Trojan Financial Solutions Blog

3% Down Purchases w/ No MI – Investment Properties OK

Interested in an investment property, but don’t want to sock 25% down on what might be a declining asset? There may be a path for you.  FannieMae has HomePath loans on HomePath eligible properties that work like traditional FHA loans with two key exceptions.  1) They don’t require any mortgage insurance (MI) of any kind and 2) They are eligible for investment properties.

Kicking the MI is key, because insurance on a $400K purchase can run more than $300/month.  That’s the equivalent of $60,000 more on a loan amount.

These HomePath properties are owned by Fannie Mae.  Fannie Mae does not want to be in the property business, so they are eager to get rid of their inventory.  They’ve offered some steep incentives for borrowers:

3% down payment for owner occupied HomePath eligible properties.

15% down payment for investment HomePath eligible properties.

No mortgage insurance.

Liberal down payment sourcing — down payment can be funded by the borrower’s own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.

No lender-requested appraisal.

Expanded seller contributions for closing costs allowed.Available for primary residences, second homes and investment properties.

Many condo project requirements are waived.

For more information, contact a HomePath Mortgage lender or click here for the Home Buyers Guide.

Fannie Mae has a First Look program that allows owner-occupant borrowers a 15-day exclusive window on the purchase offer.  On day 16, investment offers will be considered.

There’s also a HomePath Renovation mortgage where you can also finance the cost of “light renovations” into the mortgage.  Properties must have the HomePath Renovation Mortgage logo to qualify.

Properties are limited, so you need to act quickly.  To look up eligible properties, use the California HomePath search site: http://www.homepath.com/state/ca.html, or call a trusted Trojan Financial representative at 800-657-7771.

Asset-Based Lending

There are some new options for high-net worth individuals with limited income. If you are retired with no stream of income other than your interest and dividend income on the millions you have in under-performing stocks (I’m crying a tear for you if you fit into this mold), asset-based lending might be what you need.

In the old days, a stated income loan was the way to handle someone with this predicament. Stated income is gone. We know that. When that went away in mid 2007, so did most of the California broker’s pipelines. The problem in California was when the median home price was up to $633,000 and the rates were at 6%, you need at least $200K of net income and low debt to qualify. Self-employed borrowers often write off much of their gross receipts.

Technically, all mortgages are asset-based because the loans are secured by the house as the asset, but this works a little differently.

To calculate the Asset Utilization income stream, take the sum total of all qualified assets and multiply by 4%. This would equal the annual sum of funds that would qualify for the cash flow analysis to be added with the borrower’s other income to come up with a total income amount.

Example:

• • Total Liquid Assets …….. $1,350,000
  • Minus Minimum Assets …….. $ 250,000
  • Minus 12-months reserves …….. $100,000
  • Amount for Asset Utilization …….. $1,000,000
  • $1,000,000 x .04 ÷ 12 = $3,333.33
  • ____________________________________________________

In this example, $3,333.33 can be added to the borrower’s monthly qualifying income.

It’s not much, but it can help someone qualify who is close. There are rules for what assets can be used as well, but the best part of the program is that it will let you “double dip.” i.e., you can still use any interest income used on the qualifying account(s).

There are also “pledged asset” programs which will allow a lender to lend above the normal guidelines if the borrower pledges their assets. This one is a little more complicated, but the Cliff’s Notes version is that if the lender will increase their exposure if you let them come on as a temporary silent owner on your asset accounts. If you default on the loan within three years, the lender has the access to the funds.

If you’re interested in exploring any of these options, just give us a call (800)657-7771, ext. 103.

A Jumbo Resurgence

Jumbo is often associated with elephants, jets and, oxymoronically, shrimp.

What it hasn’t been associated for quite some time is mortgage loans.

Since the demise of the retail mortgage in Q2 2007, there’s been an all-points bulletin out for the missing Jumbo (and stated income) loan.  There have been a few portfolio lenders who have dabbled in them, but, for the most part, the jumbo loans were conspicuously missing from those refinance resurgences.

