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November 30, 2013

What is an FHA Mortgage

FHA is an insured loan, insuring the lender that incase of a default, FHA will pick up the tab. It typically requires two MI amounts, monthly and up front. You can get an ARM FHA loan, or a FRM FHA loan. You can even get a HECM FHA loan. 

Current Up-Front FHA Mortgage Insurance (MI) Premium

The up front MI is currently at 1.75% of the base loan amount. This applies regardless of the amortization term or LTV ratio. 

ANNUAL or Monthly FHA MI  

UPDATED: 02/25/2018

FHA MIP Chart for Loans Greater Than 15 Years
Base Loan AmountLTVAnnual MIP

FHA down payment

A borrower's down payment may come from a number of sources. The 3.5% requirement can be satisfied with the borrower using their own cash or receiving a gift from a family member, their employer, labor union, or government entity. Since 1998, non-profits have been providing down payment gifts to borrowers who purchase homes where the seller has agreed to reimburse the non-profit and pay an additional processing fee. In May 2006, the IRS determined that this is not "charitable activity" and has moved to revoke the non-profit status of groups providing down payment assistance in this manner. The FHA has since stopped down payment assistance program through third-party nonprofits. There is a bill currently in Congress that hopes to bring back down payment assistance programs through nonprofits.

Mortgage insurance

Mortgage insurance protects lenders from mortgage default. If a property purchaser borrows more than 80% of the property's value, the lender will likely require that the borrower purchase private mortgage insurance to cover the lender's risk. If the lender is FHA approved and the mortgage is within FHA limits, the FHA provides mortgage insurance that may be more affordable, especially for higher-risk borrowers

Lenders can typically obtain FHA mortgage insurance for 96.5% of the appraised value of the home or building. FHA loans are insured through a combination of an upfront mortgage insurance premium (UFMIP) and annual mutual mortgage insurance (MMI) premiums. The UFMIP is a lump sum ranging from 1 – 2.25% of loan value (depending on LTV and duration), paid by the borrower either in cash at closing or financed via the loan. MMI, although annual, is included in monthly mortgage payments and ranges from 0 – 1.35% of loan value (again, depending on LTV and duration).

If a borrower has poor to moderate credit history, MMI probably is much less expensive with an FHA insured loan than with a conventional loan regardless of LTV – sometimes as little as one-ninth as much depending on the borrower's credit score, LTV, loan size, and approval status. Conventional mortgage insurance rates increase as credit scores decrease, whereas FHA mortgage insurance rates do not vary with credit score. Conventional mortgage premiums spike dramatically if the borrower's credit score is lower than 620. Due to a sharply increased risk, most mortgage insurers will not write policies if the borrower's credit score is less than 575. When insurers do write policies for borrowers with lower credit scores, annual premiums may be as high as 5% of the loan amount.

Canceling FHA mortgage insurance

The FHA insurance payments include two parts: the upfront mortgage insurance premium (UFMIP) and the annual premium remitted on a monthly basis—the mutual mortgage insurance (MMI). The UFMIP is an obligatory payment, which can either be made in cash at closing or financed into the loan, so that you really pay it over the life of the loan. It adds a certain amount to your monthly payments, but this is not PMI, nor is it the MMI. When a homeowner purchases a home utilizing an FHA loan, they will pay monthly mortgage insurance for a period of five years or until the loan is paid down to 78% of the appraised value – whichever comes later. The MMI premiums come on top of that for all FHA Purchase Money Mortgages, Full-Qualifying Refinances, and Streamline Refinances.

When we talk about canceling the FHA insurance, we talk only about the MMI part of it. Unlike other forms of conventional financed mortgage insurance, the UFMIP on an FHA loan is prorated over a three-year period, meaning should the homeowner refinance or sell during the first three years of the loan, they are entitled to a partial refund of the UFMIP paid at loan inception. If you have financed the UFMIP into the loan, you cannot cancel this part. The insurance premiums on a 30-year FHA loan which began before 6/3/2013 must have been paid for at least 5 years. The MMI premium gets terminated automatically once the unpaid principal balance, excluding the upfront premium, reaches 78% of the lower of the initial sales price or appraised value. After 6/3/2013 for both 30 and 15 year loan term, the monthly insurance premium must be paid for 11 years if the initial loan to value was 90% or less. For loan to value greater than 90% the insurance premium must now be paid for the entire loan term.

