Down Payment Assistance programs

Written by Michael A. Foote, CMB on . Posted in Uncategorized

May 27, 2010

Down Payment Assistance Programs (DPA’s) for First Time Home Buyers

By: Michael A. Foote, CMB

There is money available for first time homebuyers today. In a much needed addition to financing products available today, down payment assistance programs are available once again. Down Payment Assistance Programs are generally a local, state or federal grant or bond program designed to assist certain persons with certain income levels in certain areas, with money that can be used for down payment and closing costs on many purchase loans.

These tax free grants or loans are generally forgivable provided the buyer stays in the home for a designated amount of time. And these dollars can dramatically change the amount of money required for closing when these first time homebuyers buy a home. For example, a typically FHA borrower may have to come up with over 4-7% total of the sales price whereas a borrower with a WISH down payment assistance program may only need to bring in 2-3% total. That’s a huge amount of money on a several hundred thousand dollar transaction. If you amortize out that difference the savings are literally tens of thousands of dollars since most closing costs are financed in the new mortgage.

So what does the process with “DPA” look like when compared to the regular loan process. Quite frankly, it’s seem less to the user insofar that the lender will generally have to deal with the additional hoops during the process. For the borrower/buyer they probably wouldn’t know the difference. The only real difference is a potential for a slightly longer loan processing time.

So is DPA a good idea? Well, lately it has been a challenge for Realtors to get clients using FHA let alone FHA WITH Down Payment Assistance so an argument could be made that using DPA on an Offer to Purchase could be a determining factor for the seller’s side when these choose the offer to open escrow with.

The only cure for this pitfall will need to be more product on the market for properties up to the $400,000 range as DPA generally have no purpose and no qualifying borrowers as the sales price rises and/or in areas of high per capita income.

Undoubtedly, DPA has a place in today’s financing landscape and those of in the industry are happy to have it, it is one more additional tool to increase homeownership for low to mid income families. And this product will help sell the forecasted shadow inventory rumored to be lurking around the corner. Only time will tell if that come to fruition or not.

These programs are not free from abuse, there have been in the past scams related to DPA and officials, lenders, and large institutions have really scaled back what is allowable as DPA. Also economics play into the availability of these from all the time. There are many DPA’s completely drained of funds. One bank, Pacific Mercantile, where I work, has two great programs and there are more out there. When consulting your mortgage banker, make sure you inquire into available DPA programs by city, county, state, and federal levels.

Jumbo Mortgages..are actually available

Written by Michael A. Foote, CMB on . Posted in Uncategorized

Well it’s official lenders and investors are looking for jumbo product. With jumbo rates the lowest they’ve been for awhile AND a private securitization market that has awaken partially, originators are now being tasked with getting those jumbo borrowers into refinance and buy more property.

What will be different than the jumbo loans of several years ago, will be a steady dose of income documentation..real income documentation, verification of assets, and real clear view of the properties value. Yes, investors want the product but they want the least risky available.

We will not see a stated income deal for…check that. I predict that we will in fact see a state income type transaction for the self employed. Even the Fed’s have spoken about the need for loan products geared to our self employed citizens (voters). And I agree wholeheartedly that these products should be available to sophisticated borrowers who understand leverage and risk.

As long as the mortgage industry does not take advantage of itself and keeps these jumbo guidelines in order and with transparency of risk to all, a niche in the mortgage industry can again flourish.

Expect 80% as a maximum LTV and borrowers will need to document everything. Rates for these types of mortgages run about 5.75%-6.00% depending on the particulars. Adjustable and Fixed rates are available. Rates of course float and change often.

For jumbo loans to and the niche to prosper values will need to remain static or at least rise slightly to ensure borrowers have skin in the game. If the economy were to falter again, and values suffer, then more jumbo borrowers will default. So as long as the current economic climate continues to improve, so shall the availability of specialized loan products.

