The Mortgage Broker Awakes

We got some very good news for the nation’s small business mortgage brokerage community. FHA recently had announced that they would allow FHA lenders to fund loans originated by mortgage brokers not directly approved by HUD. What this means is all those mortgage brokers who did not have the ability to become FHA approved can now start serve a market argued to be anywhere from 15-30% of the market for new home loans.

The big question was if major lenders would pick up on the ruling and actually allow historically non-fha-brokers to originate this product. The product is itself complex as compared to conventional products and requires a highly level of discipline and even requires specialized FHA DE's or underwriters. The answer to the question at hand appears to be answered as Flagstar Bank has released comments about the ruling and a recently held conference call with HUD. Brokers should expect by December of this year to be able to originate and deliver FHA loans for funding.

In what has been a very difficult several years for the mortgage broker, and with new legislation that would further impair the brokers ability to compete, this is a small silver lining.

Of course the broker has a long way to go. Broker market share was once reported to be as high at 80% of all mortgage originated, that number is now south of 14%. With that drop in market share, many have left the business all together. It is very clear, many just weren't prepared for the brutal shut-off - there was no slowdown.

Only time will tell if pending legislation and new originations will keep the broker afloat - it wasn't the brokers fault alone that the mortgage market to collapse, but they are the last group related to finance that hasn't recovered. Banks are now reporting record earnings and the investment banks cannibalized themselves and are paying out record bonuses. Let's hope the small businessman mortgage broker again has his chance to show his professionalism and dedication to providing quality mortgage finance.

The New Mortgage Market - Age of the order taker dies

There once was a mortgage sales disneyland filled with people who recently sold bottled water, cell phones, cars, insurance, crack, and pretty much everything else related to sales. Why? Because we couldn't hire people quick enough. Those people were fortunate, or not fortunate depending on how you look at it, to meet a person in the mortgage business and if they were real lucky, the subprime mortgage business. And that person then recruited the poor unlucky soul. The money was sickening. These guys and gals were pulling down over a million a year...Now that time of irrational exuberence is bust. Many of those that once flew high in the sky are now back in a world or brutal financial reality where the bills pile up and we all are back to balancing our check books, if it balances at all.

Why do I state the obvious facts? Because it is important for those looking for financing today that our industry has been left to the true mortgage professionals. Those left are in it because this is what we do, we don't sell cars, insurance, crack - we sell mortgages. I want those left in the business to feel proud that we are still here providing financing to all americans regardless if this is the niche business of the year - I am proud to continue to offer great financing to qualified individuals and businesses.

The pointless ocean moans on top of each conventional mathematics.

Freddie Mac asks U.S. for $10 billion

You have to wonder just where is the bottom for these losses.
Freddie Mac, the bailed-out mortgage-finance giant, reported Wednesday that it continues to lose money and needs an additional $10.6 billion in assistance from U.S. taxpayers.

The most recent earnings report follows three straight quarters in which the McLean-based company did not need infusions from the Treasury. Still, the firm is struggling to recover from the mortgage-market meltdown; it reported a net loss of $6.7 billion in the first quarter of 2010, compared with a loss of $9.9 billion a year ago.

Freddie Mac is turning to the Treasury again mostly because of a change in accounting. Revised rules that took effect this year require companies such as Freddie to move all mortgages they guarantee -- but don't own -- onto their books. This shift alone caused the company's equity to drop by $11.7 billion, helping to plunge its net worth into the red.

Under the terms of Freddie's September 2008 bailout, taxpayers make up the shortfall in any quarter when the firm's net worth is negative. The accounting change, along with the firm's loss and a $1.3 billion dividend payment to the Treasury, pushed Freddie's net worth to a negative $10.5 billion, down from a positive $4.4 billion last year.

http://www.washingtonpost.com/wp-dyn/content/article/2010/05/05/AR2010050505227.html

Fed to stop purchasing MBS

A widely anticipated end to the Fed's purchase of Mortgage Backed Securities is set to end this month. After the last couple of years this should scare everyone, but it doesn't seem to be raising the fear level at all. Recently, PIMCO's Bill Gross said that another 35-50 bps and MBS will be attractive to his firm. That being said you could expect rates to rise another .50% to get Bill's interest. But is this really true? It's all about the spread, and if the rate of a mortgage loan and the cost of funds has a wide enough spread - then buyers for the paper will come. The questions is how much does the spread need to be. In my opinion if you are waiting - DONT WAIT get your mortgage done - PDQ. If you have 6% or higher or have interest only debt of anykind get it wrapped up into amortizing debt stat.

More FHA Changes...For the better in my opinion We need FHA to be heathy

Federal Housing Administration (FHA) Commissioner David Stevens has announced a new set of policy changes designed to strengthen the FHA's capital reserves.

The FHA will increase the mortgage insurance premium (MIP) from its current level of 1.75% to 2.25%; update the combination of FICO scores and down payments for new borrowers; reduce seller concessions from 6% to 3%; and implement a series of measures aimed at increasing lender enforcement

U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December 2009, noting the FHA would announce additional details before the end of January.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” Stevens says. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history.”

