Archives for January 2010

The Fed is Getting Tougher on Credit Card Companies

In a press release earlier this week, the Fed announced they have approved the final rule amending Reg Z regarding credit cards which will go into effect on February 22, 2010.   The new rules set tougher guidelines on credit cards, especially with regards to protecting consumers against rate changes and how they are billed.  

No interest rate increases for the first twelve months.  There are some exceptions such as if you have a variable rate tied to an index; if your rate is an introductory rate (which in that case, your rate must be fixed for a minimum of 6 months); and if you're more than 60 days late on your bill.

Increases to your interest rate can only be applied to your new balance.  Your old balance will keep the lower rate.

Payments will be applied towards the highest interest rates first when you pay more than the minimum payment.  (Some exceptions may apply).

Statements must be mailed or delivered at least 21 days before your payment is due.  Your due date should always be the same day of the month unless it falls on a weekend, in which case your due date will be the following business day.

Charges you make "over the limit" may be restricted (not allowed) unless you give your credit card company permission.

If you're under 21, you may need a cosigner such as a parent, to obtain a credit card.  Guess those credit card companies will have to stop preying on college students unless Mom or Dad agree to cosign.

No two-cycle (double-cycle) billing.  According to the FOMC's site "credit card companies can only impose interest charges on balances in the current billing cycle.

When your rate or fees are going to change, you must be notified 45 days priorto the change taking place.  You will have the option to refuse the change, however this probably means that your canceling your account.  If you do refuse the change, and your account is canceled, the creditor can impose higher payments by requiring to pay off your account in five years.  NOTE: Canceling your account may be damaging to your credit scores.  Should you get a notice that your rate or terms are changing and you don't agree with it, you are probably better off (as far as your credit score is concerned) paying off the card by applying more principal than canceling it with the creditor.

New monthly statements will show you how long it will take you to pay off your credit card making minimum monthly payments as well as what your monthly payment would need to be if you wanted to pay off your card in three years.

I applaud the new credit card rules.  Since their not going into effect until February 22, 2010 you may want to keep an eye on your interest rates…with just over a month before they take place, sly credit card companies may try to sneak a few changes in before things get tougher. 

Changed Circumstance: When a Good Faith Estimate CAN be Re-Issued

EDITORS NOTE: Effective on loan applications dated October 3, 2015 and later, the Good Faith Estimate has been replaced by the “Loan Estimate” which has some similarities to the retired Good Faith Estimate, including requiring a “changed circumstance” for it to be re-issued. 

Most Mortgage Originators have a distaste for Good Faith Estimate now required to be used by HUD due to a term called “changed circumstance”.  A changed circumstance is the only time that a mortgage originator can re-issue a good faith estimate (unless the estimate has expired) and the only items that can be modified are those impacted by the circumstance that changed.

According to the RESPA changed circumstances is defined as:

(1)(i) Acts of God, war, disaster, or other emergency;

(ii)  Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE;

(iii)  New information particular to the borrower or transaction that was not relied on in providing the GFE; or

(iv)  Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

(2)  Changed circumstances do not include:

(i)  The borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided; or

(ii)  Market price fluctuations by themselves

HUD adds in their RESPA FAQs (as of December 30, 2009):

None of the information collected by the loan originator prior to issue the GFE may later become basis for a “changed circumstance” upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE….

According to HUD’s RESPA FAQ 8ii, simply issuing a good faith estimate with a TBD address (or no address) is not cause for a “changed circumstance” and if a mortgage originator does issue a GFE, remember, we are presumed to have all the information necessary to create a loan application per HUD.

If a mortgage broker issues a GFE based on one lenders products and origination fees, but places the loan with another lender–the mortgage broker may wind up having to eat the difference in fees if they are higher.

Examples of things that *could* be considered a changed circumstance (after a good faith estimate is issued)  according to HUDs FAQs:

  • GSE (Fannie/Freddie), FHA or mortgage insurance program changes prior to the GFE being issued IF the mortgage originator did not have notice of those changes (good luck proving that).
  • The property address provided by the borrower is not correct.
  • Parties are added or removed from title.
  • the loan does not close by the closing date in the original purchase and sales agreement provided to the lender.
  • Additional appraisal, pest or other inspections requried.

