Healthcare and Housing: 3.8% sales tax?

By Kenneth R. Harney

July 13, 2012

When the Supreme Court upheld the health care reform law on federal tax grounds, it restoked a housing issue that had been relatively quiet for the past year: The alleged 3.8 percent "real estate tax" on home sales beginning in 2013 that is buried away in the legislation.

Immediately following enactment of the health care law, waves of emails hit the Internet with ominous messages aimed at homeowners. A sample: "Did you know that if you sell your house after 2012 you will pay a 3.8 percent sales tax on it? When did this happen? It's in the health care bill. Just thought you should know."

Once litigation challenging the law's constitutionality surfaced in federal courts, the email warnings subsided. But with the law scheduled to take effect less than six months from now, questions are being raised again: Is there really a 3.8 percent transfer tax on real estate coming in 2013? Does it pre-empt the existing $250,000 and $500,000 capital gains exclusions for single-filing and joint-filing home sellers, as some emails have claimed?

In case you've heard rumors or received worrisome emails about any of this, here's a quick primer. Yes, there is a new 3.8 percent surtax that takes effect Jan. 1 on certain investment income of upper income individuals - including some of their real estate transactions. But it's not a transfer tax and not likely to affect the vast majority of homeowners who sell their primary residences next year. In fact, unless you have an adjusted gross income of more than $200,000 as a single-filing taxpayer, or $250,000 for couples filing jointly ($125,000 if you're married filing singly), you probably won't be touched by the surtax at all, though you could be affected by other changes in the code if Congress fails to extend the Bush tax cuts scheduled to expire at the end of this year.

Even if you do have income greater than these thresholds, you might not be hit with the 3.8 percent tax unless you have certain types of investment income targeted by the law, specifically dividends, interest, net capital gains and net rental income. If your income is solely "earned" - salary and other compensation derived from active participation in a business - you have nothing to worry about as far as the new surtax.

Where things can get a little complicated, however, is when you sell your home for a substantial profit, and your adjusted gross income for the year exceeds the $200,000 or $250,000 thresholds. The good news: The surtax does not interfere with the current tax-free exclusion on the first $500,000 (joint filers) or $250,000 (single filers) of gain you make on the sale of your principal home. Those exclusions have not changed. But any profits above those limits are subject to federal capital gains taxation and could also expose you to the new 3.8 percent surtax.

Julian Block, a tax attorney in Larchmont, N.Y., and author of "Julian Block's Home Seller's Guide to Tax Savings," says it will be more important than ever to pull together documentation on the capital improvements you made to the property and expenses connected with the house - including settlement or closing costs, such as title insurance and legal fees - that increase your tax "basis" in order to lower your capital gains.

Since the health care law targets capital gains, you could find yourself exposed to the 3.8 percent levy on the sale of your home next year. Here's an example provided by the tax staff at the National Association of Realtors. Say you and your spouse have adjustable gross income (AGI) of

$325,000 and you sell your home at a $525,000 profit. Assuming you qualify,

$500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the health care law, giving you a revised AGI of $350,000. Since the law imposes the 3.8 percent surtax on the lesser of either the amount your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950

($25,000 times .038).

The 3.8 percent levy can be confusing, and can bite deeper when your taxable capital gains are far larger or you sell a vacation home or a piece of rental real estate, where all the profits could subject you to the investment surtax. Definitely talk to a tax professional for advice on your specific situation.

Adam Simmons
Crystal Clear Mortgage LLC
888-634-6911
www.CrystalClearMortgage.com

FHA cancels plans for strict underwriting requirements

FHA rescinds strict credit restrictions

Critics said mortgage policy tilted the scales too heavily in favor of creditors

June 29, 2012 11:00AM

By Kenneth R. Harney

In a policy switch that could be important to thousands of applicants seeking low-down-payment home mortgages, the Federal Housing Administration has rescinded tough new credit restrictions that had been scheduled to take effect July 1.

The policy change would have affected borrowers who have one or more collections or disputed-bill accounts on their national credit bureau files, where the aggregate amounts were $1,000 or greater. Some mortgage industry experts estimate that if the now-rescinded rules had gone into effect, as many as one in three FHA loan applicants would have had difficulty being approved.

Under the withdrawn plan, borrowers with collections or disputed unpaid bills would have been required to "resolve" them before their loan could be closed, either by paying them off in full or by arranging a schedule of repayments. In effect, if you couldn't resolve the outstanding credit issue, you might not be able to obtain FHA financing. The rescinded policy would have replaced more lenient rules allowing loan officers to discuss the accounts with applicants, and determine whether they represented material risks that the borrower might fail to make the mortgage payments.

Disputed bills are commonplace in many consumers' files, but may not indicate serious credit risk. Rather, they might simply be a disagreement between merchant and customer over price, quality of the product or the terms of the credit arrangement. Open collection accounts are also common but tend to be viewed more ominously by lenders since they often indicate nonpayment over an extended period. Unpaid creditors frequently charge off unpaid accounts, then sell the files to collection agencies who pursue the customer and report nonpayments to the national credit bureaus - Equifax, Experian and TransUnion.

Critics of the policy complained that it tilted the scales too heavily in favor of creditors and disproportionately harmed FHA's traditional core borrowers - low- to moderate-income families, first-time buyers and minority groups. Other critics argued that the policy would not help FHA weed out serious credit risks since private lenders already are doing so by imposing their own credit score and other restrictions on applicants, known as "overlays" in the mortgage industry.

Clem Ziroli Jr., president of First Mortgage Corp. in Ontario, Calif., noted in an interview that although FHA accepts FICO credit scores as low as 580 - FICO scores run from 300 to 850 with lower numbers portending higher risks of default - many large lenders require 640 scores or higher. Why? Because they are super-cautious in the post-bust marketplace and don't want to be required by FHA to "buy back" a mortgage that had a marginal FICO score at application, then went to foreclosure.

As it is, FHA's recent average scores are far higher than historical norms.

According to an analysis by Ellie Mae LLC, a company that tracks conventional and FHA loan originations, the average FICO score for an FHA-approved loan to purchase a house in May was 713. Though down slightly from March, when average FICOs for purchases hit 724, according to Ellie Mae, both scores suggest a strong trend toward financing applicants who have relatively fewer issues in their credit files. This contrasts with the agency's long-standing tradition of helping "low to moderate wage earners and the underserved" - often minorities - to buy homes, says Ziroli. During much of the last decade, FHA routinely financed borrowers with credit scores in the low to mid 600s.

