What is an FHA Loan?

Who Can Get an FHA Loan?

Why are FHA Loans so Great?

• Easier to use gifts for down payment and Closing Costs
• No Prepayment penalty (a big plus for subprime borrowers)
• An FHA loan may be assumable
• Possible leniency during financial hard times

How do FHA Loans Work?

Why Not Use an FHA Loan?

You may find that FHA loans are not for you. An FHA loan may not offer enough money if you need a large mortgage. In addition, the upfront Mortgage Insurance premium (and ongoing premiums) can cost more than private mortgage insurance. In many cases, you can still buy a house with a very little down using a standard loan (not an FHA loan). In particular, home buyers with good credit can find competitive offers that beat FHA loans. As always, you should compare offers for FHA loans against other offersationwide. Wall Street Mortgage Bankers Ltd. is a Licensed Mortgage banker approved to originate the FHA Loan.

We are not a government organization, but we are approved by HUD to originate one of the best home loan programs ever developed for the average American, the FHA mortgage. Beyond the FHA loan program, we offer a wide selection of Conventional mortgage programs which help many first time buyers and existing homeowners achieve financial Security.

 What is a 1031 Exchange?

      One of the biggest advantages of owning real Estate is the tax deferment when you decide to sell your property.  This benefit is very simple and is commonly known as a 1031 Exchange.  It is called a 1031 Exchange after the IRS’ section code number.  Below is the actual IRS excerpt on 1031 Exchange.   

Section 1031 of the Internal Revenue Code, 26 U.S.C. § 1031, provides:

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."

This means if you exchange a business or Investment Property solely for a business or investment property of a like-kind, no gain or loss is recognized. 

The basic timelines for the 1031 Exchange:

     The 1031 Exchange BEGINS on the earliest of the following:

• The date the Deed records.
• The date possession is transferred to the buyer.
  

     The 1031 Exchange ENDS on the earlier of the following:

• 180 days after is begins.
• The date the Exchanger's tax return is due, including extensions for the taxable year for which the relinquished property is transferred. 

     Another important Note is that you are not permitted to touch the money generated by the sale of the first property. The reason for this is that there are companies and/or people who serve as “intermediaries” in exchanges. Their job is to hold the funds from the sale of the first property and then transfer them to the seller of the second property you plan to purchase. 

     There are specific companies set up solely for holding and handling 1031 exchange funds.  When dealing with these intermediaries, there are a few guidelines and recommendations you should following in order to protect your money.  Make sure the intermediary holds the money in an account that has been reserved for your money only and no one else’s. The account should be separate from other clients’ funds and from the intermediary’s money. It should bear your name on it as well, perhaps something like this: “Exchange Corp., intermediaries for Investors Bob and Susan.” This account should also have your investor’s tax ID or social security number. Now, regardless of what happens to the intermediary, your money is protected and you run no risk of incurring unexpected losses and/or fees.

Short Example of a How a 1031 Exchange Works:

      An investor buys a strip mall (a commercial property) for $1,000,000. After six years he could sell the property for $1,550,000. This would result in a gain of $550,000 on which the investor would have to pay a Capital gains tax, but, if he invests the proceeds from the $1,550,000 sale in another property, then he would not have to pay any taxes on the gain at that time.

What Happens When I Miss My Mortgage Payments?

It is possible that a Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a Deficiency Judgment could be pursued. If that happens, you not only lose your home, you also would owe HUD an additional amount.

Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.

If I am in Danger of Foreclosure, What Are My Options?

Your alternatives may include the following:

Special Forbearance. Your lender may be able to arrange a Repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Mortgage Modification. You may be able to Refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount.

Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current.

You may qualify if:

• Your loan is at least 4 months delinquent but no more than 12 months delinquent;
• You are able to begin making full mortgage payments.

When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full.  The Promissory Note is Interest-free and is due when you pay off the First Mortgage or when you sell the property.

Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.

You may qualify if:

• The loan is at least 2 months delinquent;
• You are able to sell your house within 3 to 5 months; and
• A new Appraisal (that your lender will obtain) shows that the value of your home meets program guidelines.

Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it is not as damaging to your Credit Rating as a foreclosure.

You may qualify if:

• you are in default and don't qualify for any of the other options;
• your attempts at selling the house before foreclosure were unsuccessful; and
• you don't have another FHA mortgage in default.

How Do I Know if I Qualify for Any of These Alternatives?

Your lender will determine if you qualify for any of the alternatives. A housing counseling agency can also help you determine which, if any, of these options may meet your needs and also assist you in interacting with your lender. Call (800) 569-4287 or TDD (800) 877-8339.

Growing mortgage crisis spreads to jumbo loans

By Elizabeth Rhodes
Seattle Times business reporter

The evening before their home purchase was to close, Gary Becker and his wife, Amy Dacus, learned their mortgage to buy a Woodinville home had evaporated.

Unlike subprime borrowers defaulting on loans, the couple had a stellar credit score, a 20 percent down payment, strong employment history and had effortlessly purchased three prior homes.

But their new home's $670,000 sales price was large enough to require a "jumbo" loan, so named because it was for more than $417,000, the limit the nation's largest mortgage backers will fund.

Their California mortgage Broker had unexpectedly lost its ability to provide jumbos — an event being repeated by lenders nationwide as the underlying funding for these large loans grows scarcer.

"The sellers assumed we were a credit risk, which wasn't the case, and were reluctant to allow us extra time," Becker says.

In the last several weeks, the national mortgage crisis has spread beyond the subprime market to jumbo loans. This serious crack in the underpinnings of the mortgage industry threatens to stall home sales in the Seattle area, starting a chain reaction that eventually could impede sales all the way down to entry-level buyers.

