Plain Vanilla Home Loans

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody – Hope everyone is keeping busy. These days the mortgage business never ceases to amaze me. When perusing the newspapers and internet this week for a topic – I came across “Vanilla Home Loans” – I thought what next? While I have felt all along that there needed to be some regulations for the unscrupulous – I am not sure about these Vanilla Home Loans.

Just what is a Plain Vanilla Home Loan? As released by the Associated Press - According to President Barack Obama, if he gets his way – consumers who take out mortgages would automatically get a “plain vanilla” loan. A plain vanilla loan is considered a traditional 30 year fixed rate loan. Now – perhaps if consumers would like sprinkles on the loan that may include an adjustable rate or a loan that was riskier.

President Obama would like to revamp financial regulations to product borrowers from confusing and high-risk mortgages.

Government officials want to make the process of getting a mortgage as simple and abuse-free as signing up for a retirement savings plan. This I absolutely do not understand – the mortgage process is not that simple. If in fact the Vanilla Home Loan is implemented – I could see where less people would qualify for a mortgage. I feel it could actually backfire.

The questions that would arise would be – what loan-to-value; what DTI would lenders require for the Plain Vanilla Mortgage. Approximately 30-40 years ago, I think you could say the Plain Vanilla Mortgage existed; since most mortgages were given by loan Savings and Loans Institutions. You could go in talk to the bank manager – give him a pay stub; run a credit report and Congratulations you have a home mortgage.

If the Obama plan for simplifying the mortgage process is approved – here’s how it might work:

The government would give its seal of approval to a handful of mortgage types – a standard 30 year fixed rate mortgage and perhaps a few varieties of adjustable rate mortgage. For a loan to get the “vanilla” label, the lender would have to verify income and have the borrowers set aside money for property tax and insurance. (I am assuming they mean escrow for taxes and insurance).

To get an “unapproved government loan” the borrowers be warned about the risks – which would be a good thing. I am personally having a hard time wrapping my head around these “vanilla mortgages”.

In reading the documents that have so far been released regarding the “vanilla mortgage” – it is really for the protection of the consumers – who have expressed they did not understand the loans they signed up for during the housing boom. Many expressed concern they were not aware when their rates adjusted their mortgage payment would be much higher.

The Obama plan also calls for fees that brokers and lenders receive tied to inflated mortgage rates.

Brokers have already seen their market share dwindle – brokers currently only account for 20 percent of new loans. If these mortgage fees were eliminated that would be the kiss of death for mortgage brokers.

I will continue to follow this issue of the regulations of the mortgage loan/process and whether the “Vanilla Home Loan” will pass the test of time.

In closing – let me say – I hope every body is staying busy. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Reforms For American Homeowners and Consumers

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody – Hope you are keeping busy. With interest rates up and down, depending on the day and hour of the week – refinances have been fluctuating as often. However, there seems to be a trend that home sales are on the rise and many lenders are keeping busy.

According to the Office of the Press Secretary of The White House - On May 20, 2009 the President signed the Helping Families Save Their Homes Act and the Fraud Enforcement and Recovery Act into law. I don’t know about you – but I cannot recall hearing about these Acts, however, they are very important to the real estate industry.

We are going to outline the fact sheets on both pieces of legislation:

The Helping Families Save Their Homes Act - The deep housing market recession has created devastating consequences for homeowners and communities throughout the nation. However, by reducing the number of foreclosures, the average homeowner could see their house price bolstered and as many as 9 million may increase the affordability of their mortgages and prevent foreclosures.

New guidelines have been introduced for loan modifications which will establish a new standard practice for affordable modifications. Services covering more than 75% of loans in the country have now begun modifications and refinancing under the Making Homes Affordable Act. – Also please check out the government’s website –MakingHomeAffordable.gov which is a consumer website for the program.

There has been improvement to Hope for Homeowners which should significantly improve the ability of borrowers to benefit from the opportunities provided in the Administration’s housing plan. Incentive payments will be available for successful Hope for Homeowners refinances and services will be required to evaluate ALL applicants for eligibility for Hope for Homeowners and Home Affordability Modification Program.

