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.

Changing jobs during the mortgage process

Sometimes an employment opportunity may become available while you’re in the process of buying a home or refinancing. Lenders are looking at a borrowers employment and income stability so depending on the type of field you’re in, a change of employment may or may not impact your loan approval. 

As long as you’re staying in the same line of work and if you have an annual salary, it probably won’t be an issue. The lender will probably require at least one pay stub (possibly more to document your income) from your new employer as well as a verification of income. If you have an employment letter or contract from the new employer, this can be helpful to provide the lender as well. With new employment, signing bonuses are not factored into the annual income however, they may be used towards the down payment or closing cost as your seasoned funds. 

If the new employment is not related to the same line of work, this may cause an issue with the loan approval as lenders are looking for two years of employment in the same or related field. If the income structure has changed, this may cause an issue as well unless it is to an annual salary. The underwriter may require a written letter explaining your employment history.

Moving from annual salaried income to a potentially flexible type of income may derail your loan approval. Self-employed, hourly income, bonus or commissioned income requires a two year history before a lender can use it for qualifying purposes.

Sometimes a promotion can impact loan approval if pay structure changes. For example, if a borrower was paid an annual salary and then receives a promotion which reduces the annual salary in exchange for a higher bonus or commission structure, the bonus or commission income cannot be used unless the borrower has been receiving that type of income for a minimum of two years. In this case, the new lower base salary (the “guaranteed” portion of the income) can be used, but not the “flexible” bonus type income. 

If you are considering a job change during the mortgage process, it’s crucial to inform your mortgage originator as soon as possible. Your loan application needs to be updated and the lender will be doing a verification of employment prior to funding your mortgage.  

If you’re considering buying or refinancing a home anywhere in Washington, I’m happy to help you!

Why getting a mortgage is more challenging today

Typically when I hear media say that it’s difficult or impossible to get a mortgage, my hair stands up on the back of my neck. Often times, they’re misstating mortgage programs and saying something like “you need 30% down payment and 760 credit scores to buy a home” which simply is not true. However something that I cannot argue is that it is more challenging to go through the mortgage process today.

The process is tedious as borrowers are asked to provide more supporting documentation to prove they’re qualified for the mortgage. I’m not saying this is a bad thing. If you’re a long time reader of my blog, you know I was never a fan of stated income mortgages. However it’s to a point where home buyers and home owners wanting to refinance are having to do things like document and prove where a large deposit from a month ago came from…even if they have plenty of funds for the transaction. Underwriters are calling for additional documentation.

This is partly happening because of tougher guidelines to make up for the sins of the subprime era of mortgages. Loosey goosey underwriting guidelines allowed just about anyone to obtain a mortgage with no regard to if the borrower would actually be able to make the mortgage payments. 

What’s also impacting guidelines are buy backs. Fannie Mae and Freddie Mac are pushing back loans that are not performing back to the banks.  If that loan was not originated by a bank (for example, a correspondent lender, like us), the bank will try to force the originating lender to buy back that loan. This is one reason why many banks prefer working with correspondent lenders over mortgage brokers – correspondent lenders have skin in the game.  From Reuters:

Historically, Fannie Mae and Freddie Mac have taken banks at their word when they said loans were eligible. If later there were problems (because the borrower’s income was not properly verified, for example), then Fannie Mae and Freddie Mac could ask banks to buy back the mortgages at face value and absorb any losses.

Those repurchase requests are increasing as Fannie and Freddie apply more scrutiny. Both companies have hired more staff to comb through loans and determine which can be sold back to banks.

In the second quarter, outstanding repurchase requests at Fannie Mae grew by 20 percent to $14.6 billion from the first quarter, according to a filing last week.
 

In order for a bank or lender to have a fighting chance in not buying back the loan, they need to be able to show they had a complete and strong loan package with all of the borrowers supporting documentation to illustrate they qualified for the mortgage program.

