Been turned down by a big bank for a mortgage? You’re not alone!

A recent report from the Federal Financial Institutions Examination Council revealed that big banks have a very high cancellation rate for home loan applicants.

In 2012, according to this data, Chase declined almost a third of their mortgage applicants with Bank of America denying 25.6% and Wells Fargo rejecting 21% of their mortgage applicants. Quicken Loans and U.S. Bank turned down 17% of their mortgage applicants.
[Read more...]

Fannie Mae to increase minimum down payment in November

Fannie Mae is scheduled to update their automated underwriting system (aus) Desktop Underwriter (DU) to DU Version 9.1 on November 16, 2013.  In their release notes from August 20, 2013, Fannie Mae reveals that for they will increase the minimum down payment from 3% to 5% for Fannie Mae conventional loans.

[Read more...]

Reader Question: Do underwriting guidelines vary between lenders?

I recently received this email from a Mortgage Porter subscriber:

Do different banks need different underwriting documents? I am talking to two lenders now, and one will give me a lower rate but asks for the bank statement from my family which wires me money; the other one has a higher rate but only needs a gift letter. Is it because some banks are more strict because of their lower rate? Thanks.

[Read more...]

Reader Question: Should I Wait to Refi?

One of my returning clients is considering a refinance, however, they’re not sure if they should wait or not.  Their Seattle area home is really close to that magically 80% loan to value – based on best estimates – which would allow them to avoid private mortgage insurance if their home’s value increases.

There are pros and cons to waiting to a refi, similar to those with having an extended closing when you’re buying a home.  Here are a few:

  • changes to home value. Your home’s value may increase as the Seattle markets seems to be doing well with purchase inventory… or a home in the neighborhood that’s a potentially a strong comparable for your appraisal might become a short sale or foreclosure, which may negatively impact your home’s appraised value.
  • changes to employment. If your or your spouse decides to change jobs and it’s not in the same line of work or the new job has a different pay structure, this may impact qualifying.
  • credit scores vary. Credit scores impact the pricing of your rate and underwriting decisions. Lately I’ve been encountering clients who have paid off credit cards and closed them which sounds great, however they now have “shallow credit” and lower credit scores. I’ve also seen late payments on a credit report caused by a parent co-signing for their child. Sometimes it may be worth deciding to delay a refi if you’re trying to improve your scores, or proceeding with the refi and rechecking scores prior to closing.
  • interest rates. Mortgage rates change daily. Sometimes rates change throughout the day. Although it’s anticipated that mortgage rates will remain low for the remainder of the year, members of the Fed have hinted that the Fed should consider no longer buying mortgage backed securities, which has kept rates at their manipulated lower levels. As the economy improves, mortgage rates tend to trend higher.
  • loan programs and guidelines may change. Currently, unless our elected officials take action, HARP 2.0 is set to expire at the end of this year. Banks and lenders currently adjust their underwriting guidelines (aka overlays). And we’re waiting for FHA to increase their mortgage insurance premiums which impacts FHA streamline and non-streamline refi’s. 

Refinancing now is gambling that your home will appraise high enough or you may be out the appraisal fee unless mortgage insurance or a piggy-back second mortgage makes sense to proceed with the refi.

Delaying the refinance adds other potential risk factors assuming you’re satisfied with the current low mortgage rates and you qualify.

I recommend reviewing possible refinance options that are available now and weigh out the pro’s and cons. Refinancing now, should you decide to, also means that you’re reducing your payment and higher interest sooner. 

If you are interested in a mortgage rate quote for your refinance or purchase of a home located anywhere in Washington, click here.  I’m happy to help you!

Are First Time Home Buyers Missing Out?

A recent survey shows that those buying their first home are making up a smaller percentage of home buyers. From US News:

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, released last week, found that first-time home buyers were purchasing only 34.7 percent of the homes sold in October. That’s down from 37.1 percent in September, and is the lowest percentage ever recorded by the survey.

This decline surfaces as purchases of non-distressed homes—houses that are not in foreclosure—have increased dramatically in 2012. The report shows that the vast majority of the homes being sold are regular purchases—accounting for 64.7 percent of all houses sold in October, up from 55.7 percent in February. The increase is a sign of strength in the housing market, as fewer people are buying homes in foreclosure.

The article continues to speculate that part of the reason why first time home buyers are not participating as much as other buyers is partly due to tightening underwriting guidelines. If someone has been considering buying their first home, I highly recommend they get started with the pre-approval process early. 

Lenders want to avoid another mortgage meltdown and want to make sure that borrowers qualify for the new mortgage. That might sound like a silly or obvious comment, however during the “subprime era” many home buyers did not qualify for the mortgage. Ultimately, underwriting guidelines are intended to measure a borrowers capability to repay the mortgage and to not have the home become a “distressed property”. 

Underwriters are looking for a borrowers financial strengths and weaknesses when reviewing an application for a mortgage. In an article I wrote a few years ago, I compared this to a chair with each leg of a chair representing a financial quality that underwriters consider: credit, employment, income and assets.

First time home buyers don’t need to be discouraged, they do need to be prepared. Mortgage rates are extremely low making this a great opportunity to buy if one wants to.

I’ll share some tips on what first time home buyers can do in a follow-up post.

Stay tuned!

Ben Bernanke says mortgage underwriting standards are too tight

In his speech at Operation HOPE Financial Dignity Summit yesterday on the challenges of the housing market and mortgage lending, FOMC Chairman Bernanke expressed concerns that mortgage underwriting has become “overly tight”. 