A 15-year FHA mortgage annual insurance premium will be cancelled at 78% loan-to-value ratio regardless of how long the premiums have been paid. The FHA’s 78% is based on the initial amortization schedule, and does not take any extra payments or new appraisals into account. For loans begun after 6/3/2013, the 15-year FHA insurance premium follows the same rules as 30-year term (see above.) This is the big difference between PMI and FHA insurance: the termination of FHA premiums can hardly be accelerated.

Borrowers who do make additional payments towards an FHA mortgage principal, may take the initiative through their lender to have the insurance terminated using the 78% rule, but not sooner than after 5 years of regular payments for 30-year loans. PMI termination, however, can be accelerated through extra payments or a new appraisal if the house has appreciated in value.

November 27, 2013

2014 Conforming Loan Limits

Thank you Fannie Mae and Freddie Mac. For the ninth consecutive year, 2014 conforming loan limits will remain at their current levels.

California Loan Limits By County

County 1 unit 2 unit 3 unit 4 unit
ALAMEDA $625,500 $800,775 $967,950 $1,202,925
ALPINE $463,450 $593,300 $717,150 $891,250
AMADOR $417,000 $533,850 $645,300 $801,950
BUTTE $417,000 $533,850 $645,300 $801,950
CALAVERAS $417,000 $533,850 $645,300 $801,950
COLUSA $417,000 $533,850 $645,300 $801,950
CONTRA COSTA $625,500 $800,775 $967,950 $1,202,925
DEL NORTE $417,000 $533,850 $645,300 $801,950
EL DORADO $474,950 $608,000 $734,950 $913,350
FRESNO $417,000 $533,850 $645,300 $801,950
GLENN $417,000 $533,850 $645,300 $801,950
HUMBOLDT $417,000 $533,850 $645,300 $801,950
IMPERIAL $417,000 $533,850 $645,300 $801,950
INYO $417,000 $533,850 $645,300 $801,950
KERN $417,000 $533,850 $645,300 $801,950
KINGS $417,000 $533,850 $645,300 $801,950
LAKE $417,000 $533,850 $645,300 $801,950
LASSEN $417,000 $533,850 $645,300 $801,950
LOS ANGELES $625,500 $800,775 $967,950 $1,202,925
MADERA $417,000 $533,850 $645,300 $801,950
MARIN $625,500 $800,775 $967,950 $1,202,925
MARIPOSA $417,000 $533,850 $645,300 $801,950
MENDOCINO $417,000 $533,850 $645,300 $801,950
MERCED $417,000 $533,850 $645,300 $801,950
MODOC $417,000 $533,850 $645,300 $801,950
MONO $529,000 $677,200 $818,600 $1,017,300
MONTEREY $483,000 $618,300 $747,400 $928,850
NAPA $592,250 $758,200 $916,450 $1,138,950
NEVADA $477,250 $610,950 $738,500 $917,800
ORANGE $625,500 $800,775 $967,950 $1,202,925
PLACER $474,950 $608,000 $734,950 $913,350
PLUMAS $417,000 $533,850 $645,300 $801,950
RIVERSIDE $417,000 $533,850 $645,300 $801,950
SACRAMENTO $474,950 $608,000 $734,950 $913,350
SAN BENITO $625,500 $800,775 $967,950 $1,202,925
SAN BERNARDINO $417,000 $533,850 $645,300 $801,950
SAN DIEGO $546,250 $699,300 $845,300 $1,050,500
SAN FRANCISCO $625,500 $800,775 $967,950 $1,202,925
SAN JOAQUIN $417,000 $533,850 $645,300 $801,950
SAN LUIS OBISPO $561,200 $718,450 $868,400 $1,079,250
SAN MATEO $625,500 $800,775 $967,950 $1,202,925
SANTA BARBARA $625,500 $800,775 $967,950 $1,202,925
SANTA CLARA $625,500 $800,775 $967,950 $1,202,925
SANTA CRUZ $625,500 $800,775 $967,950 $1,202,925
SHASTA $417,000 $533,850 $645,300 $801,950
SIERRA $417,000 $533,850 $645,300 $801,950
SISKIYOU $417,000 $533,850 $645,300 $801,950
SOLANO $417,000 $533,850 $645,300 $801,950
SONOMA $520,950 $666,900 $806,150 $1,001,850
STANISLAUS $417,000 $533,850 $645,300 $801,950
SUTTER $417,000 $533,850 $645,300 $801,950
TEHAMA $417,000 $533,850 $645,300 $801,950
TRINITY $417,000 $533,850 $645,300 $801,950
TULARE $417,000 $533,850 $645,300 $801,950
TUOLUMNE $417,000 $533,850 $645,300 $801,950
VENTURA $598,000 $765,550 $925,350 $1,150,000
YOLO $474,950 $608,000 $734,950 $913,350
YUBA $417,000 $533,850 $645,300 $801,950

