A TALE OF TWO PARENTS...

In today's world, a college education is more important than ever. Many of the jobs that do not require a college degree have been outsourced to workers in other countries, or replaced by a computer or machine. And according to Fed Chairman Ben Bernanke, the income disparity between college grads and non-grads is growing every year. In 1979, college grads earned 38% more than those with only a high school diploma - but today, college grads earn 75% more than those without degrees.

But let's face it, college is expensive, and becoming more so every day, inflating at around 5% per year historically. If anything, the cost will continue to rise as the upcoming high school graduating classes are expected to be the largest in history. The demand for four-year colleges will likely increase and with the number of seats in the classrooms still the same, expansion of space will probably not be an option for colleges and universities, but bumping the price tag certainly will be. And the type of college your child attends can have a big effect on the cost too - for just one year of tuition, room and board, an average private college runs just over $30,000, a public out of state college around $19,000, and even a public in state college is close to $13,000.
So as a parent who wants your child to have the chance to attend college - what can you do? Plan early.

Let's look at a tale of two parents to illustrate how important it is to get started right away.

The preschool open house was in full swing, and two parents were chatting over the punchbowl, remarking on how they knew time would fly, and before you know it - their kids would be off to college. Taylor's parents are prepared, having recently sat down with a mortgage professional and learning that to completely fund Taylor's four year education at the local college would cost either $300 per month in savings - or by being able to tap into the equity in their home, only $133 per month after tax. "What a relief to know it's all taken care of!" they commented to Max's parents. But Max's parents replied, "Hey, what's the rush? Look, the kids are only knee-high right now...we'll worry about this later."

Seven years later, the kids are in 5th grade, and the parents meet up again at a birthday party. College comes up in the conversation, as Max's parents just learned that for him to attend the very same college as Taylor, it will now require them to save $835 per month to be ready on time, which is not something they are prepared to do. Taylor's parents recommend that they meet their trusted mortgage professional, who advises them that by using the mortgage wisely, it will only cost them $260 per month after tax. Much easier to swallow - but it's twice as much per month as Taylor's parents, who planned ahead and started earlier.

The moral to this story?

If you want to save for a college education for your child, start the investment early. And encourage your children to invest and save too, with a portion of funds from their allowance or a side job like mowing the neighbors' lawn or babysitting. They will see how the value of their savings grows over time, and most importantly, will help instill the importance and value of a college education to your child. And as the college years approach, explore scholarships, financial aid, or federal direct aid, which is money that does not have to be repaid. When your child is young - you just don't know if they will be a star athlete or straight A student - so always better to plan ahead, and if scholarship money does become available, what a wonderful problem to have more than enough money in savings, due to your good planning.

The scoop on AMT (Alternative Minimum Tax)

Remember the old tag line from the show "Lifestyles of the Rich and Famous", as Robin Leach wished us all "champagne wishes and caviar dreams"? And sure enough, these days more and more people have the trappings of the rich. But is it the new home, maybe a shiny BMW, or more vacations? No. It's getting hit by the AMT or Alternative Minimum Tax, originally designed to hit only the ultra-wealthy. Not really the "you have arrived" feeling you had hoped for.

The nasty AMT isn't just for the wealthy anymore, as it is trapping an alarming amount of the middle class, especially those who own homes and live in states with high income tax rates. And it's getting worse. Pretty soon, over half those with incomes between $75k - $100k will be victimized by the AMT.

So what's the scoop with AMT, and what do we need to watch out for?

The AMT was first enacted nearly 40 years ago to ensure that wealthy taxpayers pay at least some federal income tax versus sheltering their entire income with big write-offs. This strategy worked at the time, but AMT has never been indexed for inflation, resulting in more middle-income taxpayers owing the additional tax.

All of us go through the AMT test each year. Our income is matched up with the tax brackets it falls into and the tax owed is calculated. But we also go through a second calculation - The AMT calculation. Many deductions are eliminated and the tax brackets are reduced. The tax owed under AMT is then compared to the tax owed under the bracket calculation. And guess which one you owe? The higher tax, of course.

More individuals will pay the higher AMT tax since it does not allow deductions such as certain interest on some home loans, property taxes, state and local income taxes, standard deductions, or personal exemptions for children and dependents that are normally deductible under the regular tax brackets. As stated earlier, certain interest on some home loans will be wiped out under the AMT. There are two types of home loans that can be eligible for tax deductibility.

First, there is Acquisition Debt, which allows interest to be deductible on a loan used to acquire or improve your primary or second home, with a loan limit of $1 million dollars. The good news about Acquisition Debt is that it remains deductible, even if you are subject to AMT. This makes Acquisition Debt very valuable. But once you pay off or reduce the balance of your Acquisition Debt, it is gone and only the interest on the remaining portion is deductible. So taking out a new loan at a higher amount will not give you that precious Acquisition Debt back.

