In the current economy, few of us have the savings or income to finance the purchase of a brand new home. Even second hand homes in prime condition can be out of the reach of the average household. So what can you do if you need a new home or you are a first-time buyers looking to buy yourself a slice of the American dream? A good option for many, especially those not scared to invest some sweat and elbow grease in their home, is investing in a fixer upper and doing or at least supervising the work required to make the home livable again.

Rehab Loans with FHA

If that is your plan, you can get government mortgage assistance from the Federal Housing Administration. The FHA has a specific product for buyers interested in saving money and investing money and hard work in a fixer upper home. If you know where to look (think foreclosures, auctions, repossessions…) you can buy homes that have fallen into disrepair and need some heavy doses of tender loving care at bargain prices. Remember banks, which more often than not end up with dilapidated homes, are not in the real estate industry; they are in the lending business. So, they are often very happy to unload properties in need of renovation.

The loan you may be looking for is the FHA’s 203(k) Fixer Upper Loan. This product is based on the Housing and Urban Development’s, HUD, 203(k) program and allows buyers invest in fixer-uppers with a FHA guaranteed loan. The best things about this loan is that it is especially designed for fixer-uppers and comes with an inbuilt protection for borrowers if the repair work costs more than they expected. And let’s face it, it is next to impossible to estimate accurately how much a fixer-upper will cost to get back into shape until you actually get started.

How Do You Apply?

As usual, the FHA does not provide loans directly to borrowers, but uses lending partners. Approach a selection of lenders and request information on their 203(k) fixer-upper loans. The application process is similar to a normal FHA loan. The lender will go through the regular credit checks and debt-to-income analysis. In addition to the basic paperwork requirements of an FHA mortgage, you will need to provide a detailed list of the repairs the property requires and the estimated cost of those repairs.

 

The real estate meltdown of the last two to three years has hit the housing, real estate and mortgage lending industries hard. What previously seemed a risk-free investment, now is viewed with suspicion and caution. However, we have all heard that smart investors make more money during the bad times than the good. Could this be the time to buy a home? If you are a first-time buyer or have the capital to cover the down payment and initial costs of buying a home and your credit rating is good, the answer to that question may be a resounding yes.

Fannie Mae, the government sponsored secondary market real estate investor, has just published a survey showing that according to the latest estimates home prices will continue to decline during the next 12 months. The same survey reports that the price of rents is set to rise. More specifically, homes are projected to drop in price by 0.5 percent while rents are expected to rise by 4 percent. Of course these are just educated guesses by consumers who are responding to the current market. This survey reflects the attitude of consumers to the real estate industry. This gives you an idea of the general “feeling” of the industry that bare figures cannot.

According to 70 percent of those questioned in the survey felt now was a good time to buy a home. Of course, the reverse is also true. It is also a hard time to sell a home. If you have the cash and the credit to be a buyer in this difficult economy, you can call the shots. This is a buyer’s market and you have a wide selection of properties and prices you would not have had access to three or four years ago.

However, the Fannie Mae survey was not all good news for buyers. Another point most consumers agreed on was in a lack of confidence in the ability of investors to sell the properties they buy at a profit. The old saying “as safe as houses” is no longer true in the minds of many consumers. So how does this lack of trust in the market affect the opportunity created by lower house prices? The current market seems to be especially designed for first-time buyers and people investing in a home to live in. If you are looking for a home to live in for the foreseeable future and have the cash and credit to buy it under the more stringent credit environment we are now in, it maybe just the time for you to buy a home.

News of the approval by the House of Representatives of the Emergency Homeowners Loan Program has fed the hopes of those that though the program would never start. Now only the signature of the Senate remains, many unemployed workers who are at risk of losing their homes to foreclosure may again put their hope in a mortgage assistance program that can see them through their temporary financial difficulties until they find work again.

However, not all states are participants in this unemployed workers mortgage assistance program, up-to-date only 27 states were part of the scheme. These states included Alaska, Arkansas, Colorado, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming and Puerto Rico.