Good news is that investors on the secondary market have opened their coffers; big lenders like GMAC are now buying jumbo originations.  This is great news for higher-end Orange County communities whose market values have taken a hit, not because there aren’t buyers, but because buyers could not secure financing.  Now, even conservative wholesale lenders like Provident Funding are in the jumbo game.

Rates are really good as well; A “PAR” rate for a 30-year fixed can go as low as 4.875% for a true jumbo, and a 5-year ARM can be had in the low 3% range.  Borrowers will need to have at least 20% equity for these transactions, and will also be able to traditionally document their income.

For those who are not able to document their income, there is at least one program out there.  Here are some specs on a true-jumbo, true stated-income loan:

The lesser of 60% of the sales price or the appraised value, or requested loan amount of $ 200,000 up to a loan amount of $1,000,000 or 55% of the lesser of the sales price or appraiser value up to a loan amount of $2,000,000 or 50% of the lesser of the sales price or appraiser value up to a loan amount of $3,000,000.

CASH OUT: 50% loan to appraised value up to $3,000,000 for free and clear properties. 60% loan to appraised value up to $3,000,000 if the property has an existing 1^st Trust Deed with maximum cash out of $200,000. Cash out cannot be used to pay off a 2^nd Trust Deed.

INCOME AND DTI: Income is not stated on the application and DTI’s are not calculated.  A 4506-T will not be executed.

Rates start in the 5′s for the stated-income program, a little higher than full doc programs, but certainly better than traditional hard-money.

So if you have questions about these programs or any other mortgage mumbo jumbo, feel free to contact me directly.

Steve Bush
Steve@TrojanHomeLoans.com
(714) 916-5193

What to expect with Japan/Middle East and Economy Improving

Things are looking good for the economy and rates are still dropping:  The Fed met today to discuss the economy and their policy without making any changes they did change their verbage from the last few meetings: (From Yahoo Finance)

The Federal Reserve offered its most optimistic view of the U.S. economy since the recession ended, even as Japan’s nuclear crisis stoked new worries around the globe.

The economic recovery is on “firmer footing” and the jobs market is “improving gradually,” the Fed declared in its statement released at the conclusion of its meeting Tuesday.

That’s a more upbeat tone from its previous meeting on Jan. 26, when Fed policymakers said the rate of economic activity was “insufficient” to bring about “significant improvement” in the job market.

The Fed also downplayed inflation risks. And it dropped the phrase “disappointingly slow” in describing the progress made lowering the nation’s unemployment rate. That’s a reflection of a nearly full percentage point drop in just three months — the sharpest decline in unemployment since 1983.

The Fed on Tuesday, in a unanimous decision, said it was maintaining the pace of its $600 billion Treasury bond-purchase program to help the economy grow more strongly and to lower unemployment, which now stands at 8.9 percent.

In addition on the foreclosure crisis, the House voted 242-177 to end the HUD program for Unemployed: (www.housingwire.com)

The House of Representatives voted 242-177 Friday to end a new program that would provide interest-free loans to aid unemployed borrowers with their mortgage payments.

In January, the Department of Housing and Urban Development said the Emergency Homeowner Loan Program, created under the Dodd-Frank Act, would begin taking applications in the spring of 2011. HUD set aside $1 billion to provide up to $50,000 in interest-free loans covering mortgage payments for up to 24 months. Roughly 30,000 homeowners are expected to take part in the program.

This bill has been announced to be vetoed by President Obama if it reaches his desk though. 

Secondly, the Fed decided to extend the HARP program that for 125% loans on first mortgages for Fannie and Freddie Mac owned loans:

The Federal Housing Finance Agency said Friday it extended its Home Affordable Refinance Program for one year.