Deputy Assistant Secretary Charles Coulter says the FHA's ongoing interest in re-evaluating its credit policies - such as the rescinded collections and disputes rule - is "to find a balanced yet flexible approach to promote access to affordable credit while protecting the mortgage insurance fund."

FHA plans to issue a new rule "soon," agency sources said, that addresses collection accounts and disputes separately rather than lumping them into a single standard. Meanwhile if you plan to apply for an FHA loan and you think you have collections or disputes on file, here's the good news: You won't be forced to pay off or resolve the accounts before closing, but you are likely to have your application referred for "manual" underwriting, where a loan officer takes a hard look at the facts and circumstances of your collections or disputed accounts. This, in turn, will almost certainly slow down your approval. There are exceptions, according to the agency, such as when the disputed account is both less than $500 and more than 24 months old.

But beware lenders' overlay practices. They may get you turned down even if FHA's more generous rules say you are acceptable.

Adam Simmons
Crystal Clear Mortgage
888-634-6911 toll free
adam@crystalclearmortgage.com

Are too low valuations preventing some markets from recovering?

June 22, 2012 01:00PM

By Kenneth R. Harney

One-third of realtors are reporting problems with appraisals.

Are some appraisers failing to see the improvements in real estate values underway in local markets that have recently bottomed out? When multiple bids push a house price thousands of dollars above what the seller is asking — not unusual in neighborhoods where demand is particularly robust — are appraisers still coming in with values below the agreed-upon contract number?

Yes. Growing numbers of mortgage loan officers and real estate agents say appraiser reluctance to report local appreciation is complicating sales transactions. In a new poll of its members, the National Association of Realtors found that 33 percent of them reported appraisal problems during the month of May. Moe Veissi, president of the association, said poor appraising “in markets that are no longer in decline is the single most important” valuation obstacle “to seeing a real recovery.”

Even appraisal experts concede that this is a troubling issue. Frank Gregoire, former chairman of the Florida Real Estate Appraisal Board and an appraiser in St. Petersburg, says that many appraisers are reluctant to make the upward adjustments they know to be justified by recent positive appreciation trends because they fear criticism that they are potentially overvaluing the property — exposing lender clients to costly “buy-back” demands by Fannie Mae or Freddie Mac, or future litigation.

“Even if they have the (local) data to support” adjustments reflecting positive trends that affect value — pending home sales and new listings of similar houses at higher prices, for example — “they take the easy way out” and go with a lower valuation so as not to upset hyper-cautious reviewers at the appraisal management companies that now control the bulk of all home real estate appraisal assignments, Gregoire said in an interview.

One appraiser in his area recently assembled strong supporting data to make an upward adjustment to a valuation based on recent sales activity on comparable houses. When he delivered the report to the appraisal management company that hired him, however, an official at the firm sent it back immediately with instructions to “revisit” the upward adjustment — in reality, to get rid of it.

Joseph Petrowsky, owner of Right Trac Financial Group Inc., a Manchester, Conn.-based mortgage company, says too often valuations in upward-trending markets “aren’t catching up with the new values, let alone a property that was involved in a bidding war.” He cites a series of recent loan applications where the appraisal was thousands of dollars below the agreed-upon final contract price, endangering or blowing the deals. In one case, the buyer signed the contract at $312,500 but the appraisal came in at just $280,000, despite readily available evidence that the local market has experienced appreciation in recent months.

“Appraisers are scared to death” to report rising values, said Petrowsky. “I talk to them and they are beside themselves. They feel they have to [deliver] appraisals they know should be higher.” Much worse, though, is the impact on sellers and buyers. When an appraisal comes in much lower than the mutually agreed-upon contract price, the buyers typically need to revise their loan request by increasing the down payment — that may not be feasible — or renegotiating the contract price with the unhappy seller.

Dennis Smith, a co-owner of Stratis Financial Corp. in Huntington Beach, Calif., says the problem is magnified when the appraiser assigned by the management company travels from 30 or 40 miles away, and has no insights into neighborhood appreciation trends that may be relatively recent. He cited an example where a client saw a bidding war — four offers that pushed the contract price from the listed $350,000 to $375,000 — but the out-of-town appraiser would not take this into consideration in arriving at the final valuation.

Sara W. Stephens, president of the Appraisal Institute, the largest association in the industry, says it is every appraiser’s professional duty to arrive at valuations that “reflect the market,” including recent changes — whether positive or negative, if they can be verified with authoritative and accurate data.

How can buyers and sellers guard against the see-no-appreciation problem? Tops on the list: Make sure the real estate agents on both sides of your transaction have assembled accurate data on “comparable” sales or pending sales that demonstrate how the market has changed in the past six months or less. Then make sure the appraiser sees the data.

Your purchase or sale doesn’t have to be jeopardized simply because the appraiser doesn’t have — or chooses not to collect — all the relevant recent facts.


Adam Simmons
CrystalClear Mortgage
www.Crystalclearmortgage.com
936-447-5626
adam@crystalclearmortgage.com

FHA Mortgages Poised to get more expensive

FHA mortgages are poised to get more expensive




The FHA plans to impose limits on the amount of money that home sellers can contribute at closing and to raise mortgage insurance premiums.



March 11, 2012
By Kenneth R. Harney



Reporting from Washington — If you're considering buying a house with an FHA mortgage and expect the seller to help out with your closing costs, here's a heads-up: The Federal Housing Administration plans to impose significant restrictions on the amount of money that sellers can contribute at closing in the near future.

On top of that, the FHA also will be raising its mortgage insurance premiums during the coming weeks, increasing charges for new purchasers across the board.

You might ask, why hit us with additional financial burdens right now, just as housing is showing modest signs of recovery in many areas and the spring buying season is getting underway?

One big reason: Over the last six years, the FHA has been the turnaround champ of residential real estate, offering down payments as low as 3.5% despite the recession and housing bust and growing its market share to 25%-plus from 3%. The program is financing 40% or more of all new-home purchases in some metropolitan areas and is a crucial resource for first-time buyers and moderate-income families, especially minorities. With a maximum loan amount of $729,750 in high-cost areas, it is also a force in some of the country's most expensive markets — California, Washington, D.C., New York and parts of New England.

But during the same span of rapid growth, the FHA's insurance fund capital reserves have steadily deteriorated — far below congressionally mandated levels. Delinquencies have been increasing. According to the latest quarterly survey by the Mortgage Bankers Assn., FHA delinquencies rose to 12.4%, compared with a 4.1% average for prime (Fannie Mae-Freddie Mac) conventional fixed-rate mortgages and 6.6% for VA loans.