The next best thing to Acquisition Debt is Home Equity Debt. Home Equity Debt has a limit of $100,000, which can be used over and above the Acquisition Debt Balance. And Home Equity Debt is flexible in that you can pay it down and pull it back out, which is not allowable for Acquisition Debt. But Home Equity Debt is eliminated under AMT...ouch. And with so many people being trapped by the AMT and also having loan amounts higher than what was used to acquire the property, the lost deduction is significant.

"ANYTHING THAT BEGINS WITH 'I DON'T KNOW HOW TO TELL YOU THIS' IS NEVER GOOD NEWS"

After a trend of gradually worsening over the past month, Bond prices and home loan rates finally got the good news they'd been waiting for...that pesky inflation rate finally appears to be moving lower. Early last week, the Consumer Price Index (CPI) showed core consumer price inflation as better than anticipated, falling to a year-over-year 2.5% rate, down from 2.7% reported last month. While lower prices on goods and services are certainly good news for all of us, the consumers; it was especially welcome for inflation-hating Bonds and home loan rates.

Following the news, home loan rates improved by .125%, and appeared destined to improve even more.

But this wasn't to be - what happened? Bond prices were feeling the love, home loan rates were improving - but right in the middle of the party, Bonds ran dead into a tough ceiling of technical resistance, stopping them cold and turning them back, causing them to lose some of the nice ground they'd made in the first part of the week. The path of least resistance ahead appears to be that Bond prices and home loan rates may worsen before they get better...but it all depends on the flavor of the news ahead.

Things to consider when buying a home using FHA loans.

Maximum loan amount for Dallas, Kaufman, Collin, Denton, Rockwall and Hunt Counties is $200,160 (Sales price of 204,760 with the 2.25 downpayment)

Minimum Down Payment is 2.250% Buyer must make a 3% investment unless down payment is paid as a Grant/Charity (DAP) contribution.

Seller can contribute up to 6% of the Sales Price without using a Charity (DAP) contribution.

No Termite Inspection Required.

No Non-Allowables required for the seller.

FHA is now using the standard Fannie Mae appraisal form- No more VC sheets!

Any contributions that the seller is contributing should be included in 12A1B on your contract UNLESS they are using a Down Payment Assistance Program (DAP).

If any monies are being paid as a contribution towards buyer’s down payment, DO NOT include those fees in 12A1B . Instead, add that to your “Special Provisions” #11. You will need to verify with your mortgage lender the amount of the contribution to be specified. Special Provisions to read “Seller to contribute $____ towards a Down Payment Assistance Program”.

FHA Mortgage Insurance is paid upfront (1.50%) rolled into the mortgage amount and .5% paid monthly in the payment. The .5% can be cancelled once the buyer has a 78% LTV and a minimum of 5 years (which ever is the later) has been paid towards the mortgage and the mortgage history has been satisfactory.

A 30 year Fixed Rate mortgage for a Single Family Residence is a Section 203B. A Condo has a 234C Section (the section is a part of The Third Party Financing Addendum #C for FHA).

A Condo does not require upfront FHA Insurance added to the mortgage and a survey is not required. A Condo must meet the FHA guidelines of no less than 51% Owner Occupied and be an FHA Approved complex.

Make sure the executed date is on the contract.

THIS BLOG IS HEREBY CERTIFIED AS BEING 100% "IMUS FREE"

But just in case you didn't get enough of the Don Imus story that seemed to infiltrate every minute of news time last week...just turn on the television or radio for 30 seconds and you're sure to catch an update. The market had a busy week on its own...and the Fed took center stage, with the "Minutes" from the last Fed meeting being released, as well as several members out and about on the speaking circuit.

While the Fed speakers didn't give any market-rattling comments, the Fed Meeting Minutes were a different story. Remember that the Minutes are the "Fed Unplugged", giving all the commentary between voting and non-voting members, before the carefully crafted formal Policy Statement is released to the public. The Fed intentionally delays the release of the Minutes, so the market has time to interpret and adapt to the Policy Statement itself, before they throw the "off the record" discussion into the mix for review and analysis.

The Minutes revealed that although the decision at the meeting was to leave the Fed Funds Rate unchanged, Fed members remain concerned about inflation, as recent indicators show that inflation is stubbornly remaining at a level above the Fed's comfort zone of 1 - 2%. Bonds didn't like the inflationary concerns, and lost some ground...with home loan rates worsening just slightly. The Fed is leaving an open door for more hikes ahead - as well as the possibility of cuts - completely dependent on what the incoming economic data tells them in the coming months. And a highly watched measure of inflation is due out next week - read on to know what to be looking for.