The Obama administration launched the program in March 2009 to allow borrowers the chance to refinance out of negative equity and into lower rate mortgages. It is administered by Fannie Mae and Freddie Mac.

HARP was set to expire June 30, but with the extension, it will expire June 30, 2012.

All this news tells you all the issues on Congress’s agenda and the wrangling between Democrats and Republicans on just how much of the 30 billion dollars set aside to aid the Foreclosure crisis is being valued.  So far, only 3 billion of that money has been used, leaving Republicans wanting to kill any funded programs so the money can be used for other needs, claiming the HARP and HAMP and ELHP all have done little to help homeowners in America.

The 10-Year Bond Yield Throws a Curve

Mortgage rates are said to track the 10-Year Bond yield. Likewise, the bond market and stock market are inversely correlated.  For the last decade, I’ve been in the business of originating mortgage loans.  As with any business, price is always a consideration.  When the price is protracted for 360 payments, it is exponentially so.  In so much as our business depends on it, mortgage brokers have to be on top of the market.  We have to know where rates are going.  We have all sorts of economic indicators that can help us, but the most practical tool has always been the 10-Year Bond yield.

It’s pretty simple way to “predict” rates, but it has proven largely effective.  When the yield or payout on the 10-Year Note is up, rates go up.  Conversely, lower yields translate to lower mortgage rates.  The theory is pretty simple.  When the stock market does well, the 10-Year Bond, considered a less risky investment, must increase it’s payouts to compete with monies that might otherwise be allocated to the stock market. The spread on the Treasury note is about 1.7%. The chart below tracks the two indicies for the last three years.  Without even pulling out my college Statistics textbook, you can see there’s a pretty significant correlation between the 10-Year Bond yield and mortgage rates.

  

For most of the time, the bond yield was closely associated with the stock market.  If the stock market was up, then the bond yield was up. But lately, the yield has thrown us a curve.  Even on days with a down market, the yield has climbed and so have rates.  This is troublesome for someone looking to lock a rate, but the signs may be even more troubling for our economy.  It speaks to the the global market’s lack of confidence with our government bonds.  The quantitative easing dollars the federal reserve pumped in bond market to “stimulate” the economy has really has messed with the what were the market norms.  The yield shouldn’t have to go up if the stock market is down.

So while job reports continue to disappoint*, the stock market shows lack luster growth and the housing inventory builds, you would think that the logic would be that mortgage rates would have to stay low for the impending future. While low is a relative term (average mortgage rates in 1981 were about 19%), most pundits agree that rates will steadily climb over the next 18 months.  With news like that, all logic goes out the window… the window of an empty, bank-owned home, but a window none the less.

*U.S. added *192,000 jobs in February, just shy of expectations.

Unforgiven



“Unforgiven” is not only the title of the Academy Award wining best picture of 1992, it’s a label that many of this nation’s mortgagors could don.  Last month, California rolled out a program whereby unemployed California homeowners can apply for up to $3,000 a month in mortgage assistance to tide them over for up to six months while looking for work.  While this Unemployed Mortgage Assistance Program (UMA) may seem like an act of contrition, it is funded by the very people it intends to help.  The program is supported by $2 billion in federal dollars provided through the “Hardest Hit Fund,” i.e., your tax dollars.

In addition, this program offers but a thimble of relief in an ocean of trouble. Along with HAMP, it does not address the egregious problems in our mortgage and housing markets.  It only prolongs the inevitable.  This public-assistance money goes to the consumer to pay the banks, who are indirectly responsible for their very unemployment.  The banks, who single handedly created this bubble, are given a green light to pass through the liability to the tax payers.  What’s worse than this perpetual tax-payer fleecing (to the benefit of the banks) is that is not addressing the fundamental problems in the market.  We, as a nation, don’t need assistance.  We need fixes.

There is one thing that could amount to substantive and substantial correction of our housing market.  It doesn’t require billions in government spending; rather, it only requires that the banks agree to take losses on the inequity they created, most of which they won’t see for decades.