Since the news of the approval of the House of Representatives, five more states have announced similar programs which will also receive funding through the Dodd-Frank Act. The Housing and Urban Development Department will also have a monitoring and supervisory role in these programs, although it will delegate most of the management roles to state level agencies (both governmental and non-profit community organizations). These states include Pennsylvania, Maryland, Connecticut, Idaho and Delaware. Although they are not part of the sates that applied for the Emergency Homeowners Loan Program the programs they are now offering their citizens are very similar. Since April 2011, they have accepted applications from unemployed workers who are delinquent on their mortgages. To qualify, an unemployed worker must be at least 3 months behind in his mortgage payments and have received a notice from his lender warning her of the intention of foreclosing on the mortgage.

Successful applicants will receive bridge loans of up to $50,000 to help them cover late payments, insurance, tax and ongoing mortgage payments for up to 24 months. The programs are restricted to unemployed workers who have a debt to income rate of 55 percent of less. This means the total monthly housing payments must represent less than 55 of their total income. For example, a household with an income of $4,000 a month, must not pay more than $2,200 in mortgage and other housing expenses.

These five states also have similar assistance programs under their respective housing finance agencies, which has moved the Housing and Urban Development Department to allow them to start accepting applications before the other 27 states which are part of the EHLP.

The California Housing Finance Agency is California’s main housing agency. It has several mortgage assistance programs designed to both help first-time buyers purchase a home and assist those that already have a home keep it. Those programs designed to protect Californian homeowners from foreclosure are under the Keep Your Home California program, which provides up to $2 billion in cash for foreclosure prevention programs. However, previous eligibility criteria was too stringent to allow many struggling homeowners qualify for assistance. The California’s Housing Finance Agency has reduced the requirements of these programs to help more struggling homeowners benefit from them.

Unemployed Workers

Under the new rules unemployed workers who are at risk of losing their homes can request federal mortgage assistance of up to $3,000 a month. Similarly, homeowners who are facing financial hardship can apply for up to $15,000 a family to reinstate mortgages at risk of foreclosure. Even homeowners who have no choice but to let their homes go can apply under the new rules for assistance for relocation expenses. These and many other changes have been backdates to mortgages originated after January, 1, 2009. This means that even if your application for help previously put down, you may reapply and see it approved under the new rules. 

These changes have come after the California Housing Finance Agency collected information on the existing programs and identified the areas where improvements were required. One of the main factors considered were the ongoing high-rates of unemployment in California which increased the risk of households, which had previously being regular with their mortgage payments, would lose their homes to foreclosure.

The California Housing Finance Agency acts  as an intermediary between the Housing and Urban Development and servicers in some programs and as principal program manager in others. The servicers used by the CalHFA include the Guild Mortgage, GMAC, the California and the Department of Veteran Affairs. Funding for the programs originates from the Housing and Urban Development Department and the Dodd-Frank Act. Funds of up to $1 billion have been assigned to unemployed workers struggling to pay their mortgage and over $450 million will go to the State of California. Other states that have relaxed the eligibility criteria of their mortgage assistance programs and will receive assistance from the Dodd-Frank Act include Delaware, Idaho, Pennsylvania and Maryland.

One of these programs, is the Emergency Homeowner Loan, which is available for unemployed workers who had an income of 120 percent the median income and who had seen their income drop by at least 15 percent since they lost their job.

It seems like the much-awaited Emergency Homeowner Loan Program may still see the light of day. It was deemed overdue when it was first conceived in the beginning of 2010 and it is considered much more so in July 2011. Yet, after it was approved in the House of Representatives in March 2011 it only awaits the signature of the Senate for approval. There are thousands of unemployed workers which await this (or any other) program to assist them with their mortgage payments. If passed by the senate

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the program will provide loans of up to $50,000 (estimates set the average loan at $35,000) to around 30,000 unemployed workers. Who will receive this assistance? What are the requirements or eligibility criteria for this mortgage assistance program? Although some of the details have still not been published, the Department of Housing and Urban Development has provided a summary with the main requirements applicants must meet to qualify for bridge-loans under the Emergency Homeowner Loan Program. This article will list and comment on these requirements.

