Mortgage Rates and News

REO’s & FHA

I have run across some unique situations using FHA and REO’s. With the use of FHA financing increasing along with the large number of foreclosures and bank REO’s (Real Estate Owned) we are finding new ways of doing business along with some confusion. Banks typically want to sell the property “As Is” and sometimes with allow a credit for deferred maintenance and or closing costs.

The following items pertain to using FHA with REO’s

Pest Work:

· FHA does not require a pest inspection and will allow a property to be purchased as is.

· However, if a pest inspection is called for in the purchase contract then the underwriter will want to see it. If there are repairs the underwriter may want them completed, particularly Section 1 and any items deemed to be for Health and Safety.

· Appraisers sometimes make suggestions for obvious items in need of repair and underwriters generally will require the work to be completed prior to close. These repairs costs can sometimes be added to the loan amount and be financed.

Allowable FHA buyer Costs:

· An FHA buyer cannot pay for the Tax Service about $80.

· All other closing costs including property repairs, Section 1 & 2 pest work, appraiser suggested repairs and some property improvements an FHA buyer can pay and in some cases added to the loan amount.

Allowable FHA Seller Credits

· A Seller can credit an FHA buyer up to 6% of the purchase price towards closing costs and repairs as long as the repairs are completed prior to funding.

· Sellers cannot credit buyers for repairs to be completed after close of escrow.

“NEW” Potential Delays Using FHA with REO’s:

· If you are using FHA financing to purchase an REO property where the bank has owned it less than 90 days, there can be a delay due to the 90 day flip warning, which will appear when the underwriter completes the appraisal logging on FHA’s Connection web site. This warning has to be cleared by FHA. Our district the Santa Anna HOC (Homeownership Center) is taking up to 14 days to accomplish this. If your REO purchase contract has a short escrow time and penalties for extending then this needs be addressed with all parties up front.

Attached is the latest release from Fannie Mae on their Loan Limit Increase pursuant to the “Economic Stimulus Act of 2008”.  Following the FHA / HUD announcement yesterday, FNME has announced they will temporarily (through December 31, 2008) be increasing their maximum loan limits. 

We do not have any pricing indications for this product yet nor do we know the exact loan limits.  However, FNME said it is using the same HUD (125 percent of the median home value) as FHA announced yesterday and the new FHA maximum limit for Sacramento and surrounding counties is $580,000. Unless FNME has another method of calculating percentages we should be in that range. 

Fannie will not begin purchasing these loans until at least April 1, 2008 and we do not have any indication yet as to when our investors will start offering the product.  We do know that the new loans above the existing limits of $417,000 will be pooled separately and sold as a different security.

With that said, the following guides will help you understand some of the limitations of the programs and the projected roll out times.

I will update you as we get more information and feel free to call or blog back if you have questions.

Yours truly,

Greg

60658_TemporaryIncreasetoOurConventionalLoanLimits.pdf

60658_Jumbo-ConformingMortgageMatrix.pdf