The Mortgage Broker Awakes

Written by Michael A. Foote, CMB on . Posted in Uncategorized

We got some very good news for the nation’s small business mortgage brokerage community. FHA recently had announced that they would allow FHA lenders to fund loans originated by mortgage brokers not directly approved by HUD. What this means is all those mortgage brokers who did not have the ability to become FHA approved can now start serve a market argued to be anywhere from 15-30% of the market for new home loans.

The big question was if major lenders would pick up on the ruling and actually allow historically non-fha-brokers to originate this product. The product is itself complex as compared to conventional products and requires a highly level of discipline and even requires specialized FHA DE’s or underwriters. The answer to the question at hand appears to be answered as Flagstar Bank has released comments about the ruling and a recently held conference call with HUD. Brokers should expect by December of this year to be able to originate and deliver FHA loans for funding.

In what has been a very difficult several years for the mortgage broker, and with new legislation that would further impair the brokers ability to compete, this is a small silver lining.

Of course the broker has a long way to go. Broker market share was once reported to be as high at 80% of all mortgage originated, that number is now south of 14%. With that drop in market share, many have left the business all together. It is very clear, many just weren’t prepared for the brutal shut-off – there was no slowdown.

Only time will tell if pending legislation and new originations will keep the broker afloat – it wasn’t the brokers fault alone that the mortgage market to collapse, but they are the last group related to finance that hasn’t recovered. Banks are now reporting record earnings and the investment banks cannibalized themselves and are paying out record bonuses. Let’s hope the small businessman mortgage broker again has his chance to show his professionalism and dedication to providing quality mortgage finance.

The New Mortgage Market – Age of the order taker dies

Written by Michael A. Foote, CMB on . Posted in Uncategorized

There once was a mortgage sales disneyland filled with people who recently sold bottled water, cell phones, cars, insurance, crack, and pretty much everything else related to sales. Why? Because we couldn’t hire people quick enough. Those people were fortunate, or not fortunate depending on how you look at it, to meet a person in the mortgage business and if they were real lucky, the subprime mortgage business. And that person then recruited the poor unlucky soul. The money was sickening. These guys and gals were pulling down over a million a year…Now that time of irrational exuberence is bust. Many of those that once flew high in the sky are now back in a world or brutal financial reality where the bills pile up and we all are back to balancing our check books, if it balances at all.

Why do I state the obvious facts? Because it is important for those looking for financing today that our industry has been left to the true mortgage professionals. Those left are in it because this is what we do, we don’t sell cars, insurance, crack – we sell mortgages. I want those left in the business to feel proud that we are still here providing financing to all americans regardless if this is the niche business of the year – I am proud to continue to offer great financing to qualified individuals and businesses.

Freddie Mac asks U.S. for $10 billion

Written by Michael A. Foote, CMB on . Posted in Uncategorized

You have to wonder just where is the bottom for these losses.
Freddie Mac, the bailed-out mortgage-finance giant, reported Wednesday that it continues to lose money and needs an additional $10.6 billion in assistance from U.S. taxpayers.

The most recent earnings report follows three straight quarters in which the McLean-based company did not need infusions from the Treasury. Still, the firm is struggling to recover from the mortgage-market meltdown; it reported a net loss of $6.7 billion in the first quarter of 2010, compared with a loss of $9.9 billion a year ago.

Freddie Mac is turning to the Treasury again mostly because of a change in accounting. Revised rules that took effect this year require companies such as Freddie to move all mortgages they guarantee — but don’t own — onto their books. This shift alone caused the company’s equity to drop by $11.7 billion, helping to plunge its net worth into the red.

Under the terms of Freddie’s September 2008 bailout, taxpayers make up the shortfall in any quarter when the firm’s net worth is negative. The accounting change, along with the firm’s loss and a $1.3 billion dividend payment to the Treasury, pushed Freddie’s net worth to a negative $10.5 billion, down from a positive $4.4 billion last year.