Income

Obviously, this program is not targeted at the wealthy or those with enough assets to care for themselves. In order to focus the target group of the program, the Department of Housing and Urban Development has limited the scheme to unemployed workers which had a household income equal or less to 120 percent of the area median income (AMI) in their region. This income includes, wages and salary workers as well as self-employed workers. For example, the area median income of San Francisco, California, in 2010-2011 was $93,400. Only applicants with total incomes of $112,080 or less can apply for this program.

However, the total income is not the only income requirement. Applicants must also have seen an income reduction of at least 15 percent since they lost their employment. If there has not been a significant reduction in income since unemployment the unemployed worker must use the income available to him to continue paying the mortgage.

Delinquency

Applicants must be already three months or more behind their payments and must have already received a notice from their lenders informing them of an intention to foreclose on their mortgages. Proof of this may consist of any type of written notification between the lender and the borrower that indicates three months have gone by since the last mortgage payments were made and the intention to foreclose on the mortgage.

Ability to Repay

The applicant must also be reasonably likely to repay the mortgage within two years of entering the program. This is determined by the total debt to income ratio of the applicant. To qualify the debt to income ratio of the applicant must be below 55 percent. For example, if your monthly income is $2,000 your housing costs must be below $1,100 a month.

Residence

A final requirement for all applicants is that they must live in the home they are requesting financial help for as their main place of residence. This program cannot be used for investment or vacation homes.

Our previous article gave a summary of the new Emergency Homeowner Loan Program; this article will provide more details on this long-awaited and exciting new scheme for unemployed workers struggling with their mortgages. The scheme is funded by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Funds already allotted for the program amount to $1 billion, which analysts from the Department of Housing and Urban Development estimate will suffice to provide assistance to around 30,000 struggling homeowners with loans averaging $35,000.

The Loans

The loans provided by the Emergency Homeowner Loan Program will work as as bridge loans to struggling homeowners to help them pay delinquent taxes, arrearages and insurance payments and up to 24 months of mortgage payments, interest and mortgage insurance premiums, as well as taxes and hazard insurance. This program is especially designed to help unemployed workers in states not covered by the Hardest Hit Housing Markets program. The scheme is set to start soon, as soon at is approved by the Senate. Already it is well overdue. It was set to start at the end of 2010 and was only approved by the House of Representatives in March 2011. The states that will benefit from the program include Puerto RIco and 32 other states. Of the 32 states 27 will benefit directly from the scheme and 5 will manage their own versions of the program.

Management

The Department of Housing and Urban Development will delegate the management of the scheme to non-profit local community agencies and to state housing finance agencies (HFAs), who in most cases already manage similar programs to help struggling homeowners. However, the Department of Housing and Urban Development will still retain monitoring and note management functions over the scheme.

Funds

The funds allocated to the program will be divided among participating states based on their share of unemployed homeowners with a mortgage. California, Florida, Illinois, Ohio, Michigan, Georgia and New Jersey will get the lion’s share of the funds. California is the state that will receive more funds: $476.2 million. Double the amount the second state in the list, Florida, will receive—$238.8 million. Indiana, Tennessee, Alabama, South Carolina, Kentucky, Oregon, Mississippi, Nevada, Rhode Island and Washington DC will all receive less than $100 million. Rhode Island and Washington will only receive $13 million and $7.7 million respectively. 

The program cannot come soon enough for unemployed workers who see their chances of saving their homes evaporate with every week of unemployment. Thousands of unemployed workers with mortgages rely on this program passing through the Senate to allow them to restructure their mortgage payments and save their home from foreclosure. Who will qualify for this program? We will discuss that in our third and last article of this series on the Emergency Homeowner Loan Program.