PLEASE MISTER POSTMAN, LOOK AND SEE...IF THERE'S A LETTER, A LETTER FOR ME...

Perhaps the reason neither the Beatles nor the Marvelettes hadn't received that important letter was simply incorrect postage. And with the postage increases that seem to come more and more frequently, it's not a crazy assumption to make. So here it comes again - starting May 14th, new higher postal rates will go into effect. If you don't want your loved ones - not to mention your creditors - waiting by the mailbox, now is the time to prepare.

The cost of postage for a standard one ounce first class letter is increasing from 39 cents up to 41 cents. And you know the drill - each time the post office bumps up the rates by a penny or two, it requires an annoying trip to the post office to purchase a book of one or two cent stamps.

But now - you can wave goodbye to those pesky one and two cent stamps that clutter up your desk or your wallet...the post office has finally created a stamp that will last "FOREVER".

The new stamp is called the "Forever" stamp and was created to do just what the title states....last forever. Once the stamp is purchased, the stamp can be used forever to mail one-ounce First-Class letters anytime in the future regardless of postage increases. The current price of each Forever stamp is 41 cents, and you can buy Forever stamps at that rate until the next postage increase. When the postal rates increase in the future, new Forever stamps sold at that time will go up in price too - but you can use up all your previously purchased Forever stamps without having to deal with buying and using the inconvenient make-up stamps for the difference. Forever stamps can now be purchased online at http://www.usps.com/ or at post offices nationwide.

FHA "FLIPPING" Guidelines

Because FHA is rapidly becoming the "IN" loan, I am getting phone calls because some lenders didn’t know about the flipping guidelines until the last minute. Below you will find the guidelines on flipped properties when pertaining to a buyer that is using FHA to purchase the property.

Remember, “Flipped Properties” are defined as those properties that have been acquired within a twelve (12) month period.

If sold in a 0-90 day period after acquisition:
According to FHA guidelines, a property of re-sale occurring 90 days or less from the date the seller acquired the property is not eligible for FHA insurance.

If sold in a 91-180 day period after acquisition:
A property re-sale occurring between 91-180 days from the date the seller acquired the property is subject to additional documentation ONLY if the re-sale price is 100% or more over the purchase/acquisition price (example: the house was sold to the investor for $50,000 and they are selling it for $100,000)

A second FHA appraisal is required from another approved FHA appraiser. The cost of the second appraisal CANNOT be charged to the homebuyer. If the seller is paying for the second appraisal, the real estate contract should reflect the seller is paying for the second appraisal.

If there is an increase in value and it is the result of rehabilitation, the lender must require documentation to support the increase is directly linked to rehabilitation of the property.

If both appraisals supported the increased valuation of the property, the conditional commitment will be issued based on the lowest value of the two appraisals.

If the increased value is NOT supported, the previous sales price is to be used in performing the maximum mortgage calculation.

If sold in a 181-360 day period after acquisition:
A property re-sale occurring between 181-360 days from the date the seller acquired the property is subject to additional documentation ONLY if the re-sale price is 100% or more over the purchase/acquisition price (example: the house was sold to the investor for $50,000 and they are selling it for $100,000)

If there is an increase in value and it is the result of rehabilitation, the lender must require documentation to support the increase is directly linked to rehabilitation of the property.
If the increased value is NOT supported, the previous sales price is to be used in performing the maximum mortgage calculation.

IT'S IN THE "FINE PRINT"...

Credit card companies do a great job at disclosing all of their terms and conditions...but do so in an exceptionally hard to read font and verbiage, designed to dissuade you from really reading the infamous "fine print". But failing to understand the terms can be costly.

Most people know that when your bill arrives, it needs to be paid on time or you'll be hit with a hefty late fee - but many don't know that paying late usually entitles the credit card company to raise your rate immediately and significantly. And worse yet - did you know that paying late on one of your credit cards also entitles all your other credit card companies to raise the rates you are paying them as well? You bet - it's called the "Universal Default Clause", and it basically means that if you are late on one credit card account, all other credit card companies that you have accounts with can increase the interest rate too, even if their accounts have been paid completely on time.

But the plot thickens further - this goes beyond late payments on credit cards alone.
If one of your credit card companies has the Universal Default Clause noted in their disclosure - and most of them do - this clause states that they have the right to penalize a consumer with an increased interest rate if a late payment is reported to ANY other creditor, including utilities, car loans, and home loans. Better believe that credit card companies with this clause sit back and wait for the opportunity to increase the interest rate...and continually monitor their customer's credit reports, just waiting for the opportunity to do so.

