For whatever reason, FHA loans are getting harder and harder to obtain. An FHA loan is simple to understand. The federal government determines the criteria that borrowers must meet, and as long as the borrower qualifies, the government will guarantee the lender against losses if that particular borrower defaults on the loan. If the borrower stops making payments and the lender needs to foreclose on the property, the federal government will step in and pay the lender for all losses on that loan. It’s the highest mortgage guarantee a lender can receive because the federal government itself is backing the loan. However, in the past few weeks, I have been hearing rumblings from lenders that banks are not accepting FHA loans in the same number that they have for the past few decades. WHY? I have no idea, but it is happening. Could these banks be worried that the federal government may not be good for all these loans if they go bad? That is the only reason I can think of. Why else would a bank make it harder than it has to be to get an FHA loan? See, the FHA does not lend any money. It just sets the guidelines that the banks and borrowers have to abide by to get the FHA loan. It’s up to the banks to accept FHA loans. Why would banks start imposing more than the minimum for these loans to occur when they have the federal government’s guarantee that they are insured against all losses on those FHA homes?

Senators agreed on a $15 billion bipartisan plan to help alleviate some issues the real estate markets across the nation — including Tucson AZ — are currently facing. The plan is intended to help the real estate market regain its footing. The first piece of the plan would permanently increase the amount of loans backed by the FHA to $550,000. The down payment would increase to 3.5% from its current requirement of 3%. A second boost for the market is that it will give a $6.1 billion tax break to homebuilders and other troubled firms. These companies can apply operating losses from this year and next year to past tax bills, giving homebuilders a little back to assist them in keeping their companies from dissolving over the next 2 years. Also part of this major bill is the availability of $10 billion of mortgage revenue bonds that states can issue for refinancing and first time homebuyers. The facet of the plan that will help the average person the most is the offering of incentives for the purchase of foreclosure properties rather than other available homes. To accomplish this, the federal government is offering a two-year $7,000 tax credit if the property the buyer is purchasing is facing foreclosure. This should have the effect of greatly reducing the number of foreclosed homes on the books. It will be a great help to banks and neighborhoods.

States across the country are seriously stepping up the effort to keep people in their homes. Along with the federal government, states are looking to try different ways to assist would-be foreclosure residents. One interesting idea under consideration is legislation requiring lenders to obtain an appraisal of a property’s value as a rental and then offering the borrower in default the option of renting the home from the lender for a maximum of ten years. An actual foreclosure would take place only if the borrower (potential tenant) did not earn enough to afford the rent. I seriously doubt that this type of legislation will be enacted, however. Do not ask me how the lender is supposed to afford all the property management and maintenance costs. The idea seems ridiculous to me, and as I listened to a 10-minute discussion about it on CNBC this morning, I could not get my head around it. However, it goes to show how badly states want to put a halt to the ongoing foreclosure epidemic that has been increasing every month since the beginning of 2006.

by contributing writer, Eric Painter, Senior Mortgage Consultant, Infinity Funding Corporation

High-end foreclosures are starting to show up in the Tucson marketplace. Homes above $1 million are coming up as REO (Real Estate Owned Properties). The reasons for this are many, and I predict that these high-end foreclosures will continue to escalate in number. One reason that this is happening is that many would-be developers decided real estate was doing so well in 2005 that they were going to buy a parcel of land and develop a million dollar or multi-million dollar property. From point of decision to completion, development time is 9-18 months. Now in 2008, the market is severely depressed and the amount the developers thought they could sell the property for is not even possible, and the cost to build is more than the market value of the home. This leaves the developer in a tough situation unless they have major reserves to hold the property or pay out of pocket to get it sold. Many of these would-be high-end developers do not have reserves or did not anticipate cost overruns that pushed the costs up on their home, making them too expensive to sell and netting them a foreclosed property.

I have to give it to the Fed and Ben Bernanke. He made a major change in how the Fed operates. Many mortgage companies, banks, and investment companies are holding mortgage-backed securities that absolutely no one will buy in this turbulent real estate market. The Fed has stepped up big-time and said they will now accept these securities as collateral for treasuries that they then will lend to the institutions asking for the loans. Here’s a rundown:

by contributing writer, Eric Painter, Senior Mortgage Consultant, Infinity Funding Corporation

From the executives who brought you the First Magnus disaster, please welcome their new endeavor called Stonewater Mortgage Corporation!

Seriously, the Arizona Corporation Commission approved Stonewater and three related corporations on Jan 31 and Feb 1, 2008. Some of the companies have ties to a Delaware holding company, and one lists the name of First Magnus Chief Operating Officer Karl F.W. Young. Also, a domain-registry database shows that the web address stonewatermortgage.com has been reserved by Gforce-1, a partnership formed by First Magnus President and CEO G.S. Jaggi and Young. The same people that ran First Magnus into massive problems are getting ready to start up a new entity.

In New York City, real estate titan Harry Macklowe is facing the same tough road that many investors, small and large, are facing because of banks’ inability or unwillingness to lend money in the current marketplace. His situation demonstrates that the credit crunch is affecting the real estate markets from coast to coast and across all types of markets: residential, industrial, and in Mr. Macklowe’s case, even premium top dollar commercial real estate. Mr. Macklowe owns billions of dollars worth of real estate in New York City, especially Manhattan. This week, Mr. Macklowe set up a tentative agreement with his lender to turn over effective control of seven Manhattan office buildings he acquired less then a year ago for $7 billion, according to the Wall Street Journal.

Since Bank of America purchased Countrywide last week, it has now become the major player in mortgage loans for America. This graph (from The Wall Street Journal online) shows that the Bank of America and Countrywide now represent one quarter of all loans originated in the country! What this means is twofold. First, the good news. By saving Countrywide from bankruptcy, it solidifies the real estate market and keeps things from getting much worse. Some think that if Countrywide had gone bankrupt, it would have severely halted the entire mortgage business from Wall Street to Main Street. The bad news for consumers is that because Bank of America now essentially owns a quarter of the mortgage business in America, I believe the result will be higher costs and interest rates for borrowers since there naturally will be less competition — at least for the next year. Once the market shakes out, there will once again be new mortgage companies and programs that will compete with the large players. This has always been the case.