The Federal Housing Administration (FHA) has introduced new rules for the FHA home loan program which will ultimately have a huge impact on Ventura County’s home buyers and consequently, Ventura County’s real estate market.  Due to a significant rise in the number of defaulted FHA loans, the FHA’s cash reserve has fallen below the Federally mandated level.  This has prompted new FHA home loan guidelines to ensure that the new FHA home buyers are in a better financial position and have greater equity at the time of purchase.

The new FHA guidelines will introduce new restrictions for FHA borrowers.  Below is a list of a few of these conditions and restrictions:

• Downpayment for borrowers with a credit score above 580 will remain at 3.5%.  However, home buyers with a credit score less than 580 will have to provide 10% downpayment towards the purchase of their new home.  This rule will go into effect in early summer 2010.

• All new FHA borrowers’ upfront mortgage insurance premiums will increase from 1.75% to 2.25%.  The FHA mortgage insurance is a cost borrowers pay because they are able to purchase a home with less than 20% downpayment.  This rule will go into effect in Spring 2010.

• Home sellers’ concessions, which is the amount home sellers contribute to the FHA home buyers’ closing cost, will be reduced from 6% to 3%.  This means home buyers will have to come up with the additional money for their closing costs.  This rule will go into effect in early summer 2010.

Some Ventura County home buyers may see these new FHA guidelines as an additional hurdle in their road to homeownership.  Many FHA home buyers who were relying on FHA’s low closing cost and low downpayment will have to come up with some additional cash.  In today’s economy where cash and revenue is scarce, coming up with additional cash may be more difficult for some FHA home buyers.   Therefore, Ventura County may experience a thinning in FHA home buyers during the summer season where traditionally the real estate market is at its busiest.

I would like to read your thoughts and feelings on these new FHA guidelines in the comment area provided for you below.

According to a report by the California Association of Realtors (CAR) both Fannie Mae and Freddie Mac will delay foreclosure evictions in Ventura County and the rest of the country between December 19, 2009-January 3, 2010 .  The purpose behind the temporary eviction halt by the two lending institutes is to assist struggling families during the holiday season.

Ventura County homes occupied by their owners and tenant occupied homes in foreclosure by Fannie Mae and Freddie Mac will not be disturbed during the time frame stated above.

While some may cynically view this as a Public Relations campaign or Political posturing by these two mortgage giants, for the families that it will benefit, it is a small Christmas miracle. Everybody can appreciate some relief at the end of this very tough year.

I’m often asked by Ventura County home buyers what is the difference between loan pre-qualification and a loan pre-approval.  The two terms tend to confuse some home buyers, however the difference can mean a lot when it comes to purchasing a home.

Loan Pre-Qualification:

Most loan officers are able to pre-qualify a home buyer over the phone.  In this process the loan officer will ask a few questions such as the home buyer’s credit, income, and assets in order to place the home buyer in a certain loan program.  Assuming the home buyer has provided the loan officer with correct information, a pre-qualification letter is then issued to the buyer which states that the home buyer is Potentially eligible for a certain loan amount.

The pre-qualification letter is then issued to the home buyer to be submitted with their offer to purchase a home to  the home seller.

Loan Pre-Approval:

In the pre-approval process the loan officer needs to perform extensive financial background checks on the home buyer in order to issue a loan.  The lender will need to look at the home buyers’ credit history, previous tax returns, and verification of employment.  Once the lender approves the home buyer for a certain loan amount a pre-approval letter is issued to the home buyer.  Most pre-approval letters are valid for 60 days after the date they are issued.

Most home sellers prefer that the home buyer provide a pre-approval letter with their offer.  Many bank owned homes, REOs, require that the potential home buyer goes through a pre-qualification or even a full pre-approval process with the specific lending institute that is selling the home.  However, the home buyer is not forced to obtain their loan from the institute that is selling the property.

If you need any help finding a trustworthy lender in Ventura County or need help purchasing a home in Ventura County please don’t hesitate to contact me, Mana Tulberg: (805) 443-8898.