You’re probably thinking that this sounds pretty fair. If a loan is not performing, then the originating lender should have to buy it back and deal with the losses. Banks are arguing that some loans that are not performing may be caused by the economy (loss of employment) and not due to the quality of the loan. A lender has to consider what are the odds the borrowers will be able to make the mortgage payments in the future.

As Fannie and Freddie increase scrutiny on mortgages and force more buy backs, banks will lend to fewer borrowers and toughen up guidelines. It’s already happening – just ask any HARP 2.0 borrower who’s trying to go back to their bank to refinance. Odds are, unless the refi has no pmi or lpmi, the bank may refuse it. Some banks have turned their backs on FHA streamlined refi’s as well.  Many banks are “cherry picking” mortgages…and with all the current volume, they can easily afford to. 

NOTE: If your bank has turned down your HARP 2.0 or FHA streamlined refinance on a home located anywhere in Washington, I’d love to see if I can help you. We work with several lenders who offer HARP 2.0 mortgages – even if you have LPMI. We are also still doing FHA streamlined refinances on Washington homes as well. One of the benefits of working at a correspondent lender is that we have several lenders to work with – we are not limited to one set of programs and guidelines. Click here for a mortgage rate quote. Okay… commercial over.

Watch for guidelines to continue to become tougher and expect to be asked for more and more documentation from your lender if you are considering a mortgage… we still have the Consumer Financial Protection Bureau fine tuning “the ability to repay”.  More mortgage fun coming your way soon!

With a little patience and cooperation with providing requested documentation to your mortgage professional, you will survive the mortgage process with success.

FHA Streamlined Refinance: Credit vs Non-Credit Qualifying

With an FHA streamlined refi, most folks have the misconception due to the program name “streamlined” that the refinances are close very quickly and are a slam dunk with little to no paperwork. While they do close quicker than a typical refinance since more often than not, you’re not waiting on an appraisal, if you’re going for a lower cost or better rate, you’re probably opting for a “credit qualifying” FHA streamlined refi. What’s the difference?

FHA streamlined credit qualifying basically means that the borrower is providing income and asset documents, just like a regular refinance. By providing documentation that shows they actually qualify for the new mortgage, lenders provide preferred pricing. Since it is a “manual” underwrite (a real human is underwriting the loan and not a computer program) the debt to income ratio is limited to 45%.

FHA streamlined non-credit qualifying is when income documentation is not provided and not stated on the loan application. The borrower’s income is not a consideration. Because of the higher risk, the rate or pricing is often slightly higher.

EDITORS NOTE: Rates quoted below are expired (years old!!)for a current mortgage rate quote for your home in Washington state, click here.

Right now (July 25, 2012 at 11:00 am) I’m working on a quote for an FHA streamlined refinance for a home located in Seattle. The rates quoted below are based on mid credit scores of 680 –  720 with no appraisal and the base loan amount is $289,000.

FHA credit qualifying 30 year fixed: 3.375% (apr 4.548) priced with just over 1 point in rebate credit which will cover closing cost and some of the prepaids/reserves. Principal and interest payment is $1300.01.

FHA non-credit qualifying 30 year fixed: 3.750% (apr 4.934) priced just under 1 point (about 0.25% difference in fee) which covers closing cost and some of the prepaids/reserves. Principal and interest payment is $1361.82.

NOTE: for a current rate quote on a home located anywhere in Washington state, based on today’s pricing and your scenario, click here.

What type of supporting documentation is required?  This is in additional to a complete loan application and credit report.

Non-credit qualifying:

  • Copy of your existing mortgage Note
  • Copy of your mortgage statement (we need to document a “Net Tangible Benefit”)
  • Bank statement (all pages) if funds are due at closing. Large deposits may be required to be documented.
  • Drivers license
  • Social security card
  • Payoff obtained from escrow company documenting that the current month’s mortgage payment has been made

Credit qualifying: all the above, plus…

  • last two years W2s
  • last two years tax returns (if self employed)
  • most recent paystubs documenting 30 days of income
  • most recent bank statements (all pages) documenting at least funds for closing. Large deposits may be required to be documented.

Additional documentation may be required depending on your personal scenario.