Fed to stop purchasing MBS

Written by Michael A. Foote, CMB on . Posted in Uncategorized

A widely anticipated end to the Fed’s purchase of Mortgage Backed Securities is set to end this month. After the last couple of years this should scare everyone, but it doesn’t seem to be raising the fear level at all. Recently, PIMCO’s Bill Gross said that another 35-50 bps and MBS will be attractive to his firm. That being said you could expect rates to rise another .50% to get Bill’s interest. But is this really true? It’s all about the spread, and if the rate of a mortgage loan and the cost of funds has a wide enough spread – then buyers for the paper will come. The questions is how much does the spread need to be. In my opinion if you are waiting – DONT WAIT get your mortgage done – PDQ. If you have 6% or higher or have interest only debt of anykind get it wrapped up into amortizing debt stat.

HUD lift 90 Day Flipping Rule

Written by Michael A. Foote, CMB on . Posted in Uncategorized


HUD now believes the real estate market will benefit by allowing buyers to use FHA financing to purchase a home even when the seller has been on title for less than 90 days. Up to this point, only banks had the privilege of selling their recently acquired foreclosures to FHA buyers. Now investors and others who acquire real estate and want to sell within the first 90 days can. The waiver of the 90 flip rule is for one (1) year and takes affect on February 1, 2010. With tight underwriting guidelines, many home buyers are realizing that FHA financing is their only way to afford home ownership. More reasons why I like this change:

§ FHA buyers will have more homes to choose from

§ Investors will be able to attract a larger pool of home buyers

§ Buyer and seller agents will increase their closing ratios

§ Mortgage brokers will have more lending options for their clients

HUD’s updated policy comes with restrictions designed to prevent fraud so investors … pay attention:

1) There can be no relationship or interest between the seller, buyer or other parties to the transaction

2) Seller’s profit is limited to 20 percent above their acquisition cost

3) HUD may allow a sales price in excess of the 20 percent limit if the lender can document legitimate rehabilitation to the property and/or a second appraisal supporting value. In addition, the lender must order a property inspection and provide the report to the buyer prior to closing.

4) The same property flipped mutiple times … big red flag and a No No!

KEY INFORMATION: Home buyers should expect some FHA lenders will not follow HUD’s waiver and continue to impose the 90 day restriction. When getting pre-approved for financing, I suggest home buyers ask their mortgage advisor if they have lenders who accept HUD’s waiver. If they don’t, find a different mortgage advisor who does so you can shop till you drop and avoid surprises later.

Commercial market continues slide into 2010

Written by Michael A. Foote, CMB on . Posted in Uncategorized

The commercial real estate market will continue to get worse, only more slowly in 2010. But what does this mean for commercial property owners.

The overall assessment of Grubb & Ellis Company’s 2010 Real Estate Forecast released today, predicts another year of slow recovery. This doesn’t bode well for owners looking to refinance debt. If values continue to slide albeit slower, equity positions will be reduced and available credit will be limited. The best best for commercial property owners is to convert all short term maturing debt into longer term fixed rate products.

Vacancy rates continue to rise as well. As this continues expect lenders to further tighen credit for new commercial financing. For access to many different commercial lenders, visit

Google Voice

Written by Michael A. Foote, CMB on . Posted in Uncategorized

OK. A little off topic, but well worth it. I have recently begun testing Google Voice provided by…Google of course. For me, the service uses my existing cell phone number and basically replaces my voice mail and converts my voice messages into text based emails and text messages. As a person who receives a large number of voice mails everyday, the service is fantastic. I can easily be talking on the phone, miss a call, and immediately have a transcript of the voice mail on my handheld android in seconds. It also provides a link to the actual voice mail so yo ucan listen as well. Of course there is a call in number for your voice mail as well so you can get voice mails the traditional way from your cell phone. Good job Google. I normally don’t endorse these services, but this one truly delivers a greater level of service to my cleints, and that is priceless. The service also allows for text messaging from your computer. While I haven’t tested this yet, the voice mail feastures alone make this something to get onboard with.