As a result, the FHA is under the gun — with Congress and within the Obama administration — to get its own house in order, cut insurance claims and rebuild its reserves. The upcoming squeezes on seller contributions and bumps in premiums are steps in this direction.

The seller-contribution cutbacks could be painful, particularly in areas of the country where closing costs and home prices are relatively high.

Here's what's involved: Traditionally the FHA has been uniquely generous in allowing home sellers — including builders marketing new construction — to sweeten the pot for purchasers by chipping in money to defray closing costs. The FHA now allows sellers to pay up to 6% of the price of the house toward their buyers' closing expenses. Fannie Mae and Freddie Mac, by comparison, cap contributions at 3%. The VA's ceiling is 4%.

Under newly proposed rules, the FHA cap would drop to the greater of 3% of the home price or $6,000. In sales involving houses priced at $100,000 or less, this wouldn't change anything ($6,000 equals 6% of $100,000). But on all sales above this threshold, the squeeze would get progressively tighter.

On a $200,000 home, a buyer could today ask the seller to pay for $12,000 of a long list of settlement charges including all prepaid loan expenses, discount points on the loan, interest rate buy-downs and upfront FHA insurance premiums, among others. Under the proposed cutback, the maximum amount would be slashed in half.

On many home transactions, the reductions would force sellers to lower their prices to enable cash-short buyers to get through the closing. In other cases, sales might simply be too far of a stretch for some purchasers.

The proposed cuts are open to public comment through the end of this month but are highly likely to be adopted in much the same form soon afterward. The FHA also is restricting the types of "closing costs" that sellers can pay. Six months' or a year's worth of interest payments or homeowner association dues in advance no longer will be permitted — a serious blow to many builders who use these as financial carrots.

Beyond these changes, FHA also plans significant increases in insurance premiums — upfront premiums will rise to 1.75% from 1%, effective April 1, and annual premiums will increase by 0.1% on all loans under $625,000 and 0.35% on mortgage amounts above that, effective June 1.

William McCue, president of McCue Mortgage Co. in New Britain, Conn., which does a sizable percentage of its business with the FHA, said the cumulative effect of all these increases "will not just crowd first-time buyers out of the FHA market, it will prevent them from owning a home that, absent these new costs, would be affordable."

Bottom line: Nail down your FHA money and seller-contribution negotiations as soon as you can because later looks a lot more expensive.


Adam Simmons
Crystal Clear Mortgage LLC
888-634-6911
www.crystalclearmortgage.com

Housing Survey Respondents see Good Times Winding Down

Mortgage News Daily

Fannie Mae's March National Housing Survey indicates that consumers may finally realize that the good times for buy a home might not last forever. Nearly half of those surveyed expect higher rental prices over the next 12 months, the highest number since the survey began in 2010, while 33 percent expect home prices to increase, up from 28 percent in February and the highest percentage in over a year.

Even with historically low interest rates and the lowest home prices in nearly a decade, consumers haven't rushed to buy, some apparently because they were not sure home prices had bottomed out, but many Americans were also uncertain about their own finances. That too is changing with 44 percent believing their personal situation will improve over the next year. These trends may be providing Americans with an increased sense of urgency to buy a home as 73 percent of Americans now believe it is a good time to buy a home, up from seventy percent in February.

On average, Americans expect home prices will rise by 0.9 percent over the next year and 39 percent expect that mortgage rates will also increase in the next year, 5 percentage points more than last month.

Homebuying may also look more attractive when compared to renting as the survey showed that 48 percent of homeowners and renters alike expect rents to increase by 4.1 percent on average over the next year.

The percentage of respondents who say it is a good time to buy rose by three points to 73 percent, the highest level in over a year, while the percentage of respondents who say it is a good time to sell rose one point to 14 percent this month. Sixty-six percent of respondents say they would buy their next home if they were to move, up one point since February while thirty percent say they would rent, also up one point.

"Conditions are coming together to encourage people to want to buy homes," said Doug Duncan, vice president and chief economist of Fannie Mae. "Americans' rental price expectations for the next year continue to rise, reaching their record high level for our survey this month. With an increasing share of consumers expecting higher mortgage rates and home prices over the next 12 months, some may feel that renting is becoming more costly and that homeownership is a more compelling housing choice."

Survey respondents' comfort level about their own finances continues to rise, but confidence in the overall economy leveled off in March. Only 12 percent of respondents think their personal finances will worsen over the next year - tied with February and with January 2011 for the lowest number to date. The remaining 88 percent is split almost equally between those who expect their circumstances will improve and those who think it will remain essentially the same.
Twenty-one percent of Americans say their income is significantly higher than one year ago, 1 percent more than last month, while 63 percent say it has stayed the same. Expenses have increased for 34 percent of respondents, an increase of one percentage point.

Right track/wrong track numbers which surged to the positive between November and February has now leveled off. In November only 16 percent of respondents thought the economy was on the right track; that had risen to 30 percent by January and went up another 5 points in February but the March right track responses were at 35 percent, unchanged from the month before. After following the inverse track, dropping from 77 percent in September to 57 percent last month, responses portraying the economy as on the wrong track rose one point this month to 58 percent.

The Fannie Mae National Housing Survey polls 1003 Americans by telephone each month. The survey panels are composed of both renters and homeowners who are asked about 100 questions about attitudes toward homeownership, renting, and personal finances. The current survey was conducted between March 1 and March 28, 2012.

Adam Simmons
Crystal Clear Mortgage
www.CrystalClearMortgage.com
888-634-6911

Rates at FOUR MONTH HIGH

Just a quick hit today as things are obviously vewry busy right now...

Yesterday the trigger that started the run was two-fold; Feb retail sales were stronger than thought then in the afternoon the FOC policy statement was the preverbal straw. There was a growing thought that the Fed would launch another easing move to increase buying of treasuries and MBSs; the FOMC said no, not yet. The economic outlook according to the Fed had improved somewhat from the previous FOMC meeting. The stock market has continued to increase taking another support from the bond market. Meanwhile in Europe there are still huge debt issues but at the same time (at least at the moment) that its economy while in recession may not be as serious as markets had believed.

Big Changes to FHA loans...MUST READ!!!

Changes in FHA loans that begin with all new case numbers assigned on or after April 1st (this is not an April Fools joke!)

• The Up Front Mortgage Insurance premium is increased from 1% to 1.75%. This means for every $100,000 that you borrow, your loan amount will be $750 higher than it would have been prior to April 1st. At current rates, this equates to a payment that is higher by about $3.47 per month for every 100K borrowed.