In Ventura County’s current real estate market FHA home loans are becoming a popular means of obtaining a mortgage loan for home buyers.  For many years the intricacy and difficulty associated with FHA loans made many lenders and home sellers frown at home buyers who could only obtain an FHA loan.

What Is an FHA Loan?

An FHA loan is a type of loan offered by conventional lenders where the Federal government agrees to insure the loan.  This insurance by the Federal Housing Administration (FHA) presents less risk to lenders who participate in FHA mortgage loan programs.

In Ventura County many home buyers are taking advantage of the lower down payments (3.5%) and less than perfect credit scores required by FHA insured loans.  With no income limits on FHA loans, most home buyers and especially most first time home buyers in Ventura County can qualify for an FHA loan.

What Are FHA Loan Limits?

FHA loan limits vary from state to state and even county by county.  The loan limits on FHA loans are set by the Department of Housing and Urban Development (HUD).  Currently in Ventura County the FHA loan limit is set at $598,000.  This means that a Ventura County home buyer can borrow up to $598,000 for the purchase of a single family home.

FHA Rates

Since FHA loans are insured by the Federal Government, it is possible for Ventura County home buyers to find an FHA loan rate lower than the rates offered on conventional loans.

FHA insured loans require that a monthly mortgage insurance premium be paid into the cost of the loan.  Ventura County home buyers with FHA loans will have a 1.5%  premium added to their loan balance.  The monthly mortgage premium is paid for 5 years or until 78% of the home value has been paid off.   Nevertheless, the FHA mortgage insurance premium is much less than the mortgage premiums asked by private mortgage insurance premiums.

Down Payment on FHA Loans

As of January 1, 2009, Ventura County home buyers interested in obtaining an FHA loan need to provide a down payment of 3.5% .  The new FHA terms prohibit home sellers from contributing any funds or incentives towards home buyers’ down payment.  However, there are many venues for home buyers to explore including HUD down payment assistant grants.

Closing Costs on FHA Loans

A typical FHA loan’s closing costs for the home buyer is between 2-3% of the total loan.  Some of Ventura County home buyers’ closing costs associated with an FHA loans include, but not limited to: appraisal fees, origination fees, and lender’s inspection fees.  To keep the home buyer’s closing cost to a minimum HUD has set some closing cost guidelines.  The HUD guidelines have limits on how much lenders can charge borrowers for loan origination fees.  Again, FHA loan closing costs differ from region to region.   Nevertheless, borrowers of FHA backed loans can ask the home seller to pay up to 6% of the home buyer’s closing costs.

FHA secured loans have been around since 1934 and because they are insured by the Federal Government these loans will be here long after all conventional or any other type of loan.

Ventura County home buyers who are interested in obtaining an FHA loan need to interview more than one FHA lender.  By visiting the Department of Housing and Urban Development you can search for an FHA Lender in your area.

Once you have obtained information on your loan please feel free to contact me to start searching for your new home in Ventura County.

In Ventura County and all of California loan modification is the option most home owners are exploring in order to keep their homes.  With a loan modification the home owner’s current lender agrees to reconstruct the loan in a way that the home owner can afford to make the payments.  Loan modifications differ from refinancing in many ways.  In today’s Real Estate market where many home owners owe more than their home’s current appraised value, loan modification seems to be the preferred and only alternative to refinancing.

Who Is most likely to Qualify For Loan Modification

• Home owners who are late on their mortgage or are in default.
• Home owners whose mortgage balance is higher than their property’s value.
• Home owners who have an adjustable rate mortgage.
• Home owners who have a negatively amortized mortgage.
• Home owners who can not afford to pay their mortgage any more.

If you fit one or more of the above criteria chances are your loan could be modified.

Possible Results of Loan Modification

• Lower interest rate.
• Lower monthly payments.
• Modify an adjustable rate loan into a fixed rate loan.
• Principal reduction thus creating a lower mortgage balance.
• Make your loan current (if defaulted) and add delinquent payments to the principal of the loan.