And just when you thought it couldn't get any worse...

...it's not just late payments that trigger the Universal Default Clause; interest rates can be increased if a consumer exceeds a credit limit, bounces a check, or applies for additional credit. All of these signs may be read by the credit card company that a consumer is "high risk". The penalty? You guessed it - a higher interest rate.

Further, if an offer seems too good to be true, it probably is. This popular phrase rings true for many consumers that sign up for zero percent interest offers. Although these offers sound great and every consumer goes in with the best intentions of paying the balance in full before the zero percent interest term expires, the vast majority of people do not pay off the bill before the offer ends. And what consumers do not realize is if the account is not paid in full, the creditor does not start charging interest from the date the deal expires, the creditor goes back to the day the purchase was made and charges interest on the balance for the entire period.

Or - back to the Universal Default Clause, if you are late on another credit card payment during the introductory time period with the zero percent rate offer - the card issuer of that sweet deal could prematurely break it off and force a steamed up interest rate, retroactively charged back to the original date of purchase. That smoldering rate could mean paying double or even triple for the purchased merchandise.

Try your best to only charge what you can afford to pay off in full, on a monthly basis.

Beyond being just good advice, here's another little known credit card fact that could cost you.
If you charge and then pay the account in full, there is no interest due. But if you charge and choose to only pay half of the bill when it arrives, guess what - you get charged interest not just on the remaining balance, but for the entire charged balance, regardless of your paying half the bill in full. If the bill is not paid in full the following month, this game continues until the account is paid in full.

So although the fine print can be a real snoozer to read, taking the time to become familiar with credit card terms and conditions can save you some serious dollars. Review your current credit card terms and conditions and take the time to find a credit card company that truly matches your spending habits and needs. You will save yourself a few sleepless nights - and more importantly, save yourself a lot of money too!

Forecast, Week of April 9th

What's on the docket this week? A few reports of note - and one of the more interesting items on the calendar will be the Federal Reserve Board's "Meeting Minutes" from the March 21st meeting, due for release this Wednesday afternoon. Why so intriguing? Because unlike the carefully crafted Policy Statement released just following the actual Fed Meeting, the Meeting Minutes is like the Fed "unplugged"...where all the commentary and discussion between Fed members is unbridled and unleashed to the public. Not all members vote at each meeting - but they all have a voice. Was the decision to keep the Fed Funds Rate in a paused position unanimous? Or did non-voting Fed President Jeffrey "the Dissenter" Lacker raise his voice in favor of more hikes? We'll all find out later this week - and the comments could be market movers, so stay tuned.

The chart below shows that Bond pricing has been skidding lower of late, meaning home loan rates have worsened right along with them. And the next "floor of support" to catch them is lower still - indicating that Bond pricing and home loan rates will likely get a bit worse before they get better.

The market may see some added volatility early in the week, as last Friday's trading session was condensed into just a few hours of trading before a market close in observance of Good Friday. Stocks should improve off the strong Jobs Report, which could hurt bonds and home loan rates.

Reality. TV.

"TELEVISION IS NOT REAL LIFE. IN REAL LIFE, PEOPLE ACTUALLY HAVE TO LEAVE THE COFFEE SHOP, AND GO TO JOBS." Bill Gates

Right on Bill...and last Friday, the Department of Labor reported that another 180,000 Americans left the coffee shops and found jobs during the month of March, with another 32,000 jobs added to prior month's reports. The Unemployment Rate dropped to 4.4%, matching the lowest rate in six years - and Average Hourly Earnings were up as well, rising to $17.22 per hour. So it was all good news for the US job market...but bad news for home loan rates, since a strong labor market can lead to inflation, the arch-enemy of Bonds and home loan rates. On the release, Bond prices slipped lower, causing home loan rates to rise slightly across the board.

And the Fed was watching too...remember that the pop in new job formations and stronger wages creates that risk of further inflation ahead, and this news comes on the heels of a higher read on inflation from the Fed's most closely watched indicator - The Personal Consumption Expenditure Index. So, despite the media and many "so called" experts saying the Fed has to cut rates soon - don't expect a cut in the near future, as the Fed's main priority is controlling inflation.

Some great things about FHA Loans

• NO Minimum FICO score is required
• There are NO “non-allowables” for sellers any longer
• FHA now uses the same appraisal forms as Freddie and Fannie
• Buyer CAN currently be in chapter 13 BANKRUPTCY
• Sales Price up to $206,000 (and should be up to $275,000 by year end)
• It is an assumable loan (important when rates go to 8% and they are at 6%).
• There are NO prepayment penalties (unlike many 80/20 High Risk loans)
• Can have federal tax liens and not have to pay them off
• Can have unpaid collections
• Experienced Loss Mitigation staff dedicated to help homeowners avoid foreclosure
  

…And all this with a market interest rate!