• Monthly PMI (Private Mortgage insurance) is also increasing April 1st. The annual PMI on a 30 year FHA loan is increasing from 1.15 basis points to 1.25 basis points. This means for every 100K you borrow, your monthly PMI payment is now $8.34 per month higher than FHA loans prior to April 1st.

This means if you are financing a $200,000 loan on FHA terms for 30 years, your payment after April 1st will be $23.62 per month higher than if you buy (or lock in) before April 1st. That is almost $300 per year. This can, and will make a difference in buyer perception of FHA loans, as well as the buyer ability to qualify regarding debt to income ratios.

....BUT THE BIGGEST NEWS.....FHA mortgagee letter 2012-3, which can be found here: http://portal.hud.gov/hudportal/documents/huddoc?id=12-03ml.pdf

If a buyer has more than $1,000 in collection accounts (aggregate total), those collection accounts must either be paid in full at closing with the borrowers own funds, OR the buyer must enter into a payment program and the lender must document 3 months payment history. Those payment plan debts must also be added into debt to income ratios.

This news is HUGE and we expect it to impact and disallow qualifying on up to 30% of current FHA loan applicants towards the lower end of the FHA credit requirements. FHA loans were designed for individuals with more of a bruised credit profile, and this will have a major impact on FHA business. At a time when the housing market is showing signs of life, and all politicians agree that we need housing to help get us out of the recession, we are hit with this. It makes no sense to do this at the current time, but yet here we are.

REALTORS...PLEASE MAKE SURE THAT YOUR BUYERS ARE GETTING PRE-APPROVED FROM KNOWLEDGEABLE, QUALIFIED LENDING PROFESSIONALS. If you have any questions please do not hesitate to call us.

Adam Simmons

Owner

Crystal Clear Mortgage, LLC

15320 Hwy 105 W Suite 206

Montgomery, TX 77356

936-447-5626 direct

888-634-6911 toll free

www.CrystalClearMortgage.com

FHA just got more expensive!!!

Pay up is FHA’s new message

March 09, 2012 11:30AM
By Kenneth R. Harney

If you’re considering buying a house with an Federal Housing Administration mortgage and expect the seller to help out with your closing costs, here’s a heads-up: FHA plans to impose significant restrictions on the amount of money sellers can contribute at settlements in the near future. On top of that, FHA also will be raising its mortgage insurance premiums during the coming weeks, increasing charges for new purchasers across the board.

You might ask: Why hit us with additional financial burdens right now, just as housing is showing modest signs of recovery in many areas, and the spring buying season is getting under way?

One big reason why: Over the past six years, FHA has been the turnaround champ of residential real estate, offering down payments as low as 3.5 percent despite the recession and housing bust, growing its market share from 3 percent to 25 percent-plus. The program is now financing 40 percent or more of all new home purchases in some metropolitan areas and is a crucial resource for first-time buyers and moderate-income families, especially minorities. With a maximum loan limit of $729,750 in high-cost areas, it is also a force in some of the country’s most expensive markets — California, Washington, D.C., New York and parts of New England.

But during the same span of rapid growth, FHA’s insurance fund capital reserves have steadily deteriorated — far below congressionally mandated levels. Delinquencies have been increasing. According to the latest quarterly survey by the Mortgage Bankers Association, FHA delinquencies rose to 12.4 percent compared with a 4.1 percent average for prime (Fannie Mae-Freddie Mac) conventional fixed-rate mortgages and 6.6 percent for VA loans.

As a result, FHA is under the gun — from Congress and from within the Obama administration — to get its own house in order, cut insurance claims and rebuild its reserves. The upcoming squeezes on seller contributions and bumps in premiums are steps in this direction, but may not be the last.

The seller-contribution cutbacks could be painful, particularly in areas of the country where closing costs and home prices are relatively high. Here’s what’s involved: Traditionally FHA has been uniquely generous in allowing home sellers — including builders marketing new construction — to sweeten the pot for purchasers by chipping in money to defray closing costs. FHA currently allows sellers to pay up to 6 percent of the price of the house toward their buyers’ settlement expenses. Fannie Mae and Freddie Mac, by comparison, cap contributions at 3 percent. VA’s ceiling is 4 percent

Under newly proposed rules, the FHA cap would drop to the greater of 3 percent of the home price or $6,000. In sales involving houses priced at $100,000 or below, this wouldn’t change anything ($6,000 equals 6 percent of $100,000). But on all sales above this threshold, the squeeze would get progressively tighter. On a $200,000 home, a buyer could today ask the seller to pay for $12,000 of a long list of settlement charges including all prepaid loan expenses, discount points on the loan, interest rate buy-downs and upfront FHA insurance premiums, among others. Under the proposed cutback, the maximum amount would be slashed in half. On many home transactions, the reductions would force sellers to lower their prices to enable cash-short buyers to get through the closing. In other cases, sales might simply be too far of a stretch for some purchasers.

The proposed cuts are open to public comment through the end of this month, but are highly likely to be adopted in much the same form soon afterward. FHA also is restricting the types of “closing costs” that sellers can pay. Six months’ or a year’s worth of interest payments or homeowner association dues in advance no longer will be permitted — a serious blow to many builders who use these as financial carrots.

Beyond these changes, FHA also plans significant increases in insurance premiums — from 1 percent to 1.75 percent on its upfront premiums, effective April 1, and annual premiums by 0.1 percent on all loans under $625,000 and 0.35 percent on mortgage amounts above that, effective June 1.

William McCue, president of McCue Mortgage in New Britain, Conn., which does a sizable percentage of its business with FHA, said the cumulative impact of all these increases “will not just crowd first-time buyers out of the FHA market. It will prevent them from owning a home that absent these new costs would be affordable.”

Bottom line: Nail down your FHA money and seller-contribution negotiations as soon as you can because later looks a lot more expensive.

Crystal Clear Mortgage
www.CrystalClearMortgage.com
888-634-6911

Should you Lock a rate Today? yes!

Another aspect of today's news from Europe was that the group of finance ministers tasked with voting on the current Greek bailout is set to meet again on Monday to potentially approve that bailout. If that happens, then today's ECB actions grease the skids for Greece to negotiate and finalize a deal with its private sector bond-holders. And if ALL of that happens before Tuesday morning, it will probably have a fairly negative impact on rates.

Now... Of course we have seen time and time again that things rarely happen exactly as expected when it comes to the EU debt crisis. So we certainly aren't planning on any catastrophic spike in rates and more so than we plan on a nice improvement. Both are possible. But the fact that it COULD happen, and on a market holiday (Monday is President's Day), means that Traders are essentially heading into 3-day weekend with big potential market movement waiting on the other side. That could cause them to have a more defensive stance than they otherwise might Tomorrow.

