Incoming G-Fee Increases for 5 States

By Daniel Duffield

In their efforts to regain some of the “exceptionally high costs” which the government sponsored enterprises (GSE) have suffered due to mortgage defaults, the Federal Housing Finance Agency (FHFA) plans to adjust the guarantee fees levied by Fannie Mae and Freddy Mac, particularly targeting five states: Connecticut, Florida, Illinois, New Jersey, and New York.

Average carrying costs sustained in the five aforementioned states have exceeded the national average substantially, according to reports from the FHFA. As a result, these states have placed a significantly larger burden of cost upon both the GSEs and the American taxpayers.

Within these regions of the country, mortgages will be charged an additional up-front fee, ranging between 15 and 30 basis points. This fee would be charged to lenders as an upfront, one-time expense for each loan acquired by Fannie or Freddie once these changes come into effect.

Homeowners with fixed-rate, 30-year mortgages of $200,000 residing in one of these five states could possibly see a monthly mortgage payment increase of $3.50 to $7 through this new FHFA policy.

When the government sponsored enterprises Fannie Mae and Freddie Mac purchase or insure mortgages, they are subject to a degree of credit risk; to compensate for this risk, the GSEs charge guarantee fees, colloquially referred to as g-fees. This fee amount differs for single-family homes, contingent on the mortgage loan program and any credit considerations for risk associated to either the borrower or the lender.

The Federal Housing Financing Agency has measured a noticeable difference between states with respect to mortgage defaults and their cost to Fannie and Freddie, according to an official statement submitted to the Federal Register and endorsed by Edward DeMarco, current director of the FHFA. The letter reports that this fluctuation is principally the result of variations in state procedures regarding the management of defaults, the obtaining of foreclosures, and marketable property title acquisition for single-family mortgages.

As a result of legal or governing actions, the time to complete a foreclosure differs from state to state, and in some cases, foreclosures are followed by a dead period in which an investor must postpone action before advertising the property. In addition, some states include regulations for the per-day carrying costs received by investors during a time when the defaulted loan is non-performing and the time in which a property which has been foreclosed is prohibited from being promoted on the market.

The FHFA stated that the variations in time periods and daily carrying costs have contributed to greater distinction between state policies regarding the average total carrying costs to investors attending the default of a mortgage loan.

The FHFA has also written that as a result of the government sponsored enterprises setting their current g-fees nationally, adjusting for the expected default costs only in a collective sense rather than individually, borrowers in states with less default-related carrying costs have been unfairly subjected to higher costs which fund borrowers in these high-cost states.

With the new g-fee adjustments and state-to-state distinction, the issue should soon be resolved.

Lender411 Featured Article: Reverse Mortgage Loans for Seniors

By Daniel Duffield

Reverse mortgages used to be considered last-resort options for senior in their 70s and 80s who were in need of cash.  Now, baby boomers are looking to reverse mortgages to increase their savings and pay off debt such as credit cards.  New aspects of reverse mortgages, such as fixed-rate lump sum loans, are definitely contributing to the appeal for boomers.  However, these new aspects present risks to borrowers, as reverse mortgages could consume home equity, ultimately leaving borrowers short-changed later in life.  Analysts recommend that borrowers think long-term before taking out a reverse mortgage and aren’t just taking out the mortgage to solve short-term problems. 

Almost all reverse mortgages are insured by the FHA.  The Home Equity Conversion Mortgage (HECM) enables the government to pay the lender if the house is sold for a lesser amount than the loan’s balance.  When the loan is due, the homeowner won’t owe more than the home’s worth and will receive any leftover equity.

These large payouts are clearly appealing to younger homeowners.  In 1999, only six percent of borrowers were ages 62 to 64, compared to twenty-one percent of borrowers being 62 to 64 in 2010.  If younger borrowers continue to take out lump-sum loans, there could be no home equity left in 10 or 20 years due to the compounding of interest.  What does this mean?