Nearly half of the single-family houses for sale in King County, plus 21 percent of the condos, have sales prices high enough to require jumbo loans — and that's if buyers reduce their Loan amount by putting 20 percent down.

Becker and Dacus and their children, ages 3, 5 and 7, had moved from Northern California so Becker could take a job as a senior business analyst with Microsoft.

Now it was Aug. 5 — the beginning of the week the jumbo-mortgage crisis erupted because a skittish Wall Street turned off the mortgage-money spigot — and their homebuying plans were in peril.

They'd spent their first five weeks here cooped up in a temporary third-floor apartment and had to be out in two days. Their furniture, on a moving van, was set for delivery to their new house soon thereafter.

Moreover, their $15,000 earnest money would be lost if the sale evaporated because they couldn't immediately find a replacement loan.

"Basically our plans blew up," says Becker, recalling the start of a sleepless night with much hanging in the balance, and "no idea what was going to happen next morning."

The next day, their real-estate agent, Ryan Rockwell of Coldwell Banker Bain, saved the deal by arranging an extension from the sellers and convincing a loan officer he knew that the couple was "more than qualified."

Hours later, Suzie Sparks, with Landover Mortgage in Bellevue, secured them a new jumbo mortgage.

"This is not the first deal I've seen that's shaky," Sparks says. "We hear it every single day from real-estate agents."

To get the same Interest Rate, 6.75 percent, that their original lender had quoted, Becker and Dacus opted to pay $2,800 in cash, the equivalent of a half-Point (a point being 1 percent of their loan amount) to buy down their interest rate from the 7.25 percent that Sparks found for them.

"No investor appetite"

The credit crunch isn't universal.

Borrowers with good credit scores, good jobs and a down payment still have ready access to 30-year "conforming" loans — those funded through banks and mortgage brokerages by Fannie Mae and Freddie Mac, the giant federally chartered companies that fund the bulk of the nation's mortgages.

But Fannie and Freddie Cap their loans at $417,000, which means that banks and mortgage companies must tap other sources, such as mortgage-backed securities, for jumbo funds.

In recent weeks a skittish Wall Street has loudly signaled its unwillingness to invest in these securities.

"Funding sources have dried up for all loan products except for Conforming Loan product," explains Erik Hand, president of Bellevue-based Response Mortgage. "Anything outside of those product types and your options are limited because there's no investor appetite for those loans anymore."

Jumbos have always had higher interest rates than conventional loans. Now with jumbo funding constricted, the spread has grown.

For example, last week the average jumbo-mortgage interest rate was 7.44 percent, while the rate for a conventional 30-year loan was 6.66 percent, according HSH, a New Jersey mortgage-information provider. On June 1, jumbos were going for an average of 6.60 percent and conventional loans were 6.42 percent.

Home purchases are almost always contingent on financing and "we're probably in something of a flattening [housing] market right now while we work through this," says Mike Skahen, owner of Lake & Co. Real Estate in North Seattle. "It makes me a little bit nervous because no one knows where it's going right now."

Last week, his office was handling a $1 million house purchase when the lender went Bankrupt. "The buyer is looking for an alternative lender now, and hopefully she can find one," Skahen says.

At Coldwell Banker Bain's Lake Union office, managing broker Dick Fulton says his sales agents are scrutinizing loan-approval letters from lenders.

"We're making sure the buyers we work with are working with a lender who has verifiable and credible outlets for the money," Fulton says. "A buyer now who is working with a lender we've never heard of, we might scrutinize that a little more closely today."

"Inevitable correction"

From his high-rise office in HomeStreet Bank's downtown Seattle headquarters, residential-lending director Rich Bennion views the widespread mortgage crisis as "the inevitable correction for some of the excesses of the past several years."

The situation began in the wake of Sept. 11, 2001, when the Federal Reserve began cutting interest rates.

By 2003, interest rates were down to historic lows, and home buying took off. This presented enormous opportunities to lenders.

At the same time foreign capital began flowing into the U.S. in search of higher returns.

Bennion says investment houses responded by packing increasingly risky mortgage products into mortgage-backed securities and selling them on Wall Street, which clamored for more.

Mortgage lenders, and particularly mortgage brokers who make the majority of home loans, responded by offering subprime and other so-called exotic loans aimed at buyers who'd previously been excluded from homeownership: those with bad credit, no down payment or insufficient income to afford fixed-rate mortgage payments.

Simultaneously, the federal government mounted a push to increase homeownership by encouraging lenders to be creative in finding ways to get more people into homes. Opening the door to previously excluded buyers was seen as a good thing because it would increase the rate of ownership, considered a stabilizing influence for communities.

HomeStreet never offered SubPrime Loans. Bennion says many "were risky and flew in the face of Underwriting guidelines that had been developed over decades. It all seemed to work well — as long as house prices were appreciating."

Last year, Appreciation stopped in various parts of the country, although not in Western Washington. Mortgage defaults began rising and loan companies began folding. Since 2006, more than 130 large lenders have gone under, including Merit Financial and MILA locally.

When will it end?

How much the jumbo problem will grow or when things will return to normal are unknown, although Keith Gumbinger, vice president of HSH, thinks the market could rebound in a few months.

"After investors get through repricing and reassessment of risk, and as they begin to look at jumbo mortgages for what they are — good credit quality, good-yielding investments when properly documented — the money will begin to return," Gumbinger predicts.

Meanwhile, Bennion suspects some consumers will shy away from buying altogether.

"They'll decide that instead of buying now, they'll wait a year. Or instead of buying now, they'll stay put and remodel the kitchen," he says. "It has a dampening effect on the housing market, no question."

Gary Becker and Amy Dacus are just happy their ordeal is over and they're in their new home.

"Now we're trying to get all our boxes unpacked," Becker says. "Those are fun things to worry about as opposed to where we're going to live tomorrow."