All that to say, it's unlikely that we'll see a noticeable bounce back tomorrow unless we get some new info out of Europe that changes the expectation for the weekend bond swap and Monday vote.

So while costs are indeed higher today, Best-Execution rates are still at their all time lows and we'd advocate thinking more about protecting yourself from risks in the near term future than about lamenting missed opportunities if you decided not to lock yesterday.

Sure, rates could get lower next week and it would be natural to regret locking today if that turns out to be the case, but it wouldn't compare to the level of regret that would come from NOT locking today and seeing rates move sharply higher next week. We say this NOT to advocate locking vs floating, but rather, if you were inclined to lock, not to second guess that decision simply because yesteray's rates were better.

Today's BEST-EXECUTION Rates
30YR FIXED - 3.875%
FHA/VA -3.75%
15 YEAR FIXED - 3.25%
5 YEAR ARMS - 2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

Rates and costs continue to operate near all time best levels
Current levels have experienced increasing resistance in improving much from here
There are technical reasons for that as well as fundamental reasons
Lenders tend to get busier when rates are in this "high 3's" level and can throttle their inbound volume by raising rates or costs.
While we don't necessarily think rates are destined to go higher, given the above facts, there seems to be more risk than reward regarding floating
But that will always be the case when rates operating near historic lows(As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate)


Crystal Clear Mortgage LLC
www.CrystalClearMortgage.com
888-634-6911

Which Housing Proposals are Going Somewhere?

Which housing proposals are going somewhere?

February 10, 2012 11:00AM
By Kenneth R. Harney

Though it was pronounced dead-before-arrival by opponents on Capitol Hill, President Barack Obama’s new mortgage refinancing package contained far more than legislative proposals.

In fact, significant portions of it that have received little media coverage require no prior approval from a hyperpartisan Congress, and could begin affecting consumers within weeks.
Here’s a quick rundown on key segments of the housing proposals with a handicapping of their likely impact this year:

– Going nowhere: If you’ve got an underwater mortgage that isn’t owned or guaranteed by Fannie Mae or Freddie Mac, the president’s marquee proposal to help you refinance into a 4 percent mortgage is not likely to be of assistance. The plan’s core concept of funding your rate cut by levying a fee on the largest banks — “based on their size and the riskiness of their activities” — would be a nonstarter politically even if this weren’t an election year. R.I.P.

– Moving fast: Refinancings can be speeded up administratively by key executive branch agencies, and the new program directs them to do so within the next few weeks wherever possible. For example, the Federal Housing Administration will be removing a major barrier for lenders to “streamline” refinancings for current, nondelinquent borrowers who want to take advantage of today’s low rates. The FHA no longer will count streamlined refis — where some standard underwriting requirements are waived — against lenders’ performance ratings on delinquencies. The fear of getting a poor rating is a powerful deterrent for many lenders against doing streamlined refis because they can lose their eligibility to do loans for the FHA altogether. Removing ratings as a barrier should help significant numbers of FHA borrowers get into a better deal.

At the same time, the White House has ordered all the other federal agencies with homebuyer programs to clear the decks for streamlined refis of their existing customers. For example, the Agriculture Department, which runs the third-largest and fastest-growing program — last fiscal year, its loan guarantees funded more than 130,000 home purchases in communities located on the fringes of major metropolitan areas — is expected to waive requirements for new credit reports, appraisals and other documentation for streamlined refinancings. The main requirement for hundreds of thousands of existing USDA borrowers who want to switch to a lower loan rate: Just be on time with your current payments.

– Coming your way: a mortgage servicing “bill of rights”: Though some reforms already are in place, the White House is requiring all federal housing agencies to enforce minimum standards on mortgage servicers, including mandating immediate interventions with offers of forbearance or loan modification at the earliest hints that an owner is facing financial strains. For borrowers, the plan also requires continuous points of contact with a customer service employee of the servicer plus access upon request to all relevant documents the servicer maintains on the borrower’s account. For homeowners who are turned down for a modification or other assistance, the plan requires a guaranteed right of appeal in “a formal review process” to give the borrowers a second chance.

– Long shot but could happen: The federal regulatory agency that oversees Fannie Mae and Freddie Mac in conservatorship disagrees, but the White House believes that both companies could eliminate all closing costs for large numbers of underwater borrowers who want to refinance into shorter-term loans and rebuild their equity. The idea is aimed at potentially hundreds of thousands of owners whose loans already are owned or backed by Fannie and Freddie.

To encourage them to use their refinancing savings to pay down their principal debt faster, the program would eliminate all closing fees for borrowers who opted for loan terms of 20 years or less. The refinancers generally would end up paying the same amount per month on their loans, but the compressed amortization schedule would reduce the principal much faster than a standard 30-year payoff schedule.

For example, say you’re underwater but still current on a 30-year, $214,000 mortgage you took out in 2006. The monthly payment is $1,350 and the remaining principal balance is $200,000. If you refi under the federal government’s Home Affordable Refinance Program, or HARP, into a 30-year mortgage at 4.25 percent, after five years your principal balance would be $182,000 — still underwater. But if you refinanced into a 3.75 percent 20-year loan, you’d owe $152,000 in five years — back into positive equity territory, according to the White House.

Don’t count this one out. It’s a potential winner for borrowers if the legal issues can be resolved.

If you have any questions about these programs that have been proposed please do not hesitate to call me at anytime.

Crystal Clear Mortgage
www.CrystalClearMortgage.com
888-634-6911

Obama to Unveil new Refinance Program

Feb 1st, 2012
By: Adam Simmons

President Obama is expected to release the details of his refinance plan that he touched on in his state of the union address. This plan is expected to be targeted to "responsible" home owners that have not missed a payment in the previous 6 months and whose homes may be worth far less than they owe.

Rumor has it that appraisals will not be necessary, nor will income qualification. As a prospective borrower, you must prove that your credit score is above a 580 and that you are currently employed. This refinance program will be geared towards those people that have privately held mortgages (loans not secured by Fannie Mae or Freddie Mac or FHA). These refinances will be sent through the governments FHA program. The FHA program is a wonderful product but I see a few problems with this right now:

1. FHA already has a disproportionate volume of all new loans. They have had to raise their fees and mortgage insurance premiums several times over the last few years to keep their reserves in line. Their reserves are not in line yet, as they hold over 1 trillion in notes with only a couple billion to insure against default.



