Fred's Mortgage Blog

What are DPAs?
How do they work?
Who is eligible for a DPA?
Why use a DPA?
These are a few of the questions asked about the down payment assistance (DPA) programs that I get on a regular basis.

1. What is a DPA? A down payment assistance program is one where a homebuyer can receive a gift amount between one percent and six percent of the final contract purchase price of a home. In addition, the seller of a home donates and equal amount to a non profit origination. There is also a processing fee for the transaction. A few months ago, there were a large number of DPA originations. Now, there are only a few. Those of note for me are: AmeriDream, Nehemiah and QuickDown.com. These gift funds are offered to qualified homebuyers, requiring no repayment, no second mortgage and no recapture penalities.
   
2. How do they work? Mortgage originators (that would be me) complete the required documents on line and submit them directly to the non profit. The gift money will be wired directly to the title/escrow agent at closing. The seller's contribution will be sent to the non profit after closing.
   
3. Who is eligible for a DPA? Anyone buying a home with (primarily) FHA financing. The main limiting factor is finding a seller willing to contribute to the program. There are a limited number of conventional loan programs that allow DPAs.
   
4. Why use a DPA? Simply put, the program is for people that don't have the down payment to purchase a home but are otherwise ready and able to be homeowners.

There are more questions and answers, but suffice to say, the program works to help people purchase homes. It has been my experience that the only time the program works is in a "down" real estate market. That is one in which sellers are willing to make concessions to sell their home. In an "up" market where no seller concessions are necessary, DPAs normally are not a viable avenue. This, being a "down" market, DPAs have re-emerged to help sellers sell their homes and help buyers buy those homes.

As an experienced FHA lender, I have experience with DPAs and am waiting to help you with your purchase or your sale. Call me today at 541-342-7576.

DEFINATION OF RECESSION: Two or more consecutive quarters with negative growth in the economy. NEWS: The GDP (Gross Domestic Product) for the first quarter of 2008 was 1% GROWTH. This is after a .6% GROWTH in the last quarter of 2007. By these figures and the defination above, we are not in a recession. I point this out because the news media is generally full of doom and gloom and we have enough of that in the housing industry that we don't need any more. So, start spreading the news: We are not in a recession. Also, the inventory of existing homes dropped slightly, indicating a weak but improving housing market. This is all positive news, but all we get from the media is negative. For example, from the Associated Press (on the Register Guard website) we get the following headline: Fragile economy improves but not out of woods yet. The story that follows is, if not negative, far from positive. Cautiously pessimistic would be my take on the story. Too many times, perception is taken for reality. So, it is time to improve our perception. Today is a great day to buy a home! Let me help!

The Federal Reserve stopped lowering the discount rate at their June meeting and left the door open for raising the rate at their next meeting in August.

The futures players are betting on a .25% increase at the next meeting. Kind of like Las Vegas, isn't it? However, the Fed did not use their policy statement following this meeting to prepare investors for a rate hike at the Aug. 5 meeting.

Richard Fisher, the president of the Dallas Federal Reserve, was the only member voting against the non action. It was his preference that the target rate be increased now to combat inflation.

Mortgage bonds were initially down for the day and took another small dip after the release of the policy statement. However, after the market digested the statement, mortgage bonds did an immediate turn around and finish nearly flat for the day on Wednesday. Stocks came from a slightly up stance to nearly even for Wednesday also.

The old cowboy movie, "Bad Day at Black Rock," could definitely describe Thursday on the Stock Market. Today, Friday, is starting out poorly also, but nothing compared to yesterday's plummet. I am sure all of us are looking at our 401ks and wondering how they will do.

In comparison, the Bond Market profited a bit from yesterday's run down in stocks, but not much. It is the same today, the Bond is profiting, but not significantly. Unfortunately along with this, the economic news was mostly negative (good for Bonds, bad for Stocks) but the price of oil also topped $142 a barrel, bad for everything.

Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. Case-Shiller is deemed one of the most reliable measures of home prices because they track the same homes through their program, not different properties as some other reports.

Here's the 20 city-by-city breakdown in the Case-Shiller index:

Las Vegas, down 26.8% in the past year; Miami, down 26.7%; Phoenix, down 25%; Los Angeles, down 23.1%; San Diego, down 22.4%; San Francisco, down 22.1%; Tampa, down 20.4%; Detroit, down 18%; Minneapolis, down 15.5%; Washington, down 14.8%; Chicago, down 9.3%; New York, down 8.4%; Atlanta, down 7.5%; Cleveland, down 6.8%; Boston, down 6.4%; Seattle, down 4.9%; Denver and Portland, both down 4.7%; Dallas, down 3.4%; and Charlotte, down 0.1%.

The closest to Eugene in this report is Portland and as can be seen, nationwide, we are encountering a lower level in Oregon of price drop than the majority of the United States. As the old saying goes, "things could always be worse," we could be in Las Vegas.

Here is an article by the Washington Post about the effect of the new FHA loan limits on lending. Although across country from Oregon, I think the report got the gist of what the loan limit increase means in lending. Lane County's FHA loan limit is $343,750.

Check this out: http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902645_pf.html

Thanks for joining this blog.