BASEBALL BEEN BERRY, BERRY GOOD TO ME...

BASEBALL BEEN BERRY, BERRY GOOD TO ME..." Garrett Morris as Chico Escuela on Saturday Night Live

And as the first pitch of the 2007 baseball season is thrown, Bond Players could be saying the same thing about Fed Chairman Ben Bernanke. Big Ben halted the long string of rate hikes even though inflation is a bit higher than the Fed wants, so Ben has "played ball" by patiently waiting for inflation to settle down to the desired range between 1% - 2%. But while "Ben-Ball" has been "berry berry" good to bonds so far, all that may change after last week's economic data.

The Fed closely watches the rate of inflation and uses the Core Personal Consumption Expenditure (PCE) Index as its favorite gauge. And last week the Fed was thrown a curve, as the PCE increased more than expected during February for the largest monthly spike since August. As previously mentioned, the Fed wants inflation no higher than 2%, and the annual rate of PCE just rose to 2.4% from the previous reading of 2.3%.

Also of note, the Personal Savings Rate remains negative at -1.2%. It appears that achieving a meaningful amount of savings for many Americans is as tough as hitting a pitch from Mariano Rivera. Mortgage Bonds worsened during the week, causing Home Loan Rates to increase modestly.

SLOWER BASE RUNNERS ARE NOT THE ONLY ONES CAUGHT STEALING - THE BIGGEST CREDIT CARD SCAM IN HISTORY WAS UNCOVERED - AND YOU COULD HOLD ONE OF THE 45 MILLION CREDIT CARD NUMBERS STOLEN. LEARN HOW TO PROTECT YOURSELF IN THIS WEEK'S MORTGAGE MARKET VIEW.

The Secrets To Purchasing A HUD Home

HUD is the largest owner of single family homes in the US and is trying to sell them as quickly as possibly.

The Government is the listing agent's client, you are just another buyer, and they can always sell the property to someone else.

Its HUD’s way or the highway.

You purchase the property as is, with no repairs and no guaranties. However, Countrywide does offer, if disclosed by HUD, 203k loans, which roll in repairs into the loan.

There is a minimum price HUD will consider on all properties (typically, 92% of offer price)

You must have a Real Estate Agent place a HUD bid. The agent must have a HUD NAID number that is currently registered and active.

You must close within the allotted time frame. If not you risk having to pay extra extension fees
The biggest mistakes buyers make is not using a good lender that has experience closing HUD property loans or they don't meet HUD requirements.

First Time Home Buyer's: Free Money Available!

The list below, are cities in the DFW area that currently offer grant programs (free money!!!) for the first time home buyer.

First Time Home Buyer: Money Available Currently*

Arlington
Balch Springs
Hutchins
Cedar Hill (Dallas County Part)
Lancaster
Cockrell Hill
McKinney
Coppell (Dallas County Part)
Plano
Dallas
Rowlett (Dallas County Part)
Farmers Branch
Sachse
Frisco
Seagoville
Garland
University Park
Glenn Heights (Dallas County Part)
Wilmer

*subject to change

First Time Home Buyer: Money Coming Soon!

Allen
Carrollton (Dallas County Part)
Duncanville
Grand Prairie (Dallas County Part)
Irving
Mesquite
Richardson (Dallas County Part)

First Time Home Buyer!
There is also money available for anywhere in Texas provided that the buyer’s total household income is less than $39,900 and they have not owned a home for over three years.

Teachers!
Money is also available for anywhere in Texas provided that the buyer’s household income for a family of two is a maximum of $66,000 and for a family of three the maximum is $76,000.

My goal is to be a part of your team as well as a resource of information to realize your dream of owning a home. Call today! (214) 244-3146

HOMESTEAD EXEMPTIONS

Reduce your taxes by utilizing "Homestead Exemptions" through your appraisal district, you can reduce a portion of property taxes assessed against your home. The best part...It's simple!

For example, visit http://www.dallascad.org and click "resources and forms" then choose "application for residential homestead exemption" Print. Fill out and sign. Mail in.

***DO NOT FALL FOR SCHEMES THAT ADVERTISE THAT A 3RD PARTY WILL SAVE YOU TIME AND MONEY BY DOING IT FOR YOU FOR $30, $40, OR EVEN $50.

THIS IS A TOTALLY FREE PROCESS AND SHOULDN'T COST YOU ANYMORE THAN THE PRICE OF A STAMP!!!