If you are interested in learning more about loan modification or if you would like to modify your loan please don’t hesitate to call me, Mana Tulberg, (805) 443-8898.

With the increase of mortgage defaults in California including the many Ventura County home owners who have defaulted on their mortgage, there are multitudes who are searching for the most practical way to save their home.  The distressed home owners in Ventura County are bombarded by the media ads that promise a better, safer mortgage payment on a place these home owners would like to continue calling “Home”.

I have heard from many Ventura County home owners who, in despair, have made poor choices in an attempt to improve their current mortgage status.  Home owners need to understand that they have options and that there can be dire consequences if unnecessary or ineffective adjustments are made to their mortgage.

What Is Refinancing?

When you refinance your mortgage you are paying off your existing mortgage with a new mortgage.  The new mortgage will have different, presumably better, terms.  When refinancing, since you are practically applying for a new loan, you are required to pay all the title fees, escrow fees, lender fees, appraiser fees, taxes, and depneding on the loan terms, there may even be prepayment penalties.

Most home owners refinance in order to lower their interest rate, to extend the life of their loan, and/or to pay off other debt.

Home owners in California, including those in Ventura County, seeking to refinance their mortgage in the current market do face harder refinancing criteria.  Lenders require that a home owners who are looking to refinance have a high credit score, a considerable equity in their home, and documented job security.

The Hope Act offers a solution for some home owners to refinance their existing mortgage into an FHA Insured Mortgage.  However, most home owners who have defaulted on their mortgage will find it difficult to obtain ANY refinance of their current mortgage.

What Is Loan Modification?

A loan modification is a change of some or all of the terms of your current mortgage.  Loan modification is an amendment between the home owner and their current lender.

Prior to early 2008 most lenders were not in favor of loan modifications.  Loan modifications usually result in less interest for the lender.  However, in our country’s current financial crises, lenders are desperate for some liquid assets to sell in the open market.  Loan modifications untie the lenders’ bad assets (default mortgages) and enables the lender to sell the modified loans in the open market.

Despite popular belief, a home owner does not have to be in default to apply for a loan modification.  However, a home owner needs to provide enough evidence to show that their current loan has placed the home owner in significant financial difficulty.  The lender would rather keep the home owner as a client and modify the home owner’s loan than have to liquidate the property in a foreclosure sale.   Remember lenders’ business is to collect money, not to sell homes!

In a market where home equity is scarce and many loan balances exceed home values, refinancing is almost imposible.  Hence, loan modification can be the most attractive alternative for distressed home owners in Ventura County and throughout the country.

If you would like additional information regarding loan modifications or if you have any other real estate questions or concerns, please feel free to contact me, Mana Tulberg: (805) 443-8898.

For consumers seeking to get through the current recession with minimal long term damage, you should consider the following:

1. Reduce your debt levels, especially high interest credit debt and other consumer loans.

2. Try to build and maintain an emergency cash reserve.  Ideally you would have your reserves already, but better late than never.  If you have a stable job, shoot for at least 3 months x your monthly expenses.  If you are self-employed or your income varies, try for 6 months x your expenses.  This seems like a huge sum, but this was normal for past generations to maintain substantial cash reserves.

3. Focus on maintaining your employment.  Losing a job during an economic recession can be devastating.  Maintain your professional network.  Focus on building skills that are essential to your company and keep your eyes open for potential warning signs that layoffs are coming.

4.  If you are nearing retirement, consider postponing retirement.  Retiring during an economic downturn when you have to rely on selling stock investments for income can destroy your retirement plan and force you back to work in the future.

5.  Do not panic with your long-term stock and mutual fund investments.  It is way too late to sell anything now and if you can hold on, you will likely be much better off in the future by not exiting the market now.  At least that is what history teaches us.

