridge loans against TCAP loans from non-profit entities and FHA lenders came some guidelines that must be followed for the loans.  Now lenders and non-profits must configure programs and qualifying guidelines for the loans in order to get them to mortgage applicants.  It will take a few weeks probably for lenders to come out with their guidelines and programs to meet the bridge loan criteria that must be met for HUD eligibility, patience is counseled.

It is important to note that this announcement only applies to FHA mortgages and not Fannie Mae or Freddie Mac mortgages.  Further, not all home buyers will qualify, to be eligible you must be a first time buyer, you cannot earn over $75,000 per year as an individual or $150,000 as a married couple and the credit is for up to 10% of the purchase price not to exceed $8000 (easily obtained in California). 

Also very important to note are the terms of the TCAP bridge loans that will be offered through various non-profit entities and banks.  Before rushing to sign up for one of the loans I caution applicants to carefully research the terms of the loan and the repayment costs and terms. 

Finally, keep in mind that FHA allows for gift funds from family members for all applicants. While the donor will sign a gift letter announcing no expectation of repayment it is impossible for anyone to prevent repayment of the gift at a later date…say when a tax credit is received.  Gifts can be so much simpler than loans.

In the meantime, just as when higher loan limits were announced, the announcement is far ahead of implementation; until the news is converted to programs we have no ability to direct anyone where to get there TCAP loans.  It is an important announcement as it is expected that 50-55% of families buying homes in 2009 will be first time buyers, most of whom will qualify for the TCAP.

Have a question for me?  Ask me!   

Yesterday we had some up and down news, after encouraging labor market numbers last week showing a slowing in initial jobless claims (this used to be called unemployment but we are in a kinder more gentler place), this week showed a jump in applications which is good news for bonds and mortgage rates.  Not so good for mortgage rates was the announcement that the Producer Price Index (inflation index) rose higher than expected in April, up 0.3% (or 3.6% annually) which is higher than the prime rate.  As you know bond investors are allergic to inflation and any whiff of it can make them sneeze—and sell off bonds causing rates to rise. 

Looking forward as we head to summer we will most likely see a steady rate market remaining within the range we have established over the past several months with conforming rates holding below 5% and FHA rates hovering at or just above 5%.  The biggest factor that can impact mortgage rates is when and how will the Federal Reserve stop buying mortgage backed securities.  Currently the Fed is propping up the mortgage markets and keeping rates depressed to current levels with massive buying of MBS from Fannie Mae and Freddie Mac.  If this buying effort stops abruptly, or before the capital markets are ready to purchase MBS investments we will see a spike in rates.

Until the Fed pulls out of MBS markets our rates will be subject to economic information and data displaying where we are in terms of the recession bottoming out or recovery beginning.  As always keep your eyes on inflation first and foremost.  With the closing of up to 1500 auto dealers nationwide and now government funds being poured into major insurance companies that are not AIG we can expect rates to remain stable as investors see a continued weak economy. 

A drop in conforming and hi-balance conforming for the week as a result of both the Fed’s buying activities and the economic data of job losses, car dealers closing down and some teetering of major insurance companies.  We have broken through a key level of resistance heading into trading today, this morning the market opened up reversing prior gains so we will see if the lower rates stick.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  4.625%                           Down 0.125%

30 year conforming-jumbo 5.00%                     Down 0.375%

30 year FHA    5.00%                                      FLAT

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

I will be unavailable much of the afternoon today as I barbecue about 30 pounds of tri-tip and then bring them over to the Patrick Henry Elementary School Carnival where they will be for sale to raise money for our PTA.  A day of smoke and sauce and kids—I love it!  Come on by and have a sandwich!

Finally, if you are like me and like to visit the poll to vote instead of sitting on my couch and punching an absent ballot, I encourage you to vote No on all the Propositions on the ballot on Tuesday.  California’s government has doubled in size in the past ten years while cutting services for its citizens.  We cannot give our Legislature and Governor more money to spend on expanding the government, we need to put a stop to it.  My motto has become:  Quit enabling Sacramento while disabling our schools and communities, vote NO!  My thoughts expanded here for those interested.

Have a great weekend,

Dennis

Do you Facebook?  If so “friend” me, I’m listed as Dennis C. Smith!

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.