What’s this magical elixir, this mystical potion that would truly invigorate the real estate landscape?  It’s a very simple concept: principal reductions.  Mortgage balances should be reduced to the fair market value of the homes they secure.  Anything over fair market is immediately and permanently mitigated or “forgiven.”  This not only helps those people who are facing hardship, but it also helps the “good guys” who have been performing on their obligations all along.

If you consider why many of the houses are upside down, it’s really the right thing to do.  The banks had all sorts of crazy bank products that put many people into homes that they would not qualify based on any underwriting guidelines today or prior to 2004.  All that activity did is artificially inflate the market (well, that and make Billions of dollars in the primary and secondary markets for the big four banking institutions).  The banks are holding paper on vapor, and they are so bull-headed that they intend to collect on a counterfeit peak market rather than fair market value.

In addition to reducing the liabilities for almost 20% of the nations homeowners who owe more on their homes than they are worth, principal reductions will allow borrowers to refinance, inciting economic activity across the nation.  It will also help revive communities.  In Las Vegas, nearly 60% of the remaining mortgages on homes are upside-down.  It will allow others to sell their under-water homes to upgrade into new ones.  It will ignite a wealth of retail spending to furnish and update these homes.  It will, in short, revive our economy.  It might even make you more handsome and eliminate all the unrest in Egypt.

There’s a great quote from Dutch botanist Paul Boese that reads “forgiveness does not change the past, but it does enlarge the future.”  Likewise, principal forgiveness will help us as a nation move this mortgage crisis to our past and will help secure our collective future.  Instead of the band-aid-on-a-shotgun-blast theories to date, this simple plan offers some real hope to recovery.  It’s just too bad that we have to depend on our politicians to propose it, pass it and carry it out.

Are ARMs still an attractive option?

Mortgage Rates have soared as the 10 yr Bond yield has gotten as high as 3.77.  It was as low as 2.49 in early November.    What options does this leave borrowers?  It makes 3, 5, and 7 year ARM very attractive options to borrowers to get low rates.    ARMs that were originated in 2004-2006 have either adjusted or will adjust soon.  This a opportunity for mortgage brokers and homeowners to take advantage of refinancing before rates get to 6%.  Move fast as the bond market may further drop in price due to the escalating fear of a national deficit limit not being increased causing the US government to default on loans which would cause for downgrade on US bonds and debt securities.

The time to look into your options is now!

Housing in OC becomes more Affordable?

The percentage of households able to afford an Orange County starter home has tripled since the housing market peaked, the California Association of Realtors reported.

By the Realtors’ math, 60% of Orange County households could afford to buy the typical “entry-level” house in Orange County in the fourth quarter of 2010. By comparison, just 21% could afford that house in the spring of 2006, the low point for housing affordability in O.C.

Last quarter’s level was also the highest level of home affordability in Orange County in figures dating back to 2003. Using the Realtors’ methodology, a household would need to earn about $63,000 a year to afford the typical “entry-level” house in Orange County. That’s down from around $118,000 in the spring of 2006. That’s based on an entry-level home price of just under $409,000, with monthly house payments at $2,100.

The Realtors’ affordability index measures the percentage of local households able to afford a starter home — valued at 85% of the area’s median house price. The index assumes that buyers are making a 10% down payment and getting an adjustable-rate loan. The association considers its measure “the most-fundamental measure of housing well-being for first-time buyers.”

The Realtors’ report comes a day after the Wall Street Journal reported that housing affordability returned to pre-bubble levels in a growing number of U.S. markets over the past year. According to Moody’s Analytics, the U.S. ratio of home prices to annual household income reached a peak of 2.3 in late 2005, but had fallen to 1.6 by September, matching the lowest level in the 35 years, the WSJ reported.