Whether you opt for non-credit qualifying or credit qualifying is your choice and depends on your financial scenario. When rates and pricing are the same for both scenarios, most would opt for “non-credit” qualifying. Since recent changes with how HUD prices FHA mortgage insurance for some loans, there has been major changes with which banks are offering FHA streamlines and how they’re pricing them.

If I can help you refinance your FHA loan on your home located anywhere in Washington state, please contact me.

How to Prepare for the Final Phase of the Mortgage Process: Underwriting

You’ve completed a loan application and have provided your mortgage originator with your income and asset documents. You’re told your loan is being submitted to “underwriting”. During the stage, the information you’ve provided is being scrutinized by a person (the underwriter) to make sure that it meets your specific program guidelines and the investor/lender guidelines. 

Hopefully your mortgage originator has done a solid job with your application by addressing possible questions the underwriter may have and gathering supporting documentation. Even if your mortgage originator and you have prepared the perfect loan ap for the underwriter, additional items are often called for after the underwriters review. These additional items are referred to as “conditions” to the loan approval. 

Here are a few quick tips to help make this process a little smoother.

  • Save everything. If you’re a shredder, like me, it’s time to stop… at least until after your loan has funded. Keep your paystubs, bank statements, retirement and asset accounts – you will probably have to continue to provide updated information to the lender.
  • Be prepared to document where large deposits ($1000 or more) came from on your statements. This means providing deposit slips and/or copies of the cancelled checks.
  • Provide “all pages” of items requested unless otherwise instructed. If an underwriter sees that your bank statement shows 1 to 4 pages, and you’re missing the last page (even if it’s blank), you will be required to provide this. “All pages” also needs to be provided of your tax returns, divorce decrees, child support orders and other documentation if requested by the underwriter. Just providing pages you feel are purtinent may delay your loan approval.
  • Avoid moving funds around. You will need to show where the funds came from and just saying “can’t you see I have gazillions in this account” won’t cut it with the underwriter.
  • Do not apply for credit. This creates an “inquiry” on your credit report. Your credit report is checked prior to closing and, if you have a new inquiry on your credit report, you will have the opportunity of explaining this to the underwriter. If you do obtain new credit, your loan will need to be re-underwritten with the new debt — even if there is no payment due (such as 60 days same as cash, etc.)
  • Provide requested documents promptly
  • If you’re planning a vacation, let your mortgage originator know as soon as possible.

Quickly providing everything that is being requested will help avoid delays with the mortgage process. 

In my opinion, a professional Mortgage Originator will essentially “pre-underwrite”  you as they take your application. They know what questions to ask and what documentation to provide the underwriter.  This is much better than working with a mortgage originator who has little to no experience in closing transactions, which you will probably find at large banks or large internet lenders.

If you’re interested in getting preapproved for a mortgage on a home located anywhere in Washington, I’m happy to help you!

FHA Streamlined Refi Revamped and Revisited

There is a lot of interest in the FHA streamlined refinance since HUD has greatly reduced the mortgage insurance premiums for some home owners who originated their existing FHA mortgage May 2009 and earlier. FHA streamlined refinances are designed to reduce mortgage payments and borrowers are not allowed to take “cash out” or pay off existing helocs or second mortgages. In order to qualify for an FHA streamlined refiance, the borrower must have made at least six payments on the FHA loan and needs to be current with the mortgage.  Here are a few tips on FHA streamlined refinances I thought I’d share with you.

No appraisal required. If you opt to not have an appraisal, then your new loan amount may not exceed your current loan amount. This means that your closing cost and prepaids/reserves cannot be financed (upfront mortgage insurance is still allowed to be rolled into the loan). Closing cost and prepaids/reserves may be paid for with interest rate rebate credit or cash at closing.  If you opt to have an appraisal, then your loan amount may be increased.