2. FHA loans have higher monthly PMI premiums and have higher up front fees rolled into the loan. Therefore a borrower may get a lower rate but they will be even further underwater on their home and perhaps their payment might even go up due to the higher PMI than they currently pay.



3. The government is proposing new, higher fees and taxes on the big lenders to fund this 10 Billion dollar effort. Who do you think pays these higher taxes and fees? It is not the banks. These fees get passed on to the consumer. Therefore everyone that is buying a new house, or refinancing a house will be subsidizing this effort.

Raising fees and taxes on banks will just create higher interest rates and higher fees. If the administration thinks that we need the housing market to come back to lead us out of our recession then they have a odd way of showing it. This is the second time in the last 30 days they have called on current home buyers and people refinancing to take higher rates for the success of some other temporary program. In January, home buyers and refinances will be paying higher rates through 2016 just to fund a one month extension in the payroll tax (true story!). Political feelings aside, this is not a good idea. The mortgage industry is not the administrations (current or any other) personal piggy bank. This would only hurt main street in my opinion.

There are many other options that can be rolled out. Let's hope this does not pass through Congress as it will not be a good program for very many people. Helping people get further underwater on their homes does not help the situation.

Underwater mortgages are the number one reason people default right now. Let's try to address that problem instead.

Crystal Clear Mortgage LLC

www.CrystalClearMortgage.com

888-634-6911

Rate Update 1/26/12

From Our Friends at Mortgage News Daily (they are spot on today):


Mortgages Rates over the past two days have done much to make ground lost leading up to Yesterday's FOMC Announcement. After further improvements today, rates further solidified their reentry into 3.875% 30yr Fixed Best Execution levels. The rounded average of various lenders' Best-Ex rates had moved up to 4.0%, and more than a few lenders are still well-priced there, but a majority are once again offering 3.875% with attractive borrowing costs.

Yesterday's FOMC Announcement (Federal Open Market Committee or simply "The Fed") which surprised some market participants with it's inclusion of new verbiage describing how long the Fed anticipated that it would keep its "Fed Funds Rate" at so-called "exceptionally low levels," continues to be the primary driver of the bond market rally. When the broader bond markets are rallying like this, MBS (the "mortgage backed securities" that most directly affect mortgage rates) tend to rally as well. Most of the overnight news out of Europe as well as domestic economic reports garnered much less-than-standard levels of attention as markets continued adjusting to the new realities of the Fed's shift in verbiage from "mid-2013," to "late-2014."

We said yesterday that, while the FOMC Announcement definitely helped rates break recent trends at 4.0% Best-Ex, it would be up to the rest of the week to solidify the rebound. Cross the first half of that task off the list... 4.0% Best-Ex is increasingly looking like an outlying exception to a broader trend at 3.875%. (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be this low, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

Today's BEST-EXECUTION Rates

30YR FIXED - 3.875% mostly, with a few lenders at 4.0% still

FHA/VA -3.75%

15 YEAR FIXED - 3.375% and more 3.25's

5 YEAR ARMS - 2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

• Rates and costs continue to operate near all time best levels


• Current levels have experienced increasing resistance in improving much from here
  There are technical reasons for that as well as fundamental reasons


• Lenders tend to get busier when rates are in this "high 3's" level and can throttle their inbound volume by raising rates or costs.


• While we don't necessarily think rates are destined to go higher, given the above facts, there seems to be more risk than reward regarding floating, But that will always be the case when rates operating near historic lows
  

Call us if you need anything~

Crystal Clear Mortgage

888-634-6911

Investor Cash Adding Downward Pressure on Home Prices

Cash buyers, principally investors, may be putting downward pressure on home prices according to the Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey released Monday. The survey found that investors with cash in hand are able to offer something that homeowners dependent on mortgage financing cannot, a guaranteed sale with a quick closing timeline. This seems to offset the desirability of a higher bid with a mortgage contingency.

The Housing Pulse survey found that the trade-off between price and speed is particularly true with offers on distressed properties because the lenders and servicers liquidating the properties generally prefer transactions that can settle within 30 days. The Campbell report states, "While investor bids may not be the first offers accepted, they often end up winning properties after other homebuyers are eliminated because of mortgage approval or timeline problems.
Appraisals below the contracted price are a common reason for mortgage denials. Most mortgage financing timelines are now in excess of 30 days."

The survey reports that 33.2 percent of home buyers in December were cash buyers, up from 29.6 percent in December 2010. However, 74 percent of investors came to the table with cash. This is especially striking as the survey found that investors accounted for 22.8 percent of home purchases in December, changed only slightly from 22.2 percent in November. But, Campbell says, "Despite their relatively small share among homebuyers, investors have an outsize effect on home prices because their bids bring down market prices."

Real estate agents responding to the survey commented on the low bids they are seeing from investors. Campbell quoted anecdotal information from a few agents indicating they are seeing investor bids 10-20 percent below list prices, but with quick closings.

The total share of distressed properties in the housing market in December continued at a three-month moving average of 47.2 percent, the 24th consecutive month that the HousePulse Distressed Property Index (DPI) was over 40 percent.The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.

Crystal Clear Mortgage LLC
www.CrystalClearMortgage.com

Appraisers Say "Don't Shoot the Messenger."

by Jann Swanson

Appraisers say "Don't Blame the Messenger" for Low Home Prices
Jan 17 2012, 1:58PM

The Appraisal Institute has apparently had enough and has decided to fight back against what it perceives as unwarranted blame for depressed home prices. In a press release the Institute says, " Don't blame the real estate appraiser if it turns out that house you're trying to sell or buy isn't worth what you thought it was."

Speaking for the Institute, its president Sara W. Stephens, MAI said that real estate agents, homebuilders and others have placed blame for the market's distressed condition on appraisers who produce opinions of value that don't match a home's listing, contract or sales price, delaying a recovery in the housing market and called that accusation "nonsense."

"The fact is that appraisers are undertaking the same thorough research and thoughtful analysis that they always have in order to continue producing reliable, credible opinions of value," Stephens said. "Don't shoot the messenger."

It is unclear why the Institute decided to refute the claims about appraisers at this time. We did a search and found a number of articles with the blame appraisers theme, but none that were more recent than last summer except for charges from the National Association of Realtors that low appraisals are among the reasons for recent high levels of sales contract cancellations. NAR, however, has been complaining about low appraisals since at least the spring of 2009.

Noting that buyers and sellers often have emotional value attached to a home or are unaware of the market, Stephens pointed out that appraisals completed for mortgage transactions are used to assist lenders, who are the clients, not buyers or sellers, in making lending decisions - and are not intended to confirm a listing, contract or sales price. There's no reason to assume the contract price is the "correct" price simply because it's higher than the appraisal, she said.