Folks who have low levels of debt and plenty of cash reserves are typically in a good position to take advantage of times like this when assets fall in value.  Income property, stocks, commodities and most other assets are dropping in price and once the recession ends, buyers who were able to scoop up bargains during the recession will enjoy the benefits of their increasing wealth.

This recession will end as they always do, but this will likely be longer than either of the past two recessions (7/90 – 3/01 and 3/01 – 11/01) which both ended after 8 months.  The current recession will likely look more like the recession of 7/81 – 11/82 which was 16 months long.  So if the recession began last November and lasts 16 months, then we could be heading out of it by the spring of 2009.  The problem is we won’t know for sure for another year after.

Hang in there.

In order to understand our current financial situation it is best to take a closer look at the recent history of our country’s economics.

A Bit of History

During brief recession of 2001, the Federal Reserve reduced interest rates sharply and kept the interest rates low for an extended period of time.  The availability of cheap money was one reason for the dramatic escalation in house values from 2000 – 2005.  The easy underwriting of mortgage loans also contributed to the housing bubble.  The very low interest rates were helpful to consumers, but reduced income for investors who participated in the fixed income markets.  The search for higher returns led to the creation of sub-prime loans as these borrowers paid much higher interest rates than traditional borrowers.  Other investors earned higher returns by borrowing money very cheaply and using the borrowed funds to speculate in assets around the globe.

Everything worked fine as long as the collateral (single family homes) continued to increase in value, but once home prices began to fall, many of these debt instruments tied to home values, began to fall apart causing huge losses for investors.  As losses mounted for mortgage lenders, investment banks, and commercial banks, we witnessed first hand the dramatic negative impact that excessive leverage can have on investments.  Bear Stearns was sold over a weekend to JP Morgan Chase.  Countrywide was forced to sell to Bank of America, Lehman Brothers is in bankruptcy, Merrill Lynch was sold to Bank of America for an amazingly low price, Washington Mutual was sold a fire-sale price to JP Morgan Chase, and Wells Fargo bought Wachovia.  The major investment banks have either been forced to merge with banks or they became commercial banks.  The impact of de-leveraging is still causing major volatility in the stock markets around the world.  As institutional investors desperately try to reduce their debt loads, they were forced to raise cash by selling other assets including stocks which continue to add to the market volatility.

Since housing is such a significant driver of economic growth, once home values began falling, consumer spending also began to slow dramatically.  Fully 2/3 of our economy is based on consumer spending.  Home equity lines provided plenty of credit for consumers who wanted to buy a new car or plasma TV or remodel the kitchen.  Much of consumer spending has been cut back dramatically.  When consumers cut back their spending because they are afraid of losing their job or they have maxed out their credit, business sales and profits are reduced, which can eventually lead to business layoffs.  Increasing unemployment increases consumer fear and this leads us back to reduced consumer spending and the circle continues to drag the economy down.

In an attempt to curtail this recessionary spiral, the government has tried to stimulate the economy.  The first attempt was to reduce short term interest rates.  After 8 interest rate cuts, our short term rates are now down to 1.5%.  In addition, a fiscal stimulus was announced where a tax credit was used to give most citizens a check they could spend.  The increased consumer spending was noted in the summer of 2008, but it quickly dissipated.  At this point the government is trying to figure out how to stem the tide of foreclosures hanging over the housing markets.  It could be that the cure is worst than the disease.  There is a chance that excessive intervention by the federal government to try to reduce or mitigate the recession could actually prolong the recession.  In a capitalist society, if you try to make sure nobody can lose, you will also create an environment where nobody can win.  Time has a way of taking care of imbalances in our economy and eventually balance will be restored, though it will be very tough to individuals and businesses who took on more debt than they should have.

We have seen forced selling by hedge funds, banks, and mutual fund companies to satisfy the demand for cash.  When market participants are forced to sell in a short time frame, the result is dramatically falling stock prices.   Over the past several months we have seen panic selling that defies logic.  Current stock prices are at multi-year lows and have likely been pushed below what is fair value.   At this point, investors are anticipating a severe recession in which corporate earnings are going to be sharply reduced.