November 19, 2013

2014: A “New” War for Talent

Post by Gary Burnison
In 1997, Ed MichaelsHelen Handfield-JonesBeth Axelrod of McKinsey & Company wrote a book entitled: The War For Talent.
The book depicted a battle for talent during the dotcom era.
However, going into 2014, we are in a new era that I have referenced as an unprecedented fight for growth. In meeting with corporate leaders worldwide, there is consensus that the problem of growth – or lack of it – is rapidly becoming the world’s No. 1 problem. Governments and corporate CEOs alike are grappling with the growth question, even if from different perspectives.
At the core of the growth issue is the question of leadership – not the individual superhero CEO or head of state, but the leadership team that collectively demonstrates insight, courage and inventiveness to deliver double-digit growth in single-digit markets. Such leaders are few and far between today. So unlike the talent war of the 1990s and 2000s, which was driven by a lack of supply of all talent, today’s war is all about a lack of supply of the right talent.
I’ll be talking about these and other issues this week at the Bloomberg Business Summit in Chicago. But here’s what you need to remember: The winning companies will be those that find and develop outperforming leaders in an underperforming economy.
The End of an Era – No More Easy Paths to Growth
The mid-1990s to 2007 was a period of growth unusual for its scale and speed. Raising capital was easier and cheaper than any other period in history, globalization created access to new markets and consumers, innovation in technology and financial services took value to new heights and the rise of a middle class drove consumer spending. To grow, all you had to do was show up, and not mess it up.
An entire generation of corporate leaders was shaped during this era of “easy growth.” Now, that era is over, having been replaced by what I admit is the “new normal.”
The New Normal: “The Post Crisis Era” = Slow Growth/Fast Change
After six years of global economic turmoil, we are now in a post-crisis era. In this era, changed market conditions posed a set of circumstances different from anything in the past. Current challenges could persist for decade, creating a “new normal.”
In this new normal, growth is slow, but change is fast. The challenge for leaders is to create growth opportunities that far outstrip the potential of the global economy. Leaders in the new normal will have to think and act very differently -- the differences between “easy growth” and “new normal” conditions are not trivial.
Source: Korn/Ferry client discussions
What This Means for Leadership Talent
The twin threats of slow growth and fast change make the leadership challenge in the new normal much more complicated and nuanced than ever before. Based on our discussions with CEOs, we have identified four shifts that characterize the changing requirements of leadership.
Are Leaders Ready for the New Normal?
Measuring the readiness of leaders to change, adapt and create new growth is not an easy task. Cognitively, it is easy to understand that outsized performance in an easy growth era will not automatically transfer the new normal. Raising awareness and providing clarity around changing expectations however, can go a long way in creating readiness.
We found in our study of outperforming leaders that two leadership constructs define a level of readiness, or reveal the lack of it. These are leadership maturity and learning agility.
Leadership maturity is defined as an individual’s ability to operate effectively at the appropriate level of complexity, ambiguity and scale. Think of maturity as the indicator of a “seasoned executive,” experienced in highly complex situations with the grace and temperament to take difficult leadership challenges in his or her stride. Given the complexity and the un-nerving problems of the new normal, maturity will be a critical differentiator.
Learning agility is defined as an individual’s ability to operate effectively at the appropriate level of disruption, speed and volatility. Think of agility as an indicator of a “fast-learning executive,” someone who knows what to do even when he or she doesn’t know what to do. Plus leaders must have cultural dexterity - the ability to meet customer needs at the exact right time to tap borderless consumers.
Given a fast changing environment in the new normal, agility will be a second critical differentiator.
Taken together, leadership maturity and agility is the best combination of factors to predict readiness to outperform in the new normal. Both can be measured fairly accurately, and benchmarked against leaders in the relevant industry and markets – critical considerations to ensure the pragmatic use of these factors in business. Most importantly, both can be developed over time, giving a clear line of sight to leaders focused on enhancing the ability of their teams to win in the new normal.
Businesses that excel in this gain in the marketplace as (paraphrasing Warren Buffett) the retreating tide exposes the winners and losers of the new normal.