As to the claim that appraisers are using distressed sales as comps for market rate properties, Stevens said that qualified appraisers know how to handle adjustments for distressed properties and added that in some markets, distressed sales are so prevalent that it would be improper not to use them as comparables.

The Institute also released two handouts. The first explains the process of conducting an appraisal in a declining market and includes a discussion of how an appraiser discounts a distressed comp. The second handout attempts to explain what an appraisers job really is, making the points that:

-Appraisals aren't intended to confirm a home's sales price.
-Appraisers don't set the real estate market; they reflect what's happening in the market.
-Appraisers work not for buyers or sellers, but for lenders.
-Appraisers are independent, third-party experts with no motive to be biased.
-Appraisals sometimes are assigned to the least qualified, least competent appraisers, but especially in a distressed market, competent and qualified appraisers - such as designated members of the Appraisal Institute - should be hired for difficult assignments.
-Appraisers know how to use distressed sales as comparables


Crystal Clear Mortgage
www.CrystalClearMortgage.com
888-634-6911

Homeownership costs set to skyrocket with new fees, loss of tax write-offs

January 13, 2012 12:45PM
By Kenneth R. Harney

Though its demise drew little attention because of the partisan year-end brawl over the payroll tax cut extension in Congress, a key mortgage financing benefit disappeared at the end of December: The ability of large numbers of homebuyers and owners to write off the premiums they pay for mortgage insurance.

The loss of that tax deduction — plus mandatory new fees imposed by Congress on all new conventional and Federal Housing Administration loans — could effectively ratchet up the costs of homeownership this year.

The expiration of mortgage insurance deductibility will hit many low-down payment conventional loans originated since 2007, plus virtually all new mortgages closed this year where the down payment is less than 20 percent. Though industry experts do not have precise numbers, their estimates range into the millions of existing owners and new purchasers potentially touched by the deductibility termination. Borrowers using guaranteed veterans and rural housing loans, where down payments can drop to zero, also are affected.

The change in the law took effect last month, along with the expiration of 58 other tax code benefits that Congress failed to renew, such as credits for home energy improvements, credits for builders of energy-efficient new houses and deductions for state and local sales tax payments. They were all components of what would have been an annual “tax extenders” bill authorizing continuation of relatively noncontroversial expiring benefits for another year or more.

Congress could still reauthorize all or some of the write-offs retroactively this year, but the current poisonous political atmosphere on Capitol Hill raises doubts about the timing of that scenario.

The mortgage insurance premium deduction dates to legislation enacted in 2006. It allows purchasers and refinancers who use either private mortgage insurance or federal insurance or guarantees, and who itemize on their federal tax returns, to write off their premiums. Borrowers who are single or married and filing jointly with adjusted gross incomes of $100,000 or less can write off 100 percent of their annual mortgage insurance premiums. Married homeowners filing singly can write off 50 percent of premiums. Borrowers with incomes above $100,000 may qualify for partial deductions on a sliding scale.

In many cases, the post-tax savings for these borrowers are significant. New buyers with an income around $100,000 and a mortgage of $200,000 would save between $600 and $1,000 a year, depending on their credit score and loan-to-value ratio, according to MGIC, one of the largest private mortgage insurers in the country. For households with lower incomes, the impact would be less, depending on their marginal federal tax brackets.

David Stevens, who served as FHA commissioner and is now CEO of the Mortgage Bankers Association, said the loss of deductibility of mortgage insurance “hits a segment [of consumers] — middle-income and first-time buyers — where affordability is especially important.”

But mortgage insurance was not the only housing-related casualty of the pre-Christmas skirmishing. As part of the temporary extension of the payroll tax cut, negotiators tacked an unusual provision that raises fees on the majority of conventional mortgages — those originated for sale to or guarantee by Fannie Mae and Freddie Mac. Starting in April, Fannie and Freddie will impose a surtax on the guarantee fees they charge private lenders equal to one-tenth of 1 percent. Lenders are virtually certain to pass those fees to consumers in the form of a higher note rate or loan charges up front. Industry estimates suggest the surtax could add an eighth of a percentage point to rates and raise costs to borrowers over the life of the loan by more than $4,000 on a $200,000 mortgage.

Unlike standard guarantee fees, which are used by Fannie and Freddie to defray loan-default expenses, the new funds will be sent directly to the Treasury to help pay for the $36 billion cost of the temporary payroll tax cut. FHA loans also will be hit with a fee increase by the payroll bill, raising the annual premiums it charges new borrowers by one-tenth of a point.

At a time when the Federal Reserve is warning that there can be no broad economic improvement until housing recovers, it may strike you as odd public policy to raise costs for homebuyers and refinancers in order to fund unrelated, temporary tax relief. But that’s not the way they saw it on Capitol Hill in the rush to holiday recess.

Bottom line: The mortgage insurance deductibility problem may disappear if mortgage insurance gets included in an election-year “extender” package. But the fee hikes on most new mortgages are here for the foreseeable future, so buyers should factor them into their housing budgets.

Crystal Clear Mortgage LLC
adam@crystalclearmortgage.com

Bridging the Divide between Home Buyers and Sellers

By Kenneth R. Harney

January 1, 2012

With mortgage rates below 4% and prices near bottom in many markets, it's a good time to buy a house. But many owners won't sell because they can't get the price they want.

Where do you side in the great real estate buy-sell divide of 2012? If you're a homeowner considering selling sometime in the new year, are you apprehensive that you won't get the price you need or want, and therefore it's possible you won't even try to sell?

If you're a buyer, do you agree that with 30-year fixed mortgage rates now below 4% and home prices near cyclical bottom in many areas, 2012 offers extraordinary opportunities, even if listings are fewer than you might prefer?

A new study by the Research Institute for Housing America, the think tank affiliate of the Mortgage Bankers Assn., documents a profound market fissure caused by owners' fears and hesitation — what researchers call "negative selling sentiment."

Nearly 80% of consumers in the study's survey think this is a great time to buy a house, but more than 92% of homeowners think it's not a great time to sell.

The study was conducted by Syracuse University economist Gary Engelhardt using extensive data from the University of Michigan's Survey Research Center, which is generally recognized as an authoritative source on consumer attitudes.

Engelhardt said that compared with earlier post-recession periods, owners have been more deeply shocked by the extent and severe side effects of foreclosures, short sales and unemployment. In the aftermath of earlier recessions, such as in the early 1990s, 40% to 60% of homeowners remained relatively positive about their prospects if they chose to sell — far higher than the tiny sliver who see it that way today.