Changes to FHA Loans
By Fred Chamberlin (Eugene's Loan Guy)
FHA loans have been around for a number of years and during the past 3 or 4 they lost their appeal as lenders found them hard to work with.
Unfortunately, that is one of the reasons that so many subprime loans were made to people that otherwise could have qualified for an FHA loans, ease of origination. So, you ended up with borrowers that had a low start rate that started to escalate at year two, three or five. That is happening now, the automatic escalation of these loans as the interest rate resets.
To help with this problem, FHA has done two amazing things:
1. FHA Secure. This allows those homeowners that have been faithful in the repayment of their debts until the recasting of their interest rate made it impossible to keep up, refinance at a fixed rate with FHA. There are requirements that the homeowner have been current on their debts until the payment changed. 2. Change in FHA loan limit. The loan limit in Lane County was increased to $343,750 until the end of this year. There is always the possibility that the increase will become permanent and some talk that it will increase to the conforming loan limit of $417,000. This allows those with less than perfect credit to get a loan for the purchase, or refinance, of their home with limited down payment.
FHA also no longer requires the seller to pay the "non-allowable" closing costs which was sometimes a deal breaker with a seller. There are also still "non-profit" gift programs available for buyers with limited cash.
Additionally, FHA appraisals have been streamlined. There is no more VC sheet that could cause delays at the last minute. A Manufactured Home loan still requires an engineer certificate but is the easiest way to purchase a Manufactured Home with limited down payment. FHA loans are the answer to many of the problems in the Real Estate market. I have been a proponent of FHA loans, even when subprime loans were easier. I have studied government loan programs and, contrary to the old joke, I am here to help you.

I am constantly getting calls from clients asking if their rate is going down because the Fed announced a rate cut. Well, the quick answer is no. Fed rates often have an opposite effect on Mortgage Bonds. A great explanation of how this works was done recently by Barry Habib for CNBC.

Here is a link to his explanation:

http://www.mortgagemarketguide.com/membersonly/docs/PDF/fedratecuts.pdf

Let me know if you have any questions about the explanation and let's plan your course of action together.

I have a weekly newsletter about the financial markets. This week's installment talks about changes in the economic reports for the week. To access the newsletter, please use the following link?

http://www.mmgweekly.com/w/index.html?SID=6151ca1f26822034f6b12f142bdfc9db

Thanks and enjoy the information. Give me a call anytime to discuss this or any other post. I am available for your convenience.

Authored by Fred Chamberlin, A Eugene/Springfield Mortgage Loan Officer - 541-342-7576

Rather than "The Sky is Falling," which is what we hear from the national news media day in and day out, one national "expert" on the Real Estate Market front, Roger Schlesinger, has the following to say:


"The long-awaited event is gearing up and will greatly surprise the media, the Wall Street gurus, the apartment dwellers, the naysayers, and nervous homeowners. Real estate is preparing for the turn; are you? It will be a small one at first, but its momentum will make some forward-thinking lenders once again focus on profits, not losses."


Mr. Schlesinger has gained acclaim through his "Mortgage Minute" not only sees the market turning around, he also states that now is the time to buy and build wealth through the Real Estate market downturn.

Now could be the time to start your Real Estate empire or you could be one of the average people that will watch and wait, all the while muttering, "It isn't time yet." This could go on for several years and basically rules out "Joe Average" for any potential profit. Some will venture forth because they realize that "close to the bottom" is about as close as anyone will achieve.

Mortgage rates have started to climb as worries about inflation shake the bond market. Is not the time to buy? That is a question only you can answer.

HERE'S THE INSIDE SCOOP ON HOW TO DO IT RIGHT!

First: make sure you are working with an experienced, professional loan officer. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell?

Here are FOUR SIMPLE QUESTIONS YOUR LENDER ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY. IF THEY DO NOT KNOW THE ANSWERS...RUN...DON'T WALK... RUN...TO A LENDER THAT DOES!


1) What are mortgage interest rates based on? (The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. DO NOT work with a lender who has their eyes on the wrong indicators.)

2) What is the next Economic Report or event that could cause interest rate movement? (A professional lender will have this at their fingertips. For an up-to-date calendar of weekly economic reports and events that may cause rates to fluctuate, visit http://www.suewoodard.com/ and hit the green MMG Weekly banner - this is a copy of our weekly newsletter, let us know if you want to be added to my weekly distribution list)

3) When Bernanke and the Fed "change rates", what does this mean... and what impact does this have on mortgage interest rates? (The answer may surprise you. When the Fed makes a move, they can change a rate called the "Fed Funds Rate" or "Discount Rate". These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like. On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change. This is due to the dynamics within the financial markets in response to inflation. For more information and explanation, just give us a call).

4) Do you have access to live, real time, mortgage bond quotes? (If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday's newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday's paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!)


Be smart... Ask questions... Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life... but we do this every single day. It's your home and your future. It's our profession and our passion. We're ready to work for your best interest.


Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to "shop" effectively.

First, IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS. But you didn't really need us to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?

Second, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don't know until it's too late that cheapest isn't BEST. But if you want the cheapest quote - head on out to the Internet, and we wish you good luck. Just remember that if you've heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs...these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said - we are not the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS. When looking at estimates, don't simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not "hidden" down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees - they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. This means that you can have any interest rate that you want - but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all - but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees - this is a moving target on an hourly basis. For example, if you have two lenders that you just can't decide between and want a quote from each - you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, our advice to you is to be smart. Ask questions. Get answers.

As you can imagine, we wouldn't be encouraging you to shop around if we weren't pretty confident that we feel that we can give you a great value and serve you the very best.

Please call us with any further questions you may have at this time - we are ready to work for your best interest!