“…Some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices. Mortgage loans that were poorly underwritten or inappropriate for the borrower’s circumstances ultimately had devastating consequences for many families and communities, as well as for the financial institutions themselves and the broader economy.

However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.’

Borrowers who have recently purchased a home or closed on a non-streamlined refinance would most likely agree with Ben Bernanke’s views on underwriting guidelines. And for the most part, I do too. Today’s home buyer will often find every aspect of their income, assets and credit scrutinized. For example, Form 4506 (which was once used primarily for stated or no-income verified loans) is now pulled on every mortgage in process to obtain a copy of the tax transcripts for the the past two years. Any discrepancies between the 4506 and income supplied must be addressed, which often leads to the borrowers having to provide complete tax returns instead of just their W2′s. If a borrower has deposits on their bank statements that are not easily identified, they can expect to show proof of where that deposit came from. Credit reports may disclose information that the borrower may need to address as well beyond the good old “inquiry letter”. Now they disclose information about activity associated to a borrowers address that may or may not relate to the borrower. Don’t get me wrong, loans are closing however the process for some can require a great deal of patience and paperwork.

“When lenders were asked why they have originated fewer mortgages, they cited a variety of concerns, starting with worries about the economy, the outlook for house prices, and their existing real estate loan exposures. They also mention increases in servicing costs and the risk of being required by government-sponsored enterprises (GSEs) to repurchase delinquent loans (so-called putback risk).”

“Putbacks” are also referred to as “buy-backs”. And buy-backs tend to roll down hill to the source that originated the mortgage, including  banks and correspondent lenders like Mortgage Master Service Corporation. This happens when the loan (borrower) is not performing. The lender will go over the loan documents with a fine tooth comb to try to find fault in the underwriting so they can justify sending the loan (forcing a buy-back) to the originating lender. This is why many borrowers are having to over-document their finances.

The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices indicates that lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since.

Ben Bernanke and the Fed cannot control the underwriting guidelines and overlays that banks have for mortgage lending. I certainly do not want to see the loose underwriting of the subprime era return. However I do agree that for the most part, underwriting has become pretty tight and I would welcome more “common sense” for well qualified borrowers.

Mr. Bernanke needs to brush up on Frank Dodd and how it will continue impact the mortgage industry and underwriting guidelines.

Your thoughts?

Quick mortgage tip for self-employed and commissioned paid individuals

Earlier today I was having a conversation with a self-employed woman who just filed her 2011 taxes prior to the October extension deadline. She’s eager to buy a home in the greater Seattle area and her 2012 income shows a continued trend higher. She’s curious as to how quickly she can use her 2012 income for qualifying.

Typically for a self-employed or commissioned paid borrower,lenders want to see the last two years complete tax returns and will basically average the last two years net income assuming their income is steady or improving.

I advised her to file her 2012 taxes as soon as possible if she’s planning on using her 2012 income for qualifying. Not only will the 2012 tax returns need to be filed before a lender can use the income, most lenders will require a the tax returns to also be verified by the IRS.

Lenders use Form 4506 to obtain a tax transcript for several reasons, in addition to verifying taxes have been filed. The tax transcripts are a summary of the tax returns which reveal items such as income and deductions for a specific year. W2 salaried employees may be caught off guard if they claim a lot of work related deductions as an underwriter will most likely deduct those “expenses” from their gross income. Any conflicts between the what has been provided to the lender and what the IRS is reported must be addressed. 

During busier times for the IRS, such as April when income tax is due, it may take several weeks to obtain tax transcripts for that year. Even if the earliest my Seattle home buyer can file is at the beginning of February, she’ll at least have a beat the April rush.

So if you’re planning on buying a home in the beginning of the year and you need your 2012 income to qualify, file your taxes early. Chances are, your lender may not be able to close without being able to obtain your transcripts. 

If you’re considering buying or refinancing your home located in Washington state, I’m happy to help you!

Fannie Mae and Freddie Mac improve HARP 2.0 Underwriting Guidelines

On Friday, Fannie Mae and Freddie Mac announced much needed updates to underwriting guidelines for HARP 2.0. The Home Affordable Refinance Program (HARP 2.0) has helped many Washington state homeowners with conforming mortgages (securitized by Fannie Mae or Freddie Mac prior to June 1, 2009) take advantage of historically low mortgage rates regardless of their home’s current equity (or lack thereof). You can learn more about the HARP 2.0 program by clicking here.

The recent updates to HARP 2.0 will allow more home owners to have access to this program by reducing documentation requirements for some borrowers. Here are some of the improvements:

  • Reduced documentation for income and assets. NOTE: Form 4506 and verification of employment will still be required. Lenders will not be required to verify large deposits.
  • Allowing borrowers with assets to not have to document income. This is available when a home owner has at least 12 months of their proposed new mortgage payment (PITI) in savings. The assets may come from checking or savings, stocks or vested retirement accounts.
  • Improvements to when a borrower is removed from the mortgage. Previously if a borrower was being removed with the HARP 2.0 refinance, guidelines required proof that the remaining borrower made the mortgage payments for the last year with their own separate funds (except in the case of death). Now with HARP 2.0, in the remaining borrower can qualify on their own (debt to income at 45% or lower and credit scores of 620 or higher) they may qualify for a HARP 2.0 refinance.

Remember, banks and lenders may layer their own underwriting guidelines to Fannie Mae and Freddie Mac’s HARP 2.0 program.

If you have been turned down for a HARP 2.0 refinance before, it may be worth checking with your local, licensed mortgage originator to see if you are now eligible. HARP 2.0 is available for owner occupied, vacation homes and investment properties.  I can help you if your home is located anywhere in Washington State – click here for your HARP 2.0 rate quote.