Fed plans new rules to protect future homebuyers (part I)

WASHINGTON - The Federal Reserve, trying to stabilize a shaky U.S. financial system, may give squeezed Wall Street firms more time to tap the central bank's emergency loan program, chairman Ben Bernanke said Tuesday.

And, in an effort to prevent a repeat of the current mortgage mess, Bernanke said the Fed next week will issue new rules aimed at protecting future homebuyers from dubious lending practices.

The rules will crack down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles. The plan would apply to new loans made by thousands of lenders of all types, including banks and brokers.
It would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

In an extraordinary action, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed's decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.

Mortgage Financing Contingency

If the buyer applies for mortgage, he will be contingent upon his/her financing. If you are a seller, it helps to check pre-approval and/or pre-qualification letter from the lender before offer accpetance, but buyer will still reserve the right to be contigent upon financing. (finacing clause)

First of all, what is the difference between Pre-Approval vs. Pre-Qualification?

Usually, pre-approval simply means interview with a lender, and lender's confirmation how much you can afford depends on information you provide to the bank.

Pre-qualification is based not only on interview, but also your credit check and few more paperwork you were required to bring: W2s, employment history, etc.

In other words, pre-aulification is more than pre-approval.

Second of all, while above mentioned financing clause is good at taking care of the most situations, if I represent buyer and if the byer is shopping around for loan, I suggest to add disclosure something like this " This ofer is subject to the Buyer's approval of the terms and conditions of any mortgage financing that the Buyer may apply for".

As a seller, you should clearify this statement and establis some time of boundaries. Not to have it as a deal breaker, it is better to buyers to know exactly what loan they are qualifing for before writting an offer.

Tomorrow, I will discuss what does it mean to apply for the loan, and what is procedure if the loan is denied?

Why Mortgage Insurance is not such a bad idea?

1. What is Mortgage Insurance (MI)?
Normaly, if you do not have at least 20% down of your funds in the house (in other words, you are financing more than 80% of the house value), the lender charges you Mortgage Insurance monthly. For loan amount $315,000, MI might be between $130-145/month
2. Reasons why MI is not a bad idea?
a. Only recently, MI became tax deductible (with conditions until 2010)
b. You can also cancel without refinancing when you have 20% down. In other words, all you would need to do is to call your lender and ask him to cancel MI if you either reached 20% of house value by paying it or by reevaluating the house value.
c. You can have eliminate MI from the begining if you have 2 mortgages. They call them 80/20 meaning one mortgage cover 80% house value, but not to pay MI, person took 2nd mortgage of 20% house value. However, if you have only one mortgage with MI, you may have easier access to equity because you only have one mortgage, but not 100% financing as 80/20 might be.
d. 2nd mortgage of house value almost always has variable rates; therefore, variable payments. With only one mortgage with MI, you will have predictable payments and no variable rate.
3. Is there 100% financing with no MI?
Yes, No MI loans are available up to 100% on conforming and 90% on Jumbo.

When you shop for loan make sure you understand all fees. Interest rate is not the only important number. For instance, you may have the lowest rate available out there, but your monthly payments would be higher than your friend' with highest interest out there. why?

I will try to explain to you tomorrow....

Marina
801-649-5883

What Mortgage Programs are available now? (Part I)

1. There are still lender out there who lend their own money
2. 100% Financing is still available-with one loan and $500 contribution
3. 80/10/10 still available for Jumbo and Conventional
4. States Income/Stated Assest still available-10% down payment
5. Low FICO Lending still available (patience is required)
6. FHA/Utah Housing (currently 5.5%, in more details tomorrow)
7. Why Mortgage Insurance (MI) is good (in more details tomorrow)
8. no MI loans available up to 100% on conforming and 90% on Jumbo-I will try to show you that not only interest rate is important when you get estimates from broker
9. new Rehab loan for buyers
10. Interest Abatement