The highest percentage ever recorded for delinquent mortgages was announced for the second quarter. The Mortgage Bankers Association reported that residential mortgages that were in foreclosure or at least one payment past due jumped to 13.16%. Residential mortgages that were somewhere in the foreclosure process reached 4.3% of all mortgages and that number was up from 3.85% in the first quarter of 2009.

The sub-prime and exotic mortgages that were the focal point of the housing bubble are not what has drove the escalation in delinquencies. Prime loans now account for nearly 40 percent of all foreclosure starts. That number is a direct result of the job market. As the flood of jobless claims continue so will the default rate for prime loans. A year ago prime loans, those issued by Fannie Mae and Freddie Mac only accounted for roughly 15 percent of foreclosure starts. That number is nearly doubled in a year as the job market is still weak.

This should come as no surprise but in a recent report from the Mortgage Bankers Association FHA loans currently are at the highest percentage of mortgage originations in 19 years. Government backed loans accounted for roughly a third of mortgage origination in June.

The reason behind the surge in FHA loans is a change in the market. The sub-prime mortgage industry is all but gone and conventional Fannie or Freddie loans have tightened back so far that if there is any inkling of a low down payment, FHA is your only choice.

In prior years conventional loans had 97 percent and even 100 percent options for financing but no more. Conforming loans are starting at a 90 percent loan to value or a 10 percent down payment. If you need financing that requires less than a 10 percent down payment FHA is the route you need to go. Any loan with a down payment of 10 percent or more and a conventional Fannie Mae or Freddie Mac loan is your best choice.

Another thing to keep in mind is with FHA loans you can use the $8,000 first time home buyer credit towards your down payment. IT DOES NOT mean that if you have no money to put down you can just use the $8,000 in lieu of. You will still need at best 3.5 percent of your funds as down payment but if you chose to can use the $8,000 as well.

There is a new bill that hit the Senate floor. Senate bill, S. 1230, The Home buyer Tax Credit Act of 2009 is underway. The bill proposed by Sen. Johnny Isakson, D-Ga. Is a replacement to the present $8,000 tax credit that first time home buyers can receive upon closing of a home before November 30^th of this year.

The bill expands on the tax credit, making it available to anyone who purchases a principal residence in the year following the bill’s enactment. The bill also would do away with income limitations of $75,000 for individuals and $150,000 for joint filings. The new bill would reach all walks of life and income levels.

The bill went to a Senate finance committee last week, where it awaits further action. The passing of the bill could help the potential for a slow-down in home buying as mortgage rates have rose sharply in the past month. Almost doubling the tax credit and making the credit available to not only first time home buyers but “all buyers” could help tremendously. It would certainly move some buyers on the fence since rates have gone up to re-evaluate buying a new home in taking the $15,000 tax credit into consideration. LoanClassroom will certainly keep you up to speed as the bill progresses through the Senate.

If the Fed and the Obama administration were banking on low interest rates to help spur the ailing housing market and then help jump start the economy I hope there is a plan B because that plan has backfired. Mortgage rates have skyrocketed in the past three weeks. They have moved from the low 4’s to near 6 percent a sudden jump that no analyst had expected.

The Fed had previously announced a $1.2 trillion plan to backstop ten year treasury notes as well as mortgage backed securities both which are benchmark indicators for mortgage rates. They announced their intentions on doing what they needed to do to keep mortgage rates low. It is clearly apparent that the task at hand was underestimated as traders and lenders have rushed to dump treasuries and mortgage backed securities faster than the Fed can apparently print money to throw at a problem.

So the question is where do we go from here? I do not think we see 30 year fixed rates back in the 4’s anytime soon. As far as the housing market the spike in rates will definitely take effect. Such a large movement in rates can mean hundred of dollars per month difference in mortgage payments. That may change people’s minds on buying that new home. As for the people who are trying to refinance the Fed needed rates in the 4’s to keep the refinance window open. There is a large majority of mortgages that are presently in the 5 percent range from the last refinance boom, take them out of the equation and you have a small pool of people that may still benefit from refinancing. So much for the economy and housing market, the Fed is going to need a rabbit in their hat to fix this one.

                Some clarification on the $8,000 first time home buyer tax credit and FHA mortgages. As I hope by now you are all aware if you are a first time home buyer and purchase a home before November 30^th 2009 you could qualify for a tax credit from the government up to $8,000. Also if you have not owned a home in the past three years you can qualify as well.