Many owners "have not adjusted their price expectations downward" to keep pace with local declines in property values after the mortgage bust, Engelhardt said, thereby contributing to the sharp divergence in their real estate visions compared with those of buyers.

This is consistent with the results of a study conducted in mid-2011 by Zillow, the online real estate and mortgage information company.

Zillow found that sellers nationwide were having trouble coming to grips with what market forces had done to their property values. They knew prices had declined, but they didn't necessarily think those devaluations applied to their houses.

For example, people who had purchased their homes in 2007 or later thought their homes were worth about 14% more than their actual sales value. People who bought homes before 2002 were slightly more realistic, but still overvalued their houses by about 12%.

How are such seller perceptions affecting local real estate market dynamics today? For one thing, they are keeping owners out of the game. But they also are bringing more motivated and committed sellers to the fore. Glenn Kelman, chief executive of Redfin, a national realty brokerage in Seattle, said the shortages of listings in some markets are the product of owners "waiting for better times to sell."

But owners who believe they need to sell now — they're downsizing, moving to a new area or getting divorced — turn out to be "more reasonable" in general, Kelman said. "Some are even resigned" to the reality that despite their unfortunate timing, they will definitely sell provided that they price the house realistically.

David Howell, executive vice president of McEnearney Associates, a large realty firm active in the Washington, D.C., area, said the absence of substantial numbers of people who would otherwise be sellers may also be a healthy development.

With listing inventories lower than typical for this time of the year, there are fewer houses for buyers to choose from. This, in turn, exerts a slight upward pressure on prices.

What about sellers who refuse to believe their properties won't command the prices they expect or require? Mike Litzner, broker-owner of Century 21 American Homes on New York's Long Island, said, "It's all about educating them. We try to show them the comparables" — the recent selling prices of similar houses in the area. "If sellers really want to sell," he said, "they adjust their expectations to the changed realities."

If they adamantly refuse, Litzner said, his agents often decline the listing rather than waste weeks or months trying to market an overpriced piece of real estate.

Howell said his firm's agents sometimes walk away from unreasonable listing price demands, but they also use a technique that seeks to bridge the seller-buyer divide: pre-authorized price reduction clauses in the listing contract that ratchet down the asking number. The initial reduction kicks in within the first two to three weeks if the house fails to attract buyer interest.

"It works," Howell said. "And both sides stand to benefit."

Adam Simmons
Crystal Clear Mortgage
adam@crystalclearmortgage.com
888-634-6911

A Message from a Mortgage Company CEO regarding the new fees inacted by Pres. Obama

Sorry to post a second message today, as i do not like to send out too many updates. That being said this is a major issue and it needs to be tackled as soon as possible. This letter is very well written and sums things up very well. Please call us with any questions:

On December 23, 2011, Congress and President Obama gave all homeowners and home buyers an ironic "present" in the form of a 10 bp increase in g-fees for all mortgage loan products offered by Fannie Mae and Freddie Mac, in order to fund a two-month extension of a 33% payroll tax cut. This shift in tax burden to homeowners and home buyers will remain in effect until October 2021 (a period of almost 10 years), and will cost this already stressed group of Americans approximately .45% of any amount they subsequently borrow to purchase a home, or refinance an existing home loan.

As you can imagine, I think this is an absurd and irresponsible way to finance a two-month tax cut, and I encourage everyone to protest loudly to any politician in your district or state. While there's little chance this law will be changed, it is nevertheless very important that we be heard, because this unprecedented use of credit guarantee fees for general Treasury purposes cannot be repeated. If Congress somehow begins to perceive credit guarantee fees to be some sort of readily available "cookie jar" that can be used for whatever whim politicians believe appropriate, then this country's housing finance system will be in a world of real hurt. The payroll tax extension will now expire on March 1, 2012; and you can be certain that efforts will be made to extend the tax cut through the November 2012 general election. If it costs 10 bps to fund an extension for two months, just imagine what it would do to guarantee fees if they were used to fund a full year!

Please see the attached announcement from the Federal Housing Finance Agency regarding this matter. It is very likely that this change in law will impact some lock-in expiration dates; we're now reviewing our pipeline and will be providing guidance soon regarding impacted loans, as well as when you might expect to see the cost of this increase reflected in our daily pricing.
Thank you for your business in 2011, and we look forward to expanding our mutually beneficial relationship in 2012!

Sincerely,
Jon K. Baymiller, CFA
President & CEO
NYCB Mortgage Company, LLC

Tax Cut Extension Now Officially raising Mortagge rates!!

As part of the temporary resolution to the recent battle over the Tax Cut Extension that took place in the last weeks of December, Congress decided that mortgage borrowers should foot part of the bill. Technically, Congress increased the "Guaranty Fees" that Fannie Mae and Freddie Mac charge to lenders that securitize MBS (Mortgage-Backed-Securities) with the Agencies, but ultimately, this cost must either be absorbed by lenders, passed on to consumers, or some combination of the two.

From the official release on 12/29/11:

"On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities. This requirement is effective immediately, meaning that the average guarantee fees charged in2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011."

The first official effects of these measures were seen today when BB&T distributed information to it's brokers and correspondents regarding the impacts of the fee increase. In the announcement, BB&T explains that the 10 basis point increase in the Guaranty Fee or "G-Fee" as it's called, equates to a pricing difference of 30-40 basis points in terms of cost/rebate or roughly 0.125% in rate.

The announcement tacitly warns that other lenders will soon follow suit by saying that BB&T is executing this change now "a few days before all their competitors do the same." While similar announcements are indeed, to be expected, some originators in MND's MBS Live Community have noted recent erratic behavior in lender pricing above and beyond what they'd expect for the usual holiday fluctuations. The implication is that some lenders may already be in the process of pricing these increased costs into rate sheets and could forego formal announcements and simply spread the increased costs out over a longer period.

MBS Live! community member, Victor Burek stated in live chat: "I think some other lenders have added it already. One of my most frequently used lenders is about 30bps off in price despite unchanged MBS prices. Granted, there are other factors that could be driving this, but they could also be pricing in some of the expected costs of the Tax-Cut Extension."Either way, mortgage borrowers end up footing the bill for the Tax Cut Extension.

Despite the April 1st implementation, the letter of the new law states that the average G-Fees in 2012 must be 10 basis points higher than those in 2011.

The bottom line is that rates must move higher on average and if lenders aren't building the fee increase into their rates now, they'll have to do so to a greater extent in the future to meet the "on average" guideline set forth by Congress