The Housing and Urban Development Department has created a new mortgage assistance program, the Emergency Homeowner’s Loan Program, designed to help unemployed workers who are struggling to pay their mortgages. This long-awaited program could be just what thousands of families needed to avoid foreclosing on their home loans. Although this program is administered on the local level, all participating states are following the same guidelines so they can be described jointly in this article. Five other states, Connecticut, Delaware, Idaho, Maryland, and Pennsylvania have their own unemployed workers assistance programs with similar services and features offered to homeowners. This article will look at what the program offers unemployed workers and how you can benefit from this assistance program.

Participating States

The participating states in this program are Alaska, Arkansas, Colorado, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming and Puerto Rico. The program was created as a partnership between the United States government, and community partners throughout the country. One of the largest of these supporting partnerships is NeighborWorks America.

This program was launched with funding from the Dodd-Frank Act, which set aside $1 billion dollars to implement the program. The program provides interest free loans to unemployed workers who are struggling with their mortgage payments. The maximum loan under the Emergency Homeowner’s Loan Program is $50,000. The loan can be used to pay for mortgage payments over a period of no more than 2 years. After a long waiting period since rumors of the program were first leaked by the Department of Housing and Urban Development, the program is set to launch as soon as the Senate signs the bill after the House of Representatives signed it in March of this year.

Estimates and forecasts from the Department of Housing and Urban Development set the number of unemployed workers set to benefit from this program at 30,000 and the average loan they will receive at $35,000. As with most programs launched by the Department of Housing and Urban Development, HUD, they will be managed by other agencies with funds granted by HUD. In this case, the managing organizations will be non-profit community agencies, such as NeighborWorks America who are well placed in the community throughout the participating states to provide the help needed. The next article in this series will provide more information on the particulars of this program and how many funds were assigned to each state.

The real estate collapse of the last three years has caused the federal government to come up with regulations designed to avoid this from happening again. Mortgage regulation rules are being presented under the Dodd-Frank Act of 2010. The Dodd-Frank Act is part of the far-reaching financial regulatory reform that sets out to promote financial stability and improve the accountability and transparency of the financial system as a whole. This was a reaction to the list of bail-outs of companies that were “too big to fail” and required on-going hand-outs from taxpayers to stay in business.

One of the changes proposed under this Act is to force mortgage lenders to take 5 percent of the credit risk of mortgages pooled in securities if the mortgages do not meet certain requirements. These are mortgages that are put together as an investment unit and which can be bought or sold in a similar way to stocks in a company. One of these requirements, which is making mortgage lenders unhappy, is that borrowers must pay at least 20 percent of the home’s purchase price as down payment. The idea behind this rule is to stop borrowers from buying homes they can’t afford just because loans are available. According to some analysts, cheap and available loans were one of the reasons house prices increased artificially and later crashed when the market came to its senses and corrected itself. Canada has a similar down payment requirement as part of their comparatively stricter financial regulatory system, which may have had a lot to do with why Canada was not affected as seriously by the real estate driven recession of 2009.

Critics of the 20 percent down payment rule claim this will price out many borrowers who can’t afford to come up with 20 percent of a home’s purchase price. Figures from 2010, seem to support this claim. Around 39 percent of home buyers in 2010 put a down payment of less than 20 percent, according to a poll by CoreLogic. The question, of course, is if the low down payments are because people can’t afford to pay 20 percent or because they are not required to do so? Additionally, even if many buyers can’t afford the 20 percent rule, is that necessarily a problem? Could it be argued that buyers who can’t afford to pay 20 percent of their mortgage are simply not in a position to buy and should focus their efforts on saving for a down payment? Of course, the real estate mortgage industry claims it is time for the government to stimulate the mortgage industry not weigh it down with restricting regulations. How do you feel? Is this regulation a much needed protection against another crash, or is it an example of federal government choking the growth the real estate industry so desperately needs?