                There has been some discrepancy regarding FHA mortgages and the ability to use the tax credit as part of a down payment or closing costs. It has now been answered. HUD, (The U.S. Department of Housing and Urban Development) has clarified that the tax credits can be monetized in new home purchases. Make note that it is for FHA loans only and does not include either Fannie Mae or Freddie Mac loans.

                Of course you always need to read the fine print and with this clarification from HUD there is some “fine print”. The 8,000 tax credit that some qualify for can be used for use of purchasing a new home, however do not think that the government is showing up at your closing with a check for 8,000. The only way to access the money is through secondary financing from state Housing Finance Agencies and certain non-profits. ALSO, the funds cannot be applied to the required minimum 3.5 percent that FHA requires as a down payment. That still has to come from the borrower. The 8,000 can be applied in addition to the 3.5 percent from the borrower. So for anyone who thought that buying a house under 225,000 you could steer around the 3.5 percent down payment and use your 8,000 tax credit not so fast. You will still need to have a down payment. Happy House Hunting!

Quick brush up for the “classroom” on mortgage rates, they are tied to two indices, the ten year treasury market and MBS (mortgage backed securities). This week has been the week that traders, mortgage bankers, mortgage brokers, the government, the fed, the borrower, should I keep going, would like to forget. The treasury and MBS market got slammed and hard.

The fed had pledged $1.2 trillion to buy treasury securities and mortgage backed debt. The fed stepped into the ring with the plan of buying these assets to help keep mortgage rates in the fours and help the slumping economy and real estate markets. In an analogy of a python snake and a lab mouse, the fed was the lab mouse and the rest of the market was the python. Fill the rest of the picture in how you like, in the end the mouse hung in there for a few but the apparently obvious outcome unfolded. Let’s just say Bernanke and the fed have officially lost the battle.

All of several trading days were all that it took for nearly six months of decreasing rates. It seems as though mortgage rates in the fours for now are a thing of the past. The fed has learned the hard way that they cannot control the market.

At this point though it is too early to try and gauge the next direction. The heavy selling of treasuries and mortgage backed securities that pushed mortgage rates up nearly ¾’s of a percent in a matter of days was also fueled by fear as well as rumor that the fed may lose their triple A rating. When the dust settles in the next day or so the picture will be clearer. Besides the common theme for the fed is “if it doesn’t work then throw more money at it” so that has yet to be played out. Rest assured the fed is watching closely and this may be the time that “throwing” more money may not be the right call, besides the government cannot just print money forever. In the meantime borrowers may need to get accustomed to mortgage rates in the 5’s and not the 4’s for a while.

Refinancing today is not a simple task. I liken one’s ability to refinance as a shell game on a street corner in the city. You watch intently on which shell the nut is under and you think you have the right answer and the dealer moves the shells around and around and then he stops and you think you have it all figured out and then, you were wrong!

That is what refinancing your mortgage is like these days. I am no pessimist; the glass is not half empty in my eyes. Call me a realist if nothing else. I have prospective clients call me all day asking and inquiring about refinancing and as God as my witness I have a different answer for each one that calls.

The premise of this blog is to help borrowers make heads or tails of the refinance process. LoanClassroom is the educational wing of Eversley Capital Mortgage LLC my mortgage company in Norwalk, Connecticut. Through LoanClassroom we help borrowers understand a process that once was so simple and now so complex. Here are some helpful bullet points on refinancing:

·         There are two programs out there that are in place to try and help borrowers. Both Fannie Mae and Freddie Mac have programs up to 105 percent LTV and no mortgage insurance. You need to have a clean mortgage history meaning no late payments, documentable income and your loan has to be owned by one of the two companies. For those that have purchased homes in the last three years or so this is your opportunity to refinance

·         If you have a second mortgage on your home it is going to potentially make things more difficult for you. Do not rule the option out. It may just make things harder.

·         Stated, no income, no documentation loans are a thing of the past. If that is the program that you used to obtain your mortgage than regardless of credit score if you cannot document income then refinancing will be near impossible.

·         If you are presently late or have been late in the past year with your mortgage then refinancing may not be your best bet. Try to contact your loan servicer and explore a loan modification with them.