In addition to raising the up-front MIP by 50 basis points, the FHA will request legislative authority to increase the maximum annual MIP that it can charge.

If this authority is granted, the FHA will then shift some of the premium increase from the up-front MIP to the annual MIP. This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing, the agency explained in a statement Tuesday.

The initial up-front increase will be included in a mortgagee letter to be released tomorrow, Jan. 21, and will go into effect in the spring.

Additionally, new FHA borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.

The agency says this change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

The FHA additionally says its current seller-concession limit of 6% exposes the agency to excess risk by creating incentives to inflate appraised value. Reducing the seller-financing cap to 3% will bring the FHA into conformity with industry standards on seller concessions. This change will also be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

To support its lender enforcement initiatives, the FHA will begin publicly reporting lender performance rankings to complement currently available Neighborhood Watch data. The rankings will be available on the HUD Web site starting Feb. 1.

This is an operational change, FHA says, to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action, as Neighborhood Watch data is currently publicly available.

The agency will additionally enhance monitoring of lender performance and compliance with FHA guidelines and standards by implementing the Credit Watch termination through lender underwriting ID in addition to originating ID. This change, effective immediately, will also be included in a mortgagee letter tomorrow.


Starting in early summer, the FHA will implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process. Specifications of this change will be posted in March and subject to a notice and comment period before going into effect.

Moreover, HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes amendment of section 256 of the National Housing Act to apply indemnification provisions to all direct-endorsement lenders and legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This latter authority would permit HUD to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

SOURCE: Federal Housing Administration

HUD lift 90 Day Flipping Rule

HUD TAKES A NEW POSITION ON THE 90 DAY FLIP RULE … It’s OK Now!

HUD now believes the real estate market will benefit by allowing buyers to use FHA financing to purchase a home even when the seller has been on title for less than 90 days. Up to this point, only banks had the privilege of selling their recently acquired foreclosures to FHA buyers. Now investors and others who acquire real estate and want to sell within the first 90 days can. The waiver of the 90 flip rule is for one (1) year and takes affect on February 1, 2010. With tight underwriting guidelines, many home buyers are realizing that FHA financing is their only way to afford home ownership. More reasons why I like this change:



§ FHA buyers will have more homes to choose from

§ Investors will be able to attract a larger pool of home buyers

§ Buyer and seller agents will increase their closing ratios

§ Mortgage brokers will have more lending options for their clients


HUD’s updated policy comes with restrictions designed to prevent fraud so investors … pay attention:

1) There can be no relationship or interest between the seller, buyer or other parties to the transaction



2) Seller’s profit is limited to 20 percent above their acquisition cost


3) HUD may allow a sales price in excess of the 20 percent limit if the lender can document legitimate rehabilitation to the property and/or a second appraisal supporting value. In addition, the lender must order a property inspection and provide the report to the buyer prior to closing.

4) The same property flipped mutiple times ... big red flag and a No No!



KEY INFORMATION: Home buyers should expect some FHA lenders will not follow HUD's waiver and continue to impose the 90 day restriction. When getting pre-approved for financing, I suggest home buyers ask their mortgage advisor if they have lenders who accept HUD's waiver. If they don't, find a different mortgage advisor who does so you can shop till you drop and avoid surprises later.

Commercial market continues slide into 2010

The commercial real estate market will continue to get worse, only more slowly in 2010. But what does this mean for commercial property owners.

The overall assessment of Grubb & Ellis Company’s 2010 Real Estate Forecast released today, predicts another year of slow recovery. This doesn't bode well for owners looking to refinance debt. If values continue to slide albeit slower, equity positions will be reduced and available credit will be limited. The best best for commercial property owners is to convert all short term maturing debt into longer term fixed rate products.

Vacancy rates continue to rise as well. As this continues expect lenders to further tighen credit for new commercial financing. For access to many different commercial lenders, visit

HUD Eliminates 1% Cap on FHA Mortgages

In today's environment of help the customer and regulate the lender even more, HUD has decided to remove the 1% cap on FHA mortgages. Although state and federal guidelines will prevent usurious charges by any broker or lender, the rule change is designed to help FHA lenders to stay in compliance with the new RESPA rules starting this year. There is a chance that this will increase the cost of borrowing to borrowers in lower value states. If HUD puts a percentage limit on costs then we should see no discernible increase in overall borrower costs and this may even allow some lenders to lower their minimum loan amount thus making credit available for more lower income borrowers. We'll see. One thing is for sure, lenders, technology vendors and the like will no doubt experience pain putting these new rules in place. The sad reality is if they just enforced the existing rules, these changes would not be necessary. Get ready for even more regulation and licensing hurdles in 2010.

Happy New Year All!

FHA is gonna make you dig deeper!

