Monday, October 27, 2008

Mortgage Crisis - How did we get here?

This video moves very fast but it covers the facts on how we got in this financial mess. You may not like what you will see here, ... but it is all true. You can google it.

So ... watch it twice. Send it to your friends.

There are so many lies out there how can anyone know what is real.

This is real.

Jerry and I are in the mortgage business and we have watched it unfold.

If for some reason this video does not play here, you can watch it at:

Wishing you the best.


Friday, October 17, 2008

FHA - Debt To Income - Rental Income

FHA now requires 25% equity in a property before rental income is considered income, in the debt to income ratios. What that means to you is that if you have rental property your LTV on that property must be 75% or less. If not, that mortgage payment will be a liability used in your debt to income calculation for the loan you are applying for.

Sounds heartless doesn't it? I think Fannie and Freddie require 30% equity so an FHA underwriter may and can use 30% instead of 25%.

If you read the Mortgagee Letter dated September 19, 2008 (MORTGAGEE LETTER 2008-25) I think you would agree that they have some pretty sound reasoning behind this new guideline.

I don't normally do this but this Letter is short so I have copied it below so you don't have to "link hop" around the Internet to get the information. At the bottom I have included the link to the letter in case you need it for reference.

September 19, 2008

SUBJECT: Converting Existing Homes to Rentals—Underwriting Instructions

Through this Mortgagee Letter, the Federal Housing Administration (FHA) takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHA’s ability to help new homeowners.

Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence. This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace.

Due to FHA’s concern that some home buyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the home buyer can make payments on the full debt service of both mortgages. Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter. The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken. This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. In either case, this guidance is directed to preventing the practice known as “buy and bail” where the home buyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage. Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure.


Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Home ownership Center (see may be considered in the underwriting analysis under the following circumstances:

· Relocation's: The home buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the home buyer and the lessee) of at least one year’s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.

· Sufficient Equity in Vacated Property: The home buyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property. The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.

The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).

It is important to note that if the property being vacated had a mortgage insured by FHA, eligibility for a second FHA insured mortgage can only occur under the exemptions described in handbook HUD-4155.1 REV-5, paragraph 1-2.

If you have any questions regarding this Mortgagee Letter, call 1-800-CALLFHA.


Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner

As you can imagine this will have a large impact on investors. Leave your comments.

Thursday, October 9, 2008

FHA Secure - FHA Rescue Program - HR 1424

There is a lot of confusion about the FHA Secure, FHA Rescue program, and the Hope For Homeowners program. Our politicians like to use mirrors and smoke to confuse us. They change the terminology between one bill to another, and from the house to the senate. There is a secret code that "we the people" do not have! I don't know about you but I am tired of the smoke and mirrors!

The Government works for us and upon our command they should be transparent!! Let me not go here.

I have gone through the guidelines for the "Hope for Homeowners" mortgage and I don't think any thinking person would want this loan. We have been sold down the road. You can read the Hope for Homeowners Guidelines here.

After reading the H4H guidelines it made me think that the FHA Secure loan is really a much better deal but it expires on December 30, 2008. Not many people will qualify for this loan but you should try for it first because The H4H loan was designed by the devil and I would personally pass on it.

FHA Secure - FHA Rescue guidelines.

We Will Pull Through. Hang in there.

Friday, October 3, 2008

Bail Out - What is wrong with this picture?

This is a great video about why/what, ... you know the bail out of all the crooks on Wall Street.

Enjoy. Be sure to leave your comments.

Incase the video has been moved, you can find it here.

Thursday, October 2, 2008

HR 3997 - HR 1424

I don't know how you feel about all this economic bail out stuff but it really gets me angry. I'm not going to share my opinion because it doesn't matter. However, I think everyone should read the bill and develop their own opinion based on facts, not media hype.

I did some research and have links below of the pdf files so you can read it for yourself, or download it and read it later. I would like to say that in my opinion all bills going up for vote should be available to the public BEFORE they vote. Unfortunately, that is not the case. Maybe we can change that.

IF you want to just download the files to read later you only have to right click with your mouse and select "save target as", then tell it where you want it saved on your computer. I usually just put the stuff on my desktop.

This link is to the pdf file on HR 3997, the Emergency Economic Stabilization Act of 2008 that was voted on in the house of representative on the 28th. This is the original version. HR 3997

This is HR 1424 which is the revised version of the bill (HR 3997) and was actually passed. HR 1424

This link is a one page summary of the Act. One Page Summary

This link is for the section by section summary. It is much better than the one page summary. section by section summary

This stuff is worth the read. Post your thoughts.