Appraisal District Websites:

Denton County http://www.dentoncad.org/
Dallas County http://www.dallascad.org/
Tarrant County http://www.tad.org/
Collin County http://www.collincad.org/

How To Buy A HUD

With all the HUD foreclosures in the area, there have been multiple phone calls from folks who are not familiar with buying foreclosed properties. In my continual quest to provide you with information, I hope that you find the following helpful:

To find foreclosed properties:

www.southwestalliance.com

(HUD homes only)

www.homesales.gov

(Consolidated listing of foreclosures available from HUD, VA, and USDA)

Helpful HUD Tips:

THREE TYPES OF HUD HOMES

An independent FHA-approved appraisal and an inspection are generally completed without two weeks of acquisition of the property, and the reports are sent to the Regional Office. A Property Condition Report (PCR) is then listed and available in the bidding system for buyers and brokers to download.

Important: The PCR should not be used in place of an inspection performed by a licensed inspector.

A Disposition Plan is determined, and the house is initially listed at the appraised value, according to the FHA financing category that is appropriate, given the current condition of the property. It is important to understand the listing codes and how financing is affected.

Insurable (IN)- Properties listed in this category appear to meet FHA 203(b) financing requirements. No obvious repairs are necessary for HUD to insure an FHA loan to a qualified Purchaser.

Insurable with Repair Escrow (IE)- Properties listed in this category are eligible for a 203(b) FHA loan with required “minimum property standard” (MPS) repairs totaling less than $5000 to be made by the Purchaser, financed by the FHA lender. If a 203(b) FHA is the financing, the repair escrow must be use for the needed work specified in the listing. In completing the Sales Contract (HUD-9548), the escrow amount is NOT deducted from the net to HUD to derive the amount that will be entered on line #7, NOR is it added to line #3, the purchase price. There is a separate line in Item #4 for the repair escrow amount to be noted.

The lender making the new FHA 203 (b) loan establishes an escrow account for the amount of the repairs. The amount given with the listing includes a 10% contingency. After close of escrow, the lender will inspect work as it is completed on the house and distribute the repair monies as appropriate within ninety (90) days. The cost of the repairs are included in the loan amount and repaid by the borrower as part of the house payment. Any funds in the escrow account not used for the repairs will reduce the unpaid principal balance of the loan.

Note that the repair escrow only applies to FHA 203(b) financing. If non-FHA financing is used, or if a cash purchase is made for an IE property, the repair escrow does not apply.

Uninsurable (UI)- Properties listed UI, uninsurable, need more extensive repairs after close of escrow and are deemed not eligible for FHA mortgage insurance in their “as-is” condition. Cash, or other financing not involving FHA, is often used to purchase UI properties. However, a special acquisition and rehabilitation FHA loan program called 203(k) is frequently an excellent source of financing for homes in the owner-occupied category.

Note on FHA 203(k) Financing: UI properties are generally eligible for the FHA 203(k) loan program (most condos are excluded, unless specifically noted otherwise). Also, any IN or IE property may be purchased subject to 203(k) financing, instead of 203(b), if the house and the owner-occupant Purchaser’s credit justify making improvements in excess of $5,000. Through this program, their lender can provide funds for rehabilitation along with the purchase mortgage.

Did You Know? More HUD Home Tips

v There are currently 3000 Foreclosures in D/FW per month (that is 100 per day). Dallas is currently #5 in the nation for foreclosures.

v FHA loans (when purchasing a HUD Home)- Can ONLY use the HUD appraisal. Do NOT bid above the listed price unless the buyer wants to pay the difference out of pocket.

v FHA Insured with Escrows- Need bids/Invoices prior to closing. Escrow repair $ is rolled into loan.

v NO DAPS. Can use FTHB programs, but not recommended! Trust me J

v VA- Watch about repairs. If VA appraisal calls for repairs, HUD will not allow them to be fixed prior to closing so your buyer is in a “Catch 22” situation.

v Conventional – Must have a new appraisal. Can ask original appraiser to do so, but will cost.

v Time Line of Purchasing and papers to the title company- 45 days max from time HUD signed on the contract. Lender must have papers at the title company 10 days at the title company

v Investors Buying Uninsured- Will lose earnest money if back out.

Subprime Loan Meltdown Engulfs Even Borrowers With Good Credit.

Okay! I promise that I will not bombard you with gloom and doom, but this article that came across the wire this morning was very good at explaining the changes that we are seeing in the Alt A (the loans between A and subprime).