FHA's reserves are not what they used to be. FHA reserves should be around 2% but are rumored to run at .5% or less. One this is for sure, when FHA needs to change and tighten up the borrower is one that will be required to pay. Some say these coming changes will increase the liquidity of FHA and help prevent future foreclosures by requiring more down payment higher insurance premiums and higher qualifying standards. One this is certain. It will cost more to buy or refinance a home through FHA. see the following article for more information.

Google Voice

OK. A little off topic, but well worth it. I have recently begun testing Google Voice provided by...Google of course. For me, the service uses my existing cell phone number and basically replaces my voice mail and converts my voice messages into text based emails and text messages. As a person who receives a large number of voice mails everyday, the service is fantastic. I can easily be talking on the phone, miss a call, and immediately have a transcript of the voice mail on my handheld android in seconds. It also provides a link to the actual voice mail so yo ucan listen as well. Of course there is a call in number for your voice mail as well so you can get voice mails the traditional way from your cell phone. Good job Google. I normally don't endorse these services, but this one truly delivers a greater level of service to my cleints, and that is priceless. The service also allows for text messaging from your computer. While I haven't tested this yet, the voice mail feastures alone make this something to get onboard with.

Don't move your ASSets - The search for source and seasoning

Assets, or in the our case liquid assets are monies used for purchase down payments, closing costs, principal reduction, prepaids as well as gift funds. A common problem in the loan process happens when a buyer/borrower transfers money from one account to another. While this seems innocuous this single act can result in an underwriter adding multiple conditions on the loan. Often these conditions can include: new bank statements, copies of checks deposited into accounts, proof of ownership of said accounts, letters of explanation and the list literally can go on and on. All because an underwriter needs to verify source and seasoning of all funds into the transaction for the borrower. Why you ask? Here are a couple of scenarios.
Buyer gets money from Realtor to buy a home with a grossly inflated price. Buyer borrows down payment in the form of a personal loan resulting in a secretly higher debt to income ratio - which creates greater risk the lender. You get the point. It goes to the strength of the transaction. Money that is properly sourced seasoned results in lower risk. So remember when you are preparing to purchase a house - DON'T MOVE YOUR ASSETS!

A bad day for one FHA Lender

You know you are having a bad day when the justice department wants you banned from FHA lending and all government mortgage products for that matter. Lend America clearly has some slick marketing but questions have been raises about some of the loans funded. Apparently, they've been under investigation for about a year and this isn't the first time Lend America's executive has been under fire, previously he was convicted for mail fraud and paid a substantial and once again for false advertising...Makes me wonder, how do these people stay in business. Lend American was ranked 22nd in FHA volume recently and has funded over 11,000 loans in the last year. Staggering numbers and now we have to wait and see how many of those loans should never have been funded.

It's not FHA's DeFault

Apparently, the FHA is doing a poor job of screening lenders that enter the program, an internal audit has found and recently announced.

Last month, the Department of Housing and Urban Development's inspector general completed an audit. It concluded that the Federal Housing Administration had deficiencies in its controls to make sure lenders meet the agency's tough standards.

About 20-30 percent of new loans today are backed by the FHA depending on what window in time you look at, up from as low as 2 percent during the subprime loan boom. The FHA does not make loans directly, but insures loans from outside lenders which are generated by Bank, Mortgage Bankers, Brokers and Credit Unions in some cases

"The agency approved nearly 3,300 lender applications in fiscal 2008, more than triple the year before. But the number of workers evaluating applications remained the same. In a review of 22 approved applications, the audit found that only one contained all the necessary documents."

As ddelinquency has continued to increase, the agency's ability to manage its participating lenders is a big concern because there are growing fears that the agency will need a taxpayer bailout. Last month the FHA said its financial reserves had sunk below mandatory levels for the first time in its 75-year history. Additional defaults could hinder the ability to cover losses without an influx of government cheese may be needed.

In its official response to the report, HUD official Joy Hadley wrote that the agency "remains committed to ensuring that only responsible, financially sound lenders with integrity become approved as FHA program participants," It important to note FHA provides almost half of all mortgage made to black and hispanic borrowers.

Last month the FHA said it will raise the financial requirements for lenders and request annual audits, and officials have been cracking down on lenders suspected of fraud. These adjustments however, are relatively insignificant. The real need to enforce the same rules for all originators of these loans.

FHA is having some issues

It seems recently FHA has been running a little low on cash. Not surprisingly FHA delinquencies have been ratcheting up due to quite a big surge in demand from 2007-2009 YTD. AS delinquencies rise, the cash needed for the FHA slush fund gets lower.

If an effort to stem the tide of defaults FHA has recently announced it will require income documentation from FHA streamline clients as well as Lenders will be required to maintain audited net worth abouve $1 million, up from just $250,000. However, they have also recently announced Mortgage Brokers will no longer be required to register with FHA or carry any type of net worth. The liability it seems will fall squarly on the correspondent lender.

The moral? get your streamlines in now before it tightens up again...I mean what are you waiting for anyway - rate are ridiculously low.