While the Realtor index is only a rough estimate of how many residents can actually afford starter homes, it does track the overall trend caused by falling prices and lower interest rates. In addition, rising interest rates in recent weeks likely have reduced the current number of households able to afford a home. The average interest rate of 30-year home loan rose above 5% in the past week, according to Freddie Mac’s weekly survey.

Statewide, the report shows:

• 69% of California households could afford the entry-level house in the fourth quarter, matching the record-high set in the first quarter of 2009.
• 75% of California households could afford the entry-level condo.
• That compares to a national affordability rate of 80%.
• The minimum annual income needed to afford the California starter home (costing just over $256,000) was $39,600.
• Affordability either matched or set record highs in all regions of the state last quarter.
• Affordability in the state last quarter ranged from a low of 42% in San Francisco to a high of 86% in Merced County.

Keep Your Home CA Initiative

Things to look forward to as spring rolls around:

The Treasury has given 2 billion in federal funds to the state of California to help unemployed mortgage owners.    The California Finance Housing Agency has fully implemented four programs initiated last summer that provide up to $50,000 in aid to qualifying homeowners. The U.S. Treasury allocated close to $2 billion from its “Hardest Hit Fund” to CalHFA for distribution to financially strapped California residents either in foreclosure or on the brink of it.

“Our goal is to get the very most out of these federal dollars to assist California families,” said CalHFA Executive Director Steven Spears. “With families struggling through a number of financial hardships and the disruption in the real estate market, these programs will help those in need while stabilizing neighborhoods and communities severely impacted by foreclosures.”

The CalHFA programs are part of the agency’s “Keep Your Home California” initiative. Details are available at http://www.KeepYourHomeCalifornia.org.

Money will be disbursed on a case-by-case basis, according to CalHFA. Riverside County had the second-highest foreclosure rate in the state last year, with more than 7 percent of the county’s housing stock in foreclosure.

For county property owners to qualify for CalHFA assistance, their household income cannot exceed $78,000, according the agency. Income limits vary by county.

Other general requirements:

– a homeowner must plan to remain at the residence for at least three years;
– the applicant must not own a second property;
– the home must not have been purchased after Jan. 1, 2009; and
– it must not have been refinanced for the purpose of taking out a home equity line of credit.

Under one program, if a household’s breadwinner becomes unemployed and faces the prospect of defaulting on a loan, the household may be eligible for up to $3,000 a month in mortgage payment assistance.

Another program will provide $15,000 up front to bring a borrower out of default. The maximum amount available under Keep Your Home California is $50,000. The money is a direct subsidy and does not have to be repaid unless the recipient chooses to sell the property within three years, according to CalHFA.

Bernanke Speaks.. and Says “WHOA…Slow Down Optimists”

Ben Bernanke went on 60 minutes on Dec 5 and said that critics of his bond buyback plan and also those who see inflation as a a worry need to ease up.   Main points from his interview -

• He is 100% sure that the Fed can control inflation by easing up and raising interest rates when necessary
• The Economy is still barely above stagnant and recovery could be slowed down significantly by unemployment
• The Fed is not printing more money buy buying bonds
• That lower interest rates could spur more lending and spending into the economy
• Tax cuts should be extended as well as unemployment benefits to keep the economy moving forward, and without either the economy could stumble again

These comments should drive down interest rates as they have soared 44 basis pts since the Nov 3 meeting.

the article is below as reported on Yahoo Finance -

The Fed chairman said he thinks another recession is unlikely. But he warned that the economy could suffer a slowdown if persistently high unemployment dampens consumer spending.

The interview is part of a broad counteroffensive Bernanke has been waging against critics of the bond purchase plan the Fed announced Nov. 3. The purchases are intended to lower long-term interest rates, lift stock prices and encourage more spending to boost the economy.

Critics, from Republicans in Congress to some officials within the Fed, say they fear the Fed’s intervention could spur inflation and speculative buying on Wall Street while doing little to aid the economy.