Do you know what a mortgage servicer is? Many borrowers do not know that the company which receives their monthly payments and sends nasty letters when they are behind on their payments is often not the company or investor that sold them the mortgage in the first place or even the current investor. In the mortgage industry there are three main players, mortgage originators, mortgage servicers and mortgage investors. Mortgage investors put forward the money for the loan, mortgage servicers handle the payments and communication with the borrowers and mortgage originators sell the mortgage. In some cases, all three roles are played by the same company but often these roles are split between specialized companies.

Of course, throughout the life of your mortgage fees are paid to the companies that manage your mortgage. The origination fee you pay when you sign for a mortgage is part of the payment mortgage originators receive. Every month interest is paid to the mortgage lender and a portion of the interest and mortgage fees goes to the company that manages your payments. These fees do not stop when you are behind in your payments and you are applying for a mortgage modification.

Mortgage modifications are paperwork intensive procedures which require a lot of research and communication between borrowers, mortgage servicers and mortgage lenders. This may help you understand why mortgage modifications often take so long to get processed even when borrowers clearly qualify for them. Mortgage servicers receive a fee for their work during mortgage modifications. However, the rules that regulate how much they receive have just been changed.

Fannie May requires mortgage servicers to only charge a fee, if the loan modification is approved. That has been the case for some time now. However, how much mortgage servicers can charge has recently changed. Why? Fannie Mae states recent simplifications in the mortgage modification process as a basis for the reduction in fees charged by servicers under the government sponsored mortgage assistance programs. The current limit is 0.25 percent of the mortgage amount or whatever the mortgage servicer received before the loan modification.

The maximum allowed servicing fee for mortgage modifications is not the only change announced by Fannie Mae. Mortgage investors and mortgage servicers must also adapt to changes in foreclosure time frames and rules on mortgage delinquency management. Now, if mortgage servicers exceed the allowed time frame to assess a loan modification, Fannie Mae will impose penalties so servicers remediate the problem and improve their performance.

CitiMortgage, the servicing side of CitiGroup’s lending sector is promoting some new alternatives for homeowners who do not qualify for loan modifications. These alternatives work in conjunction with CitiMortgage’s new “Road to Recovery Events” program which aims to help homeowners benefit from government and private loan modification programs. According to recent figures, 65 percent of applicants at these events are successful. What happens to the 45 percent that are not granted a mortgage modification? CitiMortgage is offering a special foreclosure alternative program across six states.

What is a foreclosure alternative?

There are two main types of foreclosure alternatives: short sales and deeds-in-lieu of foreclosure. A short sales occurs when the lender allows the borrower to sell the property undergoing foreclosure at a price below the mortgage balance to avoid foreclosure. A deed-in-lieu of foreclosure occurs when borrowers agree to return their deed, and therefore their legal claim to the property, in exchange of avoiding foreclosure. These alternatives can be beneficial to borrowers as long as the lender agrees not to attempt to collect any difference between the mortgage’s balance and the sale price.

What is New?

Up to now, nothing new. Short sales and deeds-in-lieu of foreclosure have been around for a while. However, CitiGroup through its branch CitiMortgage is offering some new additions to short sales and deeds-in-lieu of foreclosures.

Six-Month Break

If you have no chance of arranging a loan modification or refinance, CitiGroup will offer you up to six months of free month if they agree to exchange the deed for six-months of additional stay in the house. As far as now, there is not completion date for this date, which means it should be open for all homeowners who qualify for the program. This six-month break will allow you to start saving for the new deposit or move and avoid some of the stress of moving after a foreclosure.

$1,000 Bonus

Moving home is a huge expense. If you have just gone through a foreclosure, the cost of moving may simply be too much to deal with. CitiGroup, through CitiMortgage, offers borrowers a helping hand here by offering homeowners who agree to a foreclosure alternative a minimum of $1,000 towards moving costs. This will help with a new deposit if you decide to rent or as aid towards the new appliances and furniture you may need for your next house.

The idea is to reduce the cost and damage of foreclosures to clients by providing tenants with an incentive to be tidy and leave the property on good terms. This does not only help borrowers save money but banks and lenders also.

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