The subprime credit crunch is beginning to ensnare even borrowers with good credit.
Lenders are increasingly refusing to lend to homebuyers who can't make a down payment of more than 5 percent, especially if they won't document their income. Until recently such borrowers qualified for so-called Alt A mortgages, which rank between prime and subprime in terms of risk. Last year the category accounted for about 20 percent of the $3 trillion of U.S. mortgages, about the same as subprime loans, according to Credit Suisse Group.

``It's going to be very difficult, if not impossible, to do a no-money-down loan at any credit score,'' said Alex Gemici, president of Parsippany, New Jersey-based mortgage bank Montgomery Mortgage Capital Corp. Companies that buy the loans ``are all saying if they haven't eliminated them yet, they'll eliminate them shortly.''

Tighter lending standards may slash subprime mortgage sales in half this year and Alt A mortgages by a quarter, according to Ivy Zelman, a Credit Suisse analyst in New York who covers homebuilders. The new requirements will force some prospective homebuyers to save more money for a down payment or risk being denied credit.

Pulling Back
Bear Stearns Cos., General Electric Co.'s WMC Mortgage, Countrywide Financial Corp., IndyMac Bancorp Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Credit Suisse have all said in the last two weeks they're pulling back from buying Alt A mortgages sold with no down payment or in a refinancing of the house's entire value. Such companies facilitate the mortgage market by buying loans and repackaging them for sale as bonds to buyers such as insurers and hedge funds.

``We've been warned,'' said Cheryl Hand, manager of Prudential New Jersey Properties' office in Manalapan, New Jersey. She said she's hoping a client of her realty brokerage who's been approved to buy a home with nothing down won't have the loan quashed before the closing.
Mortgages are categorized as Alt A when they fall just short of the typical standards of Fannie Mae and Freddie Mac, the two largest U.S. mortgage companies. Besides some loans requiring no down payment or proof of income, they are often made to buy a second home, a rental unit or to speculate on real estate. Also often falling into the category are loans that are ``option'' adjustable-rate mortgages, whose minimum payments can fail to cover the interest owed.

Defaults Rising
Consumers borrowed 100 percent of their home's value on about 18 percent of Alt A loans made last year, according to Bear Stearns, the largest mortgage-bond underwriter. Another 16 percent had loan-to-value ratios above 90 percent as well as limited documentation, they say. The category comprised about 5 percent of new loans in 2002, according to Credit Suisse.
Late payments of at least 60 days and defaults on Alt A mortgages have risen about as fast as on subprime ones, to about 2.4 percent, according to bond analysts at UBS AG. Loans in the category made to borrowers with low credit scores, equity and documentation are doing about as badly as subprime loans, according to Citigroup Inc. and Bear Stearns analysts.
Rapid credit tightening that's ``been isolated to the subprime world has really migrated'' in the past two weeks to Alt A offerings that involve borrowing nearly all of a home's worth, said Brian Simon, senior vice president at Mount Laurel, New Jersey-based mortgage bank Freedom Mortgage Corp. ``We're just hopeful it will settle down soon.''

California Prices
A borrower would have to come up with $23,750 to make a 5 percent down payment on a typical home in California, based on a $472,000 median price estimated by DataQuick Information Systems in La Jolla, California. She'd have to show enough income to pay $2,730.87 a month with a 30-year fixed-rate mortgage at 6.15 percent.

``It doesn't help somebody to get into a home when they can't afford to make the payments and continue living there,'' said Ann McGinley, owner of Action Mortgage, a brokerage in Santa Rosa, California, that's turned away a ``few buyers'' with good credit who may have been able to get loans last year.

While loans issued only on the basis of the borrower's ``stated'' income can be abused, they're appropriate for a divorcee with alimony who ``doesn't want to show an underwriter her paperwork because it's private'' or a borrower with a reliable roommate, she said. ``I personally have made a couple of real estate agents angry by advising people to not buy.''

Limits Welcomed
Some lenders say it's high time that buyers are discouraged from buying real estate with no money down.

``Could we have a little skin in the game from the borrower, please,'' said Rick Soukoulis, chief executive officer at LoanCity, a San Jose, California-based lender that stopped making mortgages last week to customers who want to borrow more than 95 percent of the value of their house due to the shrinking secondary market. ``Something to lose if you go into default?'' LoanCity, which made about $6 billion in mortgages last year, went out of business on March 20.
The slump in subprime loans has ``drastically eroded'' appetite for bonds backed by Alt A loans, according to a March 9 report by Credit Suisse. The extra yield that investors typically demand on the parts of the securitizations with the lowest investment-grade ratings have risen to 3.50 percentage points over the one-month London interbank offered rate from 2.15 percentage points in September, according to Bear Stearns.

Resale Woes
``If you couldn't sell something, you wouldn't do it either,'' UBS analyst David Liu in New York said. Part of the problem is falling demand for ``piggyback'' home-equity loans used to make down payments, he said.

