Dennis' Mortgage Blog

Question of the week:  Last week you explained how the bridge loan using $8000 tax credit for first time homebuyers may work, this week can you explain what happened to the loans?

Answer:  This past week I fielded many questions following my update last week where I addressed the announcement by HUD Secretary Donovan to allow lenders and non-profit entities to make loans to FHA borrowers collateralized by the $8000 tax credit available to first time buyers in 2009.  The number one question from borrowers, agents and even a reporter with the Orange County Register was: Is there such a loan program or not?

The answer is: NOT.  There is no loan program and as I explained in my response to OC Register reporter Marilyn Kalfus, this was a case of senior HUD leadership conceiving a plan to expand homeownership without consulting others in their department who understand how FHA loan work and what their policies are.  As a result Secretary Donovan made and announcement and HUD posted a Mortgagee Letter, for a program that is not allowed under FHA guidelines. 

Why the kerfuffle?  Once HUD posts a Mortgagee Letter on its website it is official HUD policy.  Lenders who are approved to originate and fund FHA mortgages monitor the HUD website daily to keep up with guideline changes that affect the underwriting and funding of FHA mortgages.  HUD posted a Mortgagee Letter stating HUD would allow lenders and non-profit entities to provide “bridge-loans” for FHA applicants pledging their tax “credits” of up to $8000 for qualified first time buyers.  Not too long after I wrote my weekly update last Friday HUD pulled the Mortgagee Letter off the website---ooops! Sorry about that folks, never mind!

It is very rare for a Mortgagee Letter to be rescinded or pulled off the site.  The official word has been that the approval of bridge loans has not been rescinded, and yet it is not in effect either.  It appears that HUD leadership needs better communication with its own Department as to policies and guidelines before sending the Secretary out with a new policy that are against its current guidelines, and oh by the way lenders are unable to fulfill.

Sorry folks, no bridge loans.  Please note however that FHA, which has a maximum loan amount of $729,750 at this point, does allow gift funds from relatives for down payment and closing costs.  And if you qualify you can receive $8000 from the Federal Government to spend how you wish, or to repay any debt, after closing.  Get it?

Have a question for me?  Ask me!   

A diverse range of economic news this week.  Unemployment continues to climb, which usually helps mortgage rates.  Minutes from the Federal Reserve Open Market Committee meeting were released and it looks like the Fed will purchase an additional $500 billion in mortgage backed securities (MBS)when they finish with their currently in process purchase of $1.3 Trillion (I think Trillion should always be capitalized when preceded by a $ sign) which usually helps mortgage rates.  The stock market had a few hits this week which usually helps mortgage rates. 

All was looking good for rates until yesterday when MBS fell through two levels of support when Britain had some negative news.  The negative slide continued today and we had a net loss for the week with rates higher than last Friday.  Much of the drop in MBS, in my opinion was profit taking and investors moving into cash in front of the long Memorial Day weekend.  Today trading was light so any trade had an exacerbated impact on the market—in the end there was more selling than buying.

Home sales in California were 80% greater in April 2009 than in April 2008.  Don’t we know it, mortgage applications in the industry were the highest for any month in almost six years as the start of the traditional home buying season—spurred by IRS filings—and constant low rates propelled home buyers and owners into escrows.  Because of this we have seen some lengthening of turn times throughout the process, combined with the new HVCC I maintain my counsel of patience.

Regarding the Home Value Code of Conduct (HVCC) I posted on my website some information from the National Association of Mortgage Brokers.  They are collecting stories from real estate agents, mortgage originators and the public if they are adversely affected because of having to go through the HVCC process as opposed to the traditional process where local appraisers are used.  If you have a story to tell please send it in, the more stories collected the greater the chance our allies in Congress can get the HVCC overturned.

Read all your mail!  Credit card companies have a habit of using innocuous looking envelopes for important announcements; I am guilty of tossing a few in the past. With President Obama’s signing today the credit card reform bill we can expect changes from our credit card companies.  One major change I have been hearing is charging interest on all charges from the moment of purchase as opposed to just charging interest on balances that carry over from one month to the next.  It is estimated that the new law will cost credit card companies over $100 billion, they will be looking to replace that lost revenue from somewhere and the easiest place is from their best customers.  So keep an eye on your mail and read your credit card agreements for changes that may impact you.

Rates jumped this week—almost all of it occurring on Thursday with a little encouragement today for them to stay up.  Looking at the chart we are at the high end of our 60-day ranges on all products. 

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  4.875%                           UP 0.25%

30 year conforming-jumbo 5.375%                   UP 0.375%

30 year FHA    5.25%                                      UP 0.25%

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.

A friend of mine sent this link today, Memorial Day: More Than Just A Day Off Work written by a member of the United States Air Force.  It gives a nice history of the holiday and reminds us of what we are celebrating: the lives of those who have died protecting our freedoms and liberties.  God bless them and their families, not just this weekend and this holiday, but every weekend and every day.

Have a great weekend,

Dennis

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.