Credit qualifying vs non credit qualifying.  FHA streamline refi’s may not require verification of your income or assets (non-credit qualifying). Did you know that you may qualify for improved pricing if you opt for a credit qualifying FHA streamlined refi? Pricing varies throughout the day and when I’m locking an FHA streamlined refi for a Washington area homeowner, if pricing is the same, I’ll opt for non-credit qualifying. However if pricing is improved for a credit qualifying streamlined refinance, I’ll advise my client of the pricing differences and let them decide which route they prefer.

Underwriting overlays. Although HUDs guidelines might state something different, the banks and lenders we work with allow us to help home owners who have a low-mid credit score of 640 or higher. If your credit score is below 640, you may want to consider working directly with your bank.

Net tangible benefit. HUD requires that the loan “makes sense” and that is defined as a reduction in your mortgage payment (principal, interest and mortgage insurance) of at least 5%. It may also mean refinancing your FHA ARM into an FHA fixed rate product. Unfortunately, if you’re refinancing an FHA 30 year to a FHA 15 year fixed rate product, and your payment does not go down by 5%, you will not meet the current “net tangible benefit” requirement – even if you’re doing a “credit qualifying” FHA streamlined refinance and fully disclosing your income. This is something HUD needs to correct, in my opinion.

Reduced mortgage insurance premiums. HUD has announced reduced mortgage insurance premiums (both annual and upfront) for FHA loans that were endorsed (insured) by HUD prior to June 1, 2009.  FHA loans are endorsed by HUD after closing – sometimes several weeks after closing so it’s possible your FHA mortgage closed in May of 2009 and not endorsed until after the cut-off date.

Credit of your existing upfront mortgage insurance premium (UFMIP). If your existing FHA insured mortgage was originated over the past three years, it may not quaify for qualify for the reduced mortgage insurance, however, you probably will receive a refund of a portion of the original UFMIP. The refund is credited towards the closing cost of your new FHA loan and ranges from 80% to 10% of the original UFMIP by the 36th month.

FHA streamlined refinances are available for non-owner occupied homes too! If you have a home that has been converted to a rental property and the underlying mortgage is FHA, it’s eligible for an FHA streamlined refinance as long as the owner occupied it for a least 12 months.  With a non-onwer occupied FHA streamlined refinance, it must be done without an appriasal so no closing cost may be financed (except the upfront MIP).

If you are interested in refinancing your existing FHA insured mortgage on a home located anywhere in Washington, I’m happy to help you. I’ve been originating FHA home loans at Mortgage Master Service Corporation since April 2000, where we have in house FHA underwriters at our main office in King County.  Click here for your FHA rate quote.

How co-signing impacts qualifying for a mortgage

As a Licensed Mortgage Originator, I often see credit reports where the borrower has cosigned on a debt for a family member or friend.  You may be a parent co-signing on your child’s student loans to help them get a better rate, helping your brother buy a car by co-signing the lease or auto loan or perhaps co-signed on a family members mortgage so they can buy a home. They’re going to be responsible for the debt and making the payments and you’re helping them out. Often times, folks don’t realize how this good deed may impact them qualifying for a mortgage down the road.

If the debt you have co-signed, is not paid on time, it will impact your credit as if YOU are the one not making the payments. Depending on how recent and how severe the late payments were, this may possibly rule out any chance of you qualifying for a mortgage. Co-signing is a risk. The friend or family member you’ve helped out has no way of knowing in the future what their employment or health situation may be. Worse case scenario, you may find yourself liable for that debt.

If the debt you’ve co-signed is paid on time, the impact may not be as dramatic for qualifying for a mortgage as long as a few requirements can be met:

  • co-signed debt needs to have been made on time for the last 12 months; and
  • the party you co-signed the debt for needs to provide 12 months cancelled checks to document they have personally made the payments.

What if your sister has been giving you cash every month for the debt you co-signed? That debt will be factored into your debt-to-income ratio as your own for qualifying for your new mortgage. If there is not a significant track record (such as 12 months) showing the debt has been paid on time, it will most likely be factored as your debt for qualifying purposes.