·         The most important thing is NEVER assume that you cannot refinance. There are new programs like the Fannie and Freddie one that I mentioned that may allow you to refinance now. Always explore the possibility; it does not hurt to inquire.

In the market for a second mortgage, good luck. Have a second mortgage already and want to refinance your first? Good Luck. Not only are second mortgages becoming harder and harder to get if you presently have one and want to refinance and not pay the second off banks are not all that willing to subordinate. In some instances there have been some banks and lenders who will not subordinate regardless of the circumstances.

The term ‘subordinate’ means that your second mortgage lender drafts a form agreeing to allow your new first mortgage lender with whom you are refinancing with take the first position on your title. In a nutshell your second mortgage lender agrees to remain in second position. Seems routine right? Why would there be an issue? The second mortgage lender knew you had a first mortgage and if the terms are better for the both of you it is good right? WRONG.

At the height of loose lending second mortgages went up to 100 percent cltv (cumulative loan to value) (add the first mortgage and the second, divide by the home’s value you get the cltv). Even some lenders offered 125% financing. Ok those days are long gone and for more realistic time’s banks and lenders would offer a second mortgage up to 90 cltv.

In today’s market the last bank I knew of that was offering 90 cltv was TD Banknorth. I spoke to a friend of mine at their Norwalk, CT branch and as of today that is still an option but barely. Nowadays 80 cltv for the most part is the maximum.

I recently have had success with Newtown Savings Bank and People’s United Bank in getting subordination agreements approved. It is the larger banks for example JP Morgan Chase who seem to make getting a subordination agreement a living nightmare for their clients. I am personally 0-3. All of them were 80 percent or less. Chase for as long as I can remember was at a 90cltv, now asking them to subordinate is a mere waste of time. Six weeks later and a message saying they only will go to 65cltv to subordinate was what I got. Makes no sense but then again often times banking has no common sense.

In summary the second mortgage market is a thing of the past. Unless you have a tremendous amount of equity in your home is it worth applying for. If you already have a second mortgage and want to take advantage of interest rates in the 4’s hope that you can pay your second mortgage off or have a lender that is willing to subordinate. Remember 80 cltv is the magic number. If you have a second mortgage with JP Morgan Chase I feel for you.

Rent vs. Own is an age old question. And the answer differs depending on where in the country you want to live. Connecticut is LoanClassrooms backyard so a comparison into CT real estate is what we are going to do.

I recently read an article in the local Norwalk Citizen newspaper. It was an article on rents in the Stamford-Norwalk area. It is what intrigued me to do this comparison.  I read the article and thought it was good stuff.

I was shocked to learn that in the entire US the Stamford-Norwalk area of Connecticut now requires the highest hourly wage to be able to afford to rent an apartment. In a recent report from The National Low Income Housing Coalition they detailed a report on hourly wages needed to afford two bedroom apartments by state, county and metropolitan area. The Stamford-Norwalk area was the highest in the country. Danbury Connecticut ranked 8^th. As a state Connecticut was sixth in the country overall.  The study pegged the required annual income at nearly $70,000 a year to rent a two bedroom apartment in Fairfield County based on a monthly rental amount of $1,750.

Now let’s look at what $70,000 would get you if you were looking to buy a home as opposed to rent in Fairfield County. According to Zillow.com the median price for a 2 bedroom single family home in Norwalk, CT is $375,000. Let’s say you have saved enough to put a 10 percent down payment for a purchase. You put down $37,500 for your down payment and take a mortgage for the balance, $337,500. Based on your mortgage payment of principal and interest, your property taxes, your home owners insurance, an interest rate of 4.875% for a 30 year fixed mortgage and applicable mortgage insurance or (PMI) the housing payment is $2,400. To put that in perspective on an income of $70,000 that is pre-tax $5,833 a month. With a mortgage payment of $2,400 that leaves food, utilities, taxes, insurance, cell phone, food, car credit card, general living expenses yet to be paid. Assuming you are in a 28% tax bracket your take home pay less taxes is roughly $4,100. Meaning $1,700 a month needs to cover all the rest. That is living pretty tight. Not impossible but darn tight.

