August 27th, 2008 Josh Lewis, CMP
A big part of the recently passed housing bill was the so called “Modernization” of FHA. Many of the changes were minor but some had the potential of being game changers or even game breakers. The bill authorized the increase of upfront mortgage insurance premiums (UFMIP) to a maximum of 3%. Considering that they had previously only been 1.5%, that’s a huge jump. The good news is that after some deliberation HUD has settled on premiums well short of the 3% allowed. The new premiums announced are as follows:
Up Front MIP -
1.75% - Purchases and Qualifying Refinances
1.5% - Streamlined Refinances
3.0% - FHA Secure (Delinquent Borrowers)
HUD has also tweaked the annual mortgage insurance premium which is the monthly premium paid into the pool to cover FHA loan losses. Current premiums are .50% across the board. The new premiums are as follows:
Annual MIP -
0.55% - over 90% LTV > 15 year term
0.50% - less than or equal to 90% LTV > 15 year term
While this will add a little to the monthly payments for FHA borrowers, it’s not nearly as bad as it could have been. Let’s take a $350,000 FHA purchase as an example. The previous UFMIP at 1.5% would have amounted to $5250. The new premium jumps to $6125. At 6.5%, the increase adds $5.53 to the monthly payment. The .05% increase to the monthly premium adds an additional $15.20 for a total increase of $20.73 per month under the new guidelines.
There are 3 other changes included in the bill that will impact FHA buyers. As we previously discussed seller funded Downpayment Assistance Programs will be eliminated as of October 1. In addition, the required investment for FHA buyers is increasing from 3% to 3.5%, meaning an additional $1750 in sourced and seasoned funds in the example above. The last change is the one most beneficial to borrowers. The FHA loan limit is being increased in high cost areas to 115% of the area median price, not to exceed 150% of the Fannie/Freddie loan limits (currently $417,000). For areas like Los Angeles and Orange Counties this means that we will likely see FHA limits at $625,500 beginning next year. This is a slight decrease from the temporary limits of $729,750 set as part of the housing stimulus bill passed early this year.
Thanks to the increase in the FHA loan sizes and the death of subprime, FHA has jumped to 23% of all first mortgage loans funded last month. As recently as two years ago, only 1.8% of loans were insured by the FHA. With the increasing role that FHA financing is playing during the current housing and credit crisis, it’s critical that HUD not get caught up in tightening their standards beyond what is reasonable. FHA is and always has been a full documentation loan and as such has enjoyed relatively low default rates. The current (and the newly revised) insurance premiums will insure that FHA remains profitable for the foreseeable future and doesn’t become yet another drain on taxpayers, a la the coming nationalization of Fannie and Freddie.
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June 2nd, 2008 Josh Lewis, CMP
LIBOR is the most common index for US adjustable rate mortgages. It is seen most often in hybrid ARM’s, loans with a fixed period that switch to a variable at the end of the fixed period. While less common, it is seen in Option ARM mortgages as well, especially those originated in 2003 and 2004 when LIBOR fell as low as 1.00%.
When most people learn that LIBOR stands for London Interbank Offering Rate they want to know why in the world it would be used to determine the rate on their home loan in the US. I could go in to great detail as to why this is, but fortunately Business Week did the heavy lifting for me this week.
The Lowdown on LIBOR - BusinessWeek - 5.29.2008
In this quick article, BW explains:
- What exactly is LIBOR?
- What does LIBOR have to do with me?
- What’s the recent controversy about? (If you didn’t know, European banks have been accused of manipulating LIBOR lower over the last several months. The article explains why and how it can affect you.)
- Do I need to worry if my loan is pegged to Libor?
Over the long run, hybrid adjustable rates can save mortgage borrowers a lot of money. The LIBOR is a mystery to most homeowners even when their mortgage rate depends on it. Take a few minutes to acquaint yourself with the index and feel free to comment or call if you have any questions.
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December 13th, 2007 Josh Lewis, CMP
In my live events I always stress to the audience the need to track your expenses and your net worth. In business terms you need to track your Profit and Loss and your Balance Sheet. I often am asked if I would recommend Quicken or Money and I have to admit that I have tried both with NO success. They both are too complex and require too much input from me. If it takes a couple of hours per month of input, let’s be realistic, it’s not going to get done.
Recently, I became aware of Mint.com. This site will aggregate your banking and credit card accounts and automatically categorize your spending. It’s a beautiful website and it works exactly as described. The problem that I ran in to is that it doesn’t track all of your assets, or all of your liabilities.
Enter the Yodlee MoneyCenter (moneycenter.yodlee.com). First off, it’s FREE, just like Mint.com. Second, it allows you to add assets like real estate (which it automatically tracks the value via Zillow.com, not perfect, but pretty cool), autos and jewelry so you have an accurate view of your total net worth. It allows you to add all of your liabilities including mortgages and it tracks all of this automatically.
If you already have online accounts with your bank, mortgage holder and credit card companies, the entire thing can be set up in about 30-40 minutes. On an ongoing basis, you can update your accounts to correct any miscategorized expenses or categorize what is unrecognized.  In about 30 minutes per month, you will have an incredibly accurate Budget and Net Worth statement.
You’ll know where your money is going and whether or not you are saving enough to reach your goals.
I HIGHLY RECOMMEND CHECKING THIS PRODUCT OUT. It’s FREE, It’s EASY and It HELPS YOU reach your goals.
Check it out!Â
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October 16th, 2007 Josh Lewis, CMP
We’re still working on the design so things will be slow around here for the next few weeks but in the future you can expect an ongoing series of content on how to manage your mortgage and real estate to maximize your wealth.
If you are eager to get started learning more, head on over to www.WealthStrategies2008.com. This is a one day investing seminar that I will be presenting at along with Dough Fabian, Dr. Peter Navarro, Keith Fitz-Gerald and radio personality Tom Leykis.
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