On the brighter side, the recent collapse of energy prices has helped to bring gas prices back down from their historic climb earlier in the year.  Things would be much worse if we still had to deal with $150 per barrel oil.

While the news media debates whether we are officially in a recession or not, the reality of the current situation is that we have likely been in a recession for at least several quarters and possibility for up to a year already.

What Is a Recession?

The confusion comes from the definition of a recession. Some in the media mistakenly define a recession as:

“Two consecutive quarters of contraction in the Gross Domestic Product” or GDP.”

For those who did not major in economics, this simply means a period of time when the economy is shrinking. In a perfect world, our economy would expand continuously at a reasonable growth rate of 2 – 4% per year. If the growth rate is higher, we typically see excessive inflation, which is the Federal Reserve would seek to avoid by raising interest rates to slow down the economy. If the growth rate is lower, the Federal Reserve seeks to stimulate the economy by reducing interest rates and other policies that encourage lending and investment.

Our federal government has a special research group whose job it is to tell us when recessions officially begin and end. The National Bureau of Economic Research (NBER) is charged with this responsibility. According to the NBER, a recession is best defined as:

“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

By the time the NBER announces the beginning of a recession, normally we are closer to the end of recession than the beginning. I would be willing to bet that by next spring, we will hear from the NBER that the recession began in late 2007.

Clearly our economy now easily satisfies every part of the definition of recession, especially with the substantial drop in consumer spending over the past 6 months as well as the recent increases in unemployment.

Recessions are a natural part of our economic system helping to curb excesses and maintain proper balance.  One reason why the current recession may be longer and more severe than the past recessions is that we have a bursting “credit bubble” at the same time as we are entering a recession.

Due to increases in interest rates, many Ventura County home owners with Adjustable Rate Mortgages have fallen behind on their mortgages. Most of these Ventura County home owners are unable to refinance their loans because they owe more than their homes are worth and their homes have lost much of their resale values.

The Housing Rescue Bill will allow certain home owners who are having a difficult time paying their mortgage to refinance their existing loan to a Federal Housing Administration (FHA) insured mortgage. The bill has been in effect since October 1, 2008.

Who Qualifies?

• Home owners whose home is their primary residence.
• Home owners who DO NOT own a second home.
• Home owners whose loans were issued between January 2005 and June 2007.
• Home owners whose debt/income ratio is 31%.

Home owners have to pay off any and all Home Equity Line Of Credits (HELOC’s)  or home equity loans.

How Does My Refinancing Work?

• The lender who holds your original loan has to agree to your refinancing with an FHA insured mortgage.
• A new appraisal must be done on your home to determine your home’s current value.
• Your lender has to agree with writing-down your outstanding mortgage balance to 90% of your home’s current value.

Why will your original lender agree on the write-down? In many cases your lender will lose less money by agreeing to the write-down rather than letting your home go into a foreclosure!

How Much Will Refinancing With an FHA Insured Mortgage Cost Me?

• Loan origination fees will apply. The cost varies from lender to lender.  Loan origination fees usually can be paid over the life of your loan.
• Each year home owners will have to pay 1.5% of their principal to FHA as an insurance premium for their new FHA loan.
• Home owners will agree to share any profit from the sell of their home with the FHA. Home owners will have to share 50% of any appreciation with the FHA when they resell their home.
• If the home owner decides to sell within a year after refinancing with FHA, 100% of any profit made from the sell of the home goes to FHA.
• Home owners are not allowed to take another home equity loan for at least five years after they have received their FHA loan.

Time-Line For The Housing Bill

The FHA refinancing program and all its provisions will last from October 1, 2008 through September 30, 2011.

How Do I Apply?

You may contact me or seek help from an FHA approved lender. To find an FHA approved lender you may directly visit the US Department of Housing and Urban Development.

Source: Federal Housing Administration.