Hope for Homeowners targets help to borrowers who are faced with the risks of foreclosure. The help would entail the write down of the principal amount to help homeowners increase the equity they have in their home. This program will ease restrictions on eligibility and enable refinancing of mortgages with no equity for a greater number of borrowers.

Increasing Consumer Protections Related to Housing

Consumers who are renters living in foreclosed homes is a very big problem which has not gotten a lot of attention. The problem exists when a property is foreclosed that renters reside. Tenants, who are being forced out of their homes with no notice, will require that in the event of foreclosure - existing leases must be honored, except if the lease is month-to-month; in that case the tenant must be given a 90 day notice to vacate the property.

This will also gives the homeowner the right to know who owns their mortgage. Many times mortgages are sold and then sold again and borrowers do not know who owns their mortgage or who to contact when there is problem. This legislation requires that borrowers be informed whenever their loan is sold or transferred. I also feel it is the homeowner’s responsibility to read all information that is sent by the service of their mortgage.

There seems to be much more legislation before the Senate regarding the rights of the homeowners and renters and what type of assistance will be available. I am doing my best to try and keep up with this legislation because I feel all homeowners and renters need to know their rights. If just one person is helped by this topic, I will have done my job.

In closing – if anyone has any ideas for a topic, please do not hesitate to contact me. – Till next week – More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Who is FHA? When and Why Did They Get Into Mortgage Insurance?

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody – Another week in the mortgage industry is here and I am sure everyone uses the acronym FHA quite a few times a week. However, do we really know anything about FHA, when they were created, why they were created and what they really do? Who is FHA?

Let’s go first to the history of FHA – Congress created the Federal Housing Administration in 1934. Back when FHA was created the housing market was flat; two million construction workers lost their jobs. Homebuyers could not qualify for the mortgages needed to purchase a home. Mortgage terms were 50% loan to value and the repayment of the mortgage was 3-5 years. With these terms owning a home was not easy – only 40% of Americans were homeowners. Since owning a home was, and still is, the American Dream – something needed to make this possible.

Initially FHA was set up to finance the military housing for veterans returning from the war. In addition, they financed privately-owned apartments for elderly, handicapped and lower income Americans. We understand now FHA is for all buyers – I would say FHA has reached an all-time high of available mortgages.

Many borrowers today still do not understand FHA Mortgage Insurance. So let’s see how we can explain this. FHA insures loans they do not make the loan. FHA has set up guidelines and the lenders are responsible for actually loaning the money to the borrower and then if all of FHA guidelines were followed – FHA will insure the loan. For lenders, FHA mortgage insurance protects them against loss if the borrower defaults on his or her mortgage loan.

FHA Mortgage Insurance came into being because unlike conventional loans FHA loans require a smaller down payment. There is more flexibility in an FHA loan than conventional loans. The cost of the mortgage insurance is passed along to the homeowner and is included in the monthly payment. Also the FHA insurance will drop off after five years or when the remaining balance on the loan is 78% of the value of the property, whichever is longer.

How is FHA funded? – FHA operates entirely from self-generated income. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program. FHA still provides a huge economic stimulation to the country in the form of home and community development.

In the 1950s, 60s and 70s, FHA helped to spark the production of millions of units of privately owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs in the 70’s threatened the survival of thousands of private apartment buildings; FHA’s emergency financing kept the cash strapped apartments afloat.

Also – back in the 80’s there was a time when FHA would run out of money – I remember actually a time when a home could not settle until FHA was funded again by the Senate. However, now days – it is refunded through payments as explained above.

By 2001, the nations homeownership rate soared to 68% - which was an all time high.

FHA has undergone many changes since its inception in the 1930s. Just reading the calendar of events above explains how it has changed. Two years ago with the 80/20 mortgages it was almost impossible for a borrower to agree to an FHA mortgage. You needed 3% down on an FHA mortgage – the borrowers were getting 100% financing conventionally. However, again the market has done a 180 and FHA is again in vogue for any borrower who is looking for a mortgage.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)