San Joaquin Homes Community Blog

• When beginning the house hunt, some buyers go in blindly, not knowing how much house they can afford.  Without this knowledge, buyers may find themselves viewing houses that aren’t within their budget.  To prevent buyers from spending time viewing homes they may not be able to afford, real estate experts advise home buyers get pre-approved by lenders before house hunting.  By providing copies of a recent credit report, W-2s, pay stubs, and bank and brokerage statements to a lender, buyers will have a better idea of the price range they can afford.
  
  
• Many financial and real estate advisors also recommend home buyers create long-term budgets to help create guidelines for affordable mortgage payments and long-term homeownership costs.  Most experts advise clients to devote no more than 30 percent of their monthly household income toward housing costs, which should include mortgage principal, interest, taxes, and insurance.  There are numerous worksheets available online to help consumers calculate how their income, debts, and expenses may affect the amount they can afford each month for the next 15 to 30 years.

Harder to get an Uncle Sam mortgage
Rising defaults on loans insured by the Federal Housing Administration (FHA) have led the agency to impose future policy changes to its home loan program. The FHA provides mortgage insurance on loans made by FHA-approved lenders. Borrowers must meet certain requirements established by the FHA to qualify for the insurance, but lenders bear less risk because the FHA will pay the lender if a homeowner defaults on his or her loan.

• The FHA is federally mandated to maintain reserve funds at 2 percent or greater. As of November, the agency reported that its fund had declined to .53 percent. The funding is used to cover losses on mortgages insured by the FHA that go into default.
  
  
• Loans insured by the FHA generally are less expensive to borrowers because of the lower down payment requirements. However, these loans also have fees, such as up-front mortgage insurance. To help the agency raise its cash reserves, the FHA is increasing the up-front mortgage insurance premium from its current 1.75 percent to 2.25 percent. HUD released a Mortgagee Letter today making the premium increase effective in the spring.
  
  
• The agency also is raising the minimum credit score requirements. Currently, borrowers with FICO scores as low as 500 have been approved for FHA-insured loans. Under the policy changes, new borrowers will be required to have a minimum FICO score of 580 to qualify for the FHA’s 3.5 percent down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10 percent. FHA expects this to take effect in early summer once it passes the normal regulatory process.
  
  
• The new policy also will reduce the amount of money sellers can provide to home buyers at closing to 3 percent, down from its current 6 percent, of the home’s price. The change brings the agency in line with industry standards and removes the incentive to inflate appraisals. The FHA expects this to take effect in early summer after it passes the normal regulatory process.
  

Principal reductions are more successful at avoiding redefaults because they reduce negative equity and provide the borrowers with greater incentive to remain current on the loan, according to the study.  The study also found that borrowers who owe 15 percent or more than their homes’ value have a 51 percent higher risk of redefaulting in any given month.

The percentage of current and performing mortgages declined for the sixth consecutive quarter to 87 percent of the servicing portfolio, serious delinquencies rose to 6.2 percent, and foreclosures in process surpassed 1 million mortgages, according to the report. Serious delinquencies at the end of the third quarter increased to 3.6 percent of prime mortgages, an increase of 20 percent from the previous quarter and more than double a year ago.

Other findings from the report included:

• More than half of all modified loans re-defaulted within six months of modification, with re-default defined as 60 or more days delinquent or in foreclosure.
• Servicers implemented nearly 274,000 trial plans under the administration’s “Home Affordable Modification Program” (HAMP) during the third quarter.
• Servicers implemented nearly twice as many home retention actions as new foreclosures.
• More than 80 percent of the loan modifications in the third quarter reduced monthly principal and interest payments.

The complete report can be downloaded from the OCC and OTS Web sites, www.occ.gov and www.ots.gov.