In summary the old question here is rent vs. own and based on the numbers renting for a while might be the answer at that income level and purchase price. Keep in mind we used 10 percent for a down payment. The average median price for a 1 bedroom single family home is $265,500 in Norwalk, CT. So if you want to own and are in that income level buyers market or not you will have to look hard to find something in your price range in Fairfield County. It is understandable why Fairfield County is the highest income requirement to rent in the country.

Veterans are still eligible for 100% financing on home purchases!  Do not miss the opportunity to purchase a home in this buyers market in Connecticut because you have not been able to save for a down payment.   100% financing is available for a Primary Residence only.  No Investment properties or Second Homes are allowed.

The first step in the process is to obtain a Certificate of Eligibility. You may contact us directly to see if we are able to obtain an eligibility certificate for you online OR Below is a direct link to the form that needs to be completed and sent to: 

VA Eligibility Center

PO Box 20729

Winston-Salem, NC 27120

888-244-6711 (8:00-4:00 EST)

Email Inquiries: https://iris.va.gov  

You will also need to send a copy of your DD-214 Certificate of Separation from Active Duty.  If you are currently active in the Military you will need an active duty personnel statement of service by Adjunct personnel officer or Commander.

Certificate of Eligibility- (VA Form 26-1880)

http://www.vba.va.gov/pubs/forms/vba-26-1880-ARE.pdf

GENERAL RULES FOR ELIGIBILITY

A veteran is eligible for VA home loan benefits if he or she has served on active duty and was

Discharged under conditions other than dishonorable after:

• 90 days or more during wartime, OR

• 181 continuous days or more during peacetime prior to 09/08/80.

2-Year Requirement: A greater length of service is required for a veteran who:

• Enlisted after September 7, 1980, OR

• was an officer AND began service after October 16, 1981.

These veterans must have completed either:

• At least 24 continuous months, OR

• The full period ordered to active duty, (not less than 90 days during wartime, or 181days during

Peacetime).

PERIOD DATES TIME REQUIRED

WW II 9/16/40 - 7/25/47 90 Days

Post-WW II 7/26/47 - 6/26/50 181 Days

Korean Conflict 6/27/50 - 1/31/55 90 Days

Post-Korean Conflict 2/01/55 8/04/64 181 Days

Vietnam Era 8/05/64 - 5/07/75 90 Days

Post-Vietnam Era 5/08/75 - 9/07/80 181 Days

Persian Gulf War 8/02/90 - present 2 years, or the full period called to

Active duty (at least 90 days).

RESERVES/NATIONAL GUARD

The veteran must complete a total of 6 years in the Select Reserves or National Guard with an

Honorable discharge and not be otherwise eligible. Members may also be eligible with less

than 6 years if they were called to active duty for at least 90 days during the Persian Gulf Era.

ACTIVE DUTY SERVICE PERSONNEL

A member of the military who is currently serving on active duty is eligible after having served

on continuous active duty for at least 181 days ( 90 days during the Gulf War period) unless

discharged or separated from a previous qualifying period of active duty service.

ALL OTHERS

Eligibility may be established for certain other individuals, such as the Unmarried Surviving

Spouse of a veteran who died while in service or from a service connected disability, Merchant

Marines, Public Health Service, WAC’S and other World War II Services, and Officers of the

Coast and Geodetic Survey.

VA Loan Limit including the funding fee is $417,000.00 in all counties in Connecticut except for Fairfield County, that maximum loan limit is $556,250.00

Minimum Down Payment is –0- and the VA Funding fee can be financed into the loan amount not to exceed the maximum loan limits.

There is no monthly mortgage insurance for a VA Guaranteed loan just the upfront VA Funding Fee. So as a veteran you can get a mortgage for up to 100% with no mortgage insurance.

The amount of the fee depends on amount of down payment see chart below….

For Example- if you are purchasing a home for $300,000.00 and you are a regular military veteran purchasing your first home and you are not making a down payment- Your loan amount would be 300,000.00 X 2.15% = $306,450.00 and your monthly payments would be based on the final loan amount of $306,450.00. 

Once you have your certificate of eligibility, contact Eversley Capital Mortgage, LLC in Norwalk, CT to determine the maximum amount of financing you will qualify for.  Once you have been pre qualified for a mortgage then you should contact a realtor to start shopping!  

Rates for VA loans are very competitive.  Don’t miss out on this opportunity to purchase a home with no money down.  Call us today for more information or to get started in the qualification process.