On other issues in the “60 Minutes” interview, Bernanke:

• Argued that unemployment would have been far higher — “something like it was in the Depression, 25 percent” — had the Fed not provided extraordinary aid to Wall Street firms, banks and other companies to ease a credit crisis.

• Said it could take four or five more years for unemployment, now at 9.8 percent, to fall to a historically normal 5 percent or 6 percent.

• Reiterated that the Fed is prepared to buy even more than $600 billion in Treasury bonds over the next eight months, should it decide the economy needs the fuel of even lower interest rates.

• Argued that the risk of inflation is overblown. Bernanke said he’s “100 percent” confident the Fed will be able to ward off inflation, when the time is right, by raising interest rates and unwinding its stimulative programs.

• Called the risk of deflation — a prolonged drop in prices, wages and the values of homes and stocks — “pretty low.” He said the likelihood would have been greater if the Fed weren’t maintaining super-low interest rates.

• Urged Congress to improve the nation’s tax code “by closing loopholes and lowering rates” for individuals and companies. He said doing so would create greater incentives for people to invest.

In material from the interview that didn’t make CBS’ broadcast but was later posted online in video form, Bernanke reiterated his view that an artificially low Chinese currency is “bad for the American economy because it hurts our trade.”

It isn’t helpful for China, either, he said, because it makes it harder for Beijing’s policymakers to keep China’s economy and inflation from overheating.

Critics who fear the Fed’s bond purchases are raising the risk of inflation have complained that the purchases mean the Fed is, in effect, printing more money. In the interview, Bernanke called that a “myth.” He insisted the Fed isn’t printing money when it buys Treasurys and said the program won’t expand the amount of money in circulation in a “significant way.”

Lou Crandall, chief economist at Wrightson ICAP, said Bernanke is right that the Fed’s purchases won’t significantly change the amount of money circulating in the economy. That’s mainly because banks aren’t lending most of the money they already hold in reserve. When the Fed buys Treasurys, it increases the reserves in the banking system. For those reserves to actually “create” money, the banks would have to lend it.

Still, Crandall suggested that the bond-buying program creates the appearance of printing money, something that could put the central bank’s credibility at stake.

Bernanke’s appearance Sunday night is part of a public-relations blitz he’s mounted since the Fed announced the program Nov. 3. In private and public appearances, Bernanke has sought to explain and defend the program to ordinary Americans, investors and lawmakers on Capitol Hill.

His efforts have included an Op-Ed article in The Washington Post and discussions with students in Jacksonville, Fla., economists in Jekyll Island, Ga., business people in Columbus, Ohio, central bankers in Europe and members of the Senate Banking Committee.

Criticism has come from both home and abroad. Officials in China, Germany, Brazil and other countries have argued that the Fed’s plan is a scheme to give U.S. exporters a competitive edge by keeping the value of the dollar weak. A weak dollar makes U.S. goods cheaper abroad and foreign goods more expensive in the U.S.

It’s rare for a sitting Fed chairman to grant an interview, whether for broadcast or print. But this was Bernanke’s second appearance on “60 Minutes.” His first was in March 2009. At the time, he was facing anger over Wall Street bailouts and rising anxiety about the economy.

In the interview that aired Sunday, Bernanke pointed out that the economy is growing at an annual pace of around 2.5 percent — far too slow to reduce unemployment. For a self-sustaining recovery, consumers and businesses would need to spend more, so the economy could grow faster.

Bernanke has said he hopes the Fed’s bond-buying program will help lift stock prices. In part, that’s because lower yields on bonds would cause some people to shift money into stocks.

Higher stock prices would boost the wealth and confidence of individuals and businesses. Spending would rise, lifting incomes, profits and economic growth. Bernanke has referred to this as a “virtuous cycle.”

But when asked in the interview whether the recovery is self-sustaining, Bernanke responded: “It may not be. It’s very close to the border.”

Given the economy’s still-weak growth, he said: “We’re not very far from the level where the economy is not self-sustaining.”