Read on…

Tips for Fall 2012 Home Purchase

By Daniel Duffield

Although many people associate spring and summer with real estate shopping, the fall season can be just as bountiful in terms of advantageous home purchase deals.

According to the National Association of Realtors (NAR), home sales for pre-existing homes have risen more than 10% from last year’s measurements. In the meantime, the number of backlogged homes on the market has diminished by 31% from a nine-month plus supply of 3.15 million in July 2011 to a 6.4-month stock of 2.4 million during the 2012 summer. Consequently, the portion of foreclosed and near-foreclosure properties on the market has plummeted to 29% this July from last year’s 24%.

According to NAR chief economist Lawrence Yun, the combination of historically low interest rates during 2012 and rising rent prices have allowed for the release of what had been a stifled demand.

As interest rates continue to drop, reaching 3.55% recently in contrast to last July’s rates of 4.55%, buyers who have cautiously waited following the economic decline and devastating housing crisis may begin to relax their guard and start making purchases. However, with approximately 18% of U.S. homeowners underwater on their mortgages, including a majority for homeowners between the ages of 30 and 34, buyers should not act too rashly.

Accordingly, here is a list of tips for homebuyers navigating the real estate market this autumn season:

1.       Shop for bargains.

According to the recordings of the National Association of Realtors, home prices generally drop by an average of $7,000 following Labor Day. Although homes located in the West or Southern United States may only level off or even slightly increase during the colder months of the year, Midwest home prices decline on average $10,000 between the months of August and September. In addition, prices for homes located in the Northeast decline nearly $20,000 on average by October.

2.       Understand the market.

In terms of fall pricing discounts, borrowers should understand the limitations of this price advantage. Essentially, these price adjustments will not be available in permanently warm climates such as Florida and Southern California. Additionally, homebuyers searching for property in ski-resort towns and popular destinations may be disappointed. As such, fall homeowners should consider whether or not their ideal home is situated in a region where a price drop is likely to occur; for best results, search for homes located in snowy areas, where homeowners might be willing to sell more quickly to avoid remaining in the home for the winter.

3.       Watch for desperation deals.

With summer winding down, buyers should be on the lookout for homeowners who were unable to sell their home during summer. Note if the advertised photo of a home has remained the same or if the price of the home has significantly dropped without any contractual updates; either of these may be signs of a desperate seller and this will work in your favor. With such a profitable summer for the real estate industry and mortgage rates still exceptionally low, buyers should keep an eye out for negotiable deals with sellers of homes that did not sell for one reason or another. 

4.       Keep your eyes open.

While fall may be a pleasant time of year to watch the beauteous transformation of nature in magnificent color, it also marks a dramatic change in weather. When looking to purchase a home, borrowers should keep their eyes open for signs of homeowner neglect, conveniently aided by the season; with the abundance of leaf litter and the return of rainfall, homeowners should be able to see what aspects of the home have been neglected. One tell-tale sign that buyers should be aware of is the accumulation of leaves in the gutter in September or early October, which should be a red-flag for potential homebuyers.

5.       Utilize seasonal discounts

According to data provided by the U.S. Census Bureau, fall, and especially September, can be a slow month for contractors and home improvement stores such as Home Depot and Lowes. If you are considering a remodeling project, for instance a kitchen upgrade or a bathroom retiling, home stores and builders generally discount their stock during the autumn months, making these projects more affordable. Furthermore, this discount may be acquired in the process of building a new home, compounding the savings and making this the best time of year for home building projects.

6.       Compare lenders.

As with any time of the year, comparing lenders and mortgage rates during the fall season will help you to save thousands of dollars over the course of your home loan. With patience and persistence, borrowers can secure tremendously advantageous interest rates and loan terms.

If you are searching for a home loan lender, visit our Lender411 Find a Lender page in order to conveniently locate all nearby lenders in your vicinity. Give it a try and start comparing lender offers today!