If you are considering buying or refinancing a home and you have co-signed for a debt, you may want to:

  • see if your friend or family member can refinance the debt into their name, removing yours from the obligation; or
  • have your friend or family member start making the payments for their debt on their own with a check. Keep copies of the copied checks as you will need to document that the last 12 months of the debt was paid for by them and not by you.

It’s important to meet with a mortgage professional well in advance if you’re considering buying a home. If you’re buying or refinancing a home anywhere in Washington State, I’m happy to help you. 

HARP 2.0 Questions to ask your Mortgage Originator

HARP 2.0 (Home Affordable Refi Program) was revamped late last year to remove loan to value restrictions allowing more underwater home owners to refinance. So you may be wondering, why should you need to ask your mortgage originator if they have any loan to value restrictions with the HARP 2 program. In two words: UNDERWRITING OVERLAYS.

HARP 2.0 overlays are underwriting guidelines that are in addition to Fannie Mae or Freddie Mac’s program guidelines. Underwriting overlays are mandated by the bank and/or lender.  For example, as a correspondent lender, I work with several big banks, wholesale lenders and I can broker loans too. Currently most of the banks I work with have underwriting overlays that limit my maximum loan to value with HARP loans anywhere from 95 to 105% depending on the bank and scenario. Thankfully I also work with lenders who offer unlimited loan to values with no underwriting overlays for HARP 2.0, as the program was intended to be. 

Before you submit a loan application for HARP 2.0, ask the mortgage originator what is the max loan to value they can lend on.  If they are limited to 105% and your loan to value exceeds 105%, find another mortgage originator. HARP guidelines have an 105% ltv limit on adjustable rate mortgages and loans with a term greater than 30 years.

If you have PMI or LPMI, ask your mortgage originator if they are accepting transferred pmi BEFORE you start your application. Many lenders are not accepting HARP loans with existing pmi or lpmi (lender paid mortgage insurance). If you’ve been told this by your bank, seek another lender.

There are some scenarios where because of certain “credit enhancements” a loan may not be available for a HARP 2.0 – it’s more the exception than the norm.  And I’m hoping when (if) HARP 3.0 becomes available, those loans are allowed to take advantage of this program.

If your LO has told you that an appraisal is required, get a second opinion. Appraisal waivers are not automatically provided on all HARP 2.0 loans. It is not determined until your loan is ran through Fannie Mae or Freddie Mac’s automated underwriting systems (DU or LP) whether or not an appraisal is required. Sometimes the smallest detail may impact whether or not an appraisal waiver is granted, such as how your address is entered into the AUS. You many not need to spend money on the appraisal and it’s possible that you may receive an appraisal waiver at a later date as the valuations that Fannie and Freddie use change.

Because of the increased refi volumes created by expanded guidelines with HARP 2.0 and the reduced mortgage insurance now available for some FHA streamlined refi’s, banks and lenders are “cherry picking” what refinances they want. One way of doing this is by creating underwriting overlays. Due to these increased volumes, large banks and credit unions have hired on loan originators (or “mortgage tellers”) who may lack experience in the mortgage industry. (Remember, LO’s who work for banks or credit unions are not required to be licensed per the SAFE Act). They’re simply hired to fill out an application and are not savvy to actual guidelines.

I’ve been helping home owners who have been told by a mortgage originator that because they have pmi or their loan to value is 108%, that they don’t qualify for HARP 2.0 when actually, they do.  I’m not sure if LO’s don’t read Fannie/Freddie guidelines or if because they cannot offer it, they prefer to portray certain features are not available when what they should do is convey that they do not have access to those features (such as ltv’s over 105%), however another lender may.

If you’re considering refinancing or buying a home located anywhere in Washington, I’m happy to help you.  Click here if you would like me to provide you with a mortgage rate quote.

EDITORS NOTE: Since this was published, most of the banks we work with as a correspondent have pulled back their LTV guidelines to 105%. Wholesale lenders where we can broker have also made changes to guidelines or policies or have stopped accepting applications due to extreme volumes. Hopefully Congress will pass HARP 3.0 to help the Home Affordable Refi become more available.