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)

Shipping Containers Used for Housing

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

Hello everybody - This week’s blog is going to be a little different, while it is very interesting, it is not exactly relating to FHA financing - although perhaps we will see FHA finance these types of housing someday. I found a very interesting article regarding shipping containers on the USA Today website.

I am sure everyone is familiar with the large tractor trailer boxes that travel on the back of semis - well there is a new use!!!! How does affordable housing sound? Thinking outside-the-box some architects and home-buyers are turning the 8-by-40 foot steel containers often left vacant at seaports into housing.

Although it is only experimental at this time - it makes sense and a great housing alternative. Not only are the containers economical at $2,000-$3,000 each they also are recycled containers and eco-friendly. For the most part the homes use anywhere from 4-8 containers. They are stacked and/or put side by side. There is a company that modifies the containers at 17 locations and there is currently about 75 homes nationwide whose purchases have found the “American Dream”.

The company that modifies these containers was founded in 2006 and plans to modify more than 1,000 containers next year. Interestingly these containers can be used for multi-family; multi-storied and cost at least 20% less than traditional building materials.

With the rising costs of construction materials and the demand for affordable housing in high cost areas such as California it only makes sense to get the best use from recyclable material - as long as it works.

There is one couple in Redondo Beach California who has a 3,200 square foot home on an 8,860 square foot lot. There house stands out in the neighborhood and is made of six containers which have been painted beige; the inside has high ceilings, and recycled materials. Since the buyers have retained many features of the containers, there will be little maintenance.

The builder of these homes is stating the cost of these homes start at approximately $150 per square foot compared to $225 to $250 per square foot.

In addition to affordability, the containers strength makes it a valuable source in the construction industry. Look for container housing at the 2010 Winter Olympics in Canada.

There are many companies currently looking into container housing. Builders of condominium projects are looking how they could be used and the safety of the buildings. While for the most part container housing is in the infancy stages - It will probably not be long before we see them popping up, particularly where affordable housing is needed.

Hope everyone enjoyed this tid-bit of information.

Until next week - keep processing. 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)

HOPE for Homeowners

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

Hello All - I understand that most persons who read this blog are loan processors, loan originators and others in the mortgage industry. This blog is not necessarily directed to loan processors or originators but rather to those who might know someone who may be facing foreclosure. The HUD.gov site is just a wealth of information.

Congress created the HOPE for Homeowners (H4H) program for those at risk of default and foreclosure refinance into more affordable loans. H4H is an additional mortgage option designed to keep borrowers from losing their home.

The program went into effect October 1, 2008 and continues until September 30, 2011.

It is estimated that 400,000 homeowners could avoid foreclosure through this program. If you know anybody that is having problems making their mortgage payments; perhaps refinancing under this program into a new mortgage is the answer.

Borrowers may contact their present lender and/or they may contact a new lender to discuss how to qualify for eligibility for this program.

Let’s look at what the lender will consider when they are contacted by a borrower. Every lender will be assessing each loan very carefully and will perform a cost-benefit analysis to determine the feasibility of offering this program to homeowners. Of course, everyone will not qualify so if you are talking to struggling homeowners regarding this program, it is important that you not build their hopes.

The lenders will be looking at the difference between existing obligations and the new loan, which is set at 96.5% of current appraised value. The lender may choose between a loan modification of the current mortgage or accept the losses associated with declining values.

Lenders who determine that the H4H program is a feasible option will then assess the borrowers’ eligibility for the program. The borrower must meet criteria such as - existing mortgage was originated before January 1, 2008; Existing mortgage payments must exceed 31% of gross monthly income - as of March 1, 2008; the homeowner did not intentionally go into default and must not have been convicted of fraud in the last 10 years and Federal and state law; and lastly that the homeowner did not give false information to obtain their current mortgage.

The borrower must be made aware of the 3% upfront mortgage insurance payment and the 1.5% annual premium. The borrower must also realize their will be an Equity and appreciation sharing with the Federal Government (we will discuss in a later blog). And there can be no second mortgages added to the property.

Then there needs to be negotiations between borrowers and lien holders - The lender must negotiate with the existing lien holder to waive all prepayment penalties, existing late fees and agree to accept the loan proceeds of the new loan as total repayment of the existing mortgage. If there is currently a second mortgage on the property, there must be negotiations to participate in the loan modification. FHA could offer to the 2nd mortgage holder that they would share in the future appreciation.

After all of the pre-qualifications, the lender will then qualify the borrower for the new H4H mortgage using established guidelines.

During the underwriting the lender will calculate future appreciation for each subordinate lien holder. At settlement the subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment as calculated by HUD’s appreciation schedule.

Following closing, the lender will record, all documents for the 1st mortgage and, a shared equity note mortgage. These mortgages will be serviced by FHA.

Upon sale of the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages.

If the homeowner fails to make the first payment on their new H4H mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding the mortgages.

While some of these procedures may seem confusing and will require a lot of work - it is important to remember it may save thousands of homeowners from losing their home. We will monitor the success of the program as the year progresses.

Until next time - Keep processing. 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)