New York-based Citigroup will no longer buy home-equity loans made to borrowers who won't prove their incomes and want more than 95 percent of their home's value, according to e-mails from salespeople. Mark Rogers, a spokesman, declined to comment.

New York-based Bear Stearns, the third-largest Alt A lender according to newsletter National Mortgage News, last week stopped buying such loans without down payments of at least 5 percent. For borrowers not fully documenting incomes or assets, the maximum loan-to-value ratio will be 90 percent.

Bear Stearns' EMC Mortgage unit told loan sellers of the changes on March 13, giving them a day's notice. On Feb. 26, EMC said it would start requiring down payments of only 5 percent in the low-documentation category, giving sellers until March 12 to submit loans under the old standards. On March 1, the deadline moved to March 6. EMC didn't change ``full documentation'' programs then.

People with poor or limited credit records or high debt burdens can take out only subprime mortgages, and typically pay rates at least two or three percentage points above prime loans. Subprime lenders have been increasingly raising their standards since mid-2006, and started cutting out nothing-down lending in late January, Montgomery's Gemici said. People who qualify for prime mortgages don't experience any trouble getting a loan.

Lower Standards
Bear Stearns will finance 25 percent to 30 percent fewer non-prime mortgages this year as it tightens credit, Chief Financial Officer Sam Molinaro said on the company's earnings call last week.

``Last year, we did about 50 percent less in subprime than we did the year before,'' Mary Haggerty, co-head of Bear Stearns' mortgage finance department, said in an interview, adding that it has been tightening Alt A standards since December. ``We always try to be ahead of the market.''

Countrywide Financial, the nation's top home lender, this month stopped making any loans with down payments of less than 5 percent when borrowers are ``stating'' both income and assets.
Since they have good credit, most borrowers able to take out loans with little down and high monthly payments relative to their pay or potentially rising ones knew the risks, Countrywide Financial CEO Angelo Mozilo said in an interview.

``People are adults and made choices in their lives because they wanted to own a home of their own,'' Mozilo said. ``America's great because people can make those decisions for themselves. The complaints about the loans only came when the opportunity for enrichment was gone'' because home prices flattened out.

By Jody Shenn

Recent Changes in Lending.

The last couple of weeks has been really crazy in the mortgage industry, but I did not want you to think that the mortgage lending world has come to an end. In my quest to keep you updated, I wanted to clarify what we are seeing in the industry.

Subprime Companies- These companies will continue to tighten their guidelines. No longer will we be see anyone who "fogs a mirror" get a loan. Most 100% financing has gone away in the subprime world in the past 30 days, unless the buyer has a 640 credit score or higher, going full documentation (i.e., paystubs, w2s, etc). It will become harder and harder to find stated subprime without 5-10% down.

Alt A- (These are the "boutique" type of loans, i.e., stated income/stated assets, no doc, etc). Because of the market turn and the foreclosures, we will see these types of programs become very high credit score driven. We are already seeing the No Doc loans at 100% disappear rapidly and the guidelines for stated assets become extremely strict.

FHA- We will see FHA become much more strong in our industry due to the subprime industry decline. This is not a bad thing because many of those buyers could have been FHA buyers anyway, but the loan officer did not understand how to work with FHA and it was easier to put them in subprime. What we will see is inexperienced loan officers trying to work FHA and really messing them up. Make certain that you trust a lender who knows FHA.

Freddie/Fannie- We have not seen yet a lot of changes in the A world other than the 2nd liens have become expensive and more strict on their guidelines. I feeling is that we will see a tightening in the DU and LP approvals (Fannie Mae and Freddie Macs auto-approval services) very quickly.
*Source: Linda Davidson of The Davidson Group at Service 1st Mortgage (972) 278-3400
www.davidsongroup.net

Remodel With Care*

Some remodeling jobs certainly pay off better than others, according to the 2003 Cost vs. Value Report published by Remodeling magazine. Adding a 300-square-foot deck might add more value to a home than the cost of the job, while other improvements may not be worth the trouble.

Overall, midrange bathroom renovations paid off well for homeowners (90% of costs recouped), while kitchen remodels paid for about 75% of their costs. Whatever project you may embark on, stay within the scale and value of the neighborhood. Nobody wants the most expensive house on the block, nor should they shoehorn a five-bedroom house on a street of bungalows. Also, stay true to the style of your home. If a future sale is even remotely in your plans, avoid renovations that compromise a home’s selling points. For example, a two-car garage may indeed be the perfect size for a kids’ playroom, but is it worth losing the selling power of the garage?

*Soure: TexarRealtors.com

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