The fees in Block 1 of the Good Faith Estimate cannot change with a changed circumstance unless it is the loan amount that changed and a portion of the “origination charge” is a percentage of the loan amount.  If after a GFE is issued and a changed circumstance, or borrower requested change happens, which impacts pricing (for example, a low appraisal), the change must be reflected in Box 2 of the Good Faith Estimate, which will then reflect the “adjusted origination charges”.

Changed circumstances is another great example of the best of intentions with potentially terrible outcomes for borrowers.  Many mortgage originators will be weary to issue the new good faith estimate because of all the RESPA regulations it carries.  In addition, banks and wholesale lenders are making their own layer of guidelines on top of the “what could trigger a changed circumstance”.   Originators run the risk when issuing a revised GFE of the bank/lender balking at it down the road–especially if the borrower winds up going into default.  This is just another opportunity for banks/lenders to find cause for a “buy back”.

I’m hoping by reading my articles about the new GFE, you can see why some lenders are a little leary to issue them as freely as we did pre-2010.

An important reminder that this, as well as all of my posts are my opinion only and are not intended as legal advice nor do they replace your mortgage compliance department.


From the Fed: Mortgage Excerpts from December’s FOMC Minutes

If your little heart desires, you can read the entire FOMC Minutes from the December 15-16, 2009 meeting.  I'm posting bits and pieces that relate to mortgage interest rates, which have been artificially low due to the Fed's purchase of MBS (mortgage backed securities) and home buying/selling.

In particular, they noted the risk that improvements in the housing sector might be undercut next year as the Federal Reserve's purchases of MBS wind down, the homebuyer tax credits expire, and foreclosures and distress sales continue. Though the near-term outlook remains uncertain, participants generally thought the most likely outcome was that economic growth would gradually strengthen over the next two years as financial conditions improved further, leading to more-substantial increases in resource utilization….

In the residential real estate sector, home sales and construction had risen relative to the very low levels reported in the spring; moreover, house prices appeared to be stabilizing and in some areas had reportedly moved higher. Generally, the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness, including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices. Moreover, mortgage markets could come under pressure as the Federal Reserve's agency MBS purchases wind down….

Accordingly, the Committee affirmed its intention to purchase $1.25 trillion of agency MBS and about $175 billion of agency debt by the end of the first quarter of 2010 and to gradually slow the pace of these purchases to promote a smooth transition in markets. The Committee emphasized that it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.  A few members noted that resource slack was expected to diminish only slowly and observed that it might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee's large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage market functioning were to deteriorate….

Bernanke has stated that there is a lot of uncertainty of what the effect of the Fed no longer purchasing MBS will be and that the FOMC will continue to watch the economy and decide if they'll actually be done with their purchase program in March or if they're going to continue. 

What we do know is where mortgage rates for the Seattle/Bellevue area are currently and what options with mortgage programs are available now (HUD has been talking about tightening up FHA this month).  I've been talking to clients who I encouraged to refi a few months ago when rates where slightly lower and FHA still had an attractive streamline (with no appraisal required and closing costs financed)–rates are higher and benefits to that program are gone.  For refinancing, it may not pay to be patient.

March should be interesting with the end of the home buying tax credit looming and the FOMC nearly phased out of their support of our artificial low mortgage rates.  

A Few Minor Adjustments

I think I've somehow managed to lose my Feedburner feed, where my readers receive what ever articles I write on Mortgage Porter directly to their email.  So I'm looking at using this as an opportunity to revamp what I use for my feed and I could use your help.

Please comment below if you are a Mortgage Porter subscriber and let me know if you have received this post via:

  • Feedburner
  • Feedblitz
  • Mailchimp
  • other

Thanks so much for your help! 

What’s Wrong with the New Good Faith Estimate?

The new good faith estimate is getting plenty of protest from mortgage originators across the country…my biggest issue is that I cannot effectively use it as a tool to help people who are interested in buying a home or refinancing effectively see what the proposed mortgage scenario may look like. 

I received this email from a client I've been working with this morning:

"[We] are back on the search for a new home and we have found a couple that we would like to run past you.  When you have a moment, could you crunch the numbers for us and provide a good faith estimate on these two properties.  We would like to see one with the variable that the seller covers the closing costs and one with us covering the closing costs.  That will give us a good idea of what the middle looks like once we start negotiating."

The new good faith estimate from HUD does not show consumers:

  • seller contributions towards allowable closing costs
  • total funds due at closing
  • total monthly mortgage payment (PITI aka principal, interest, taxes and insurance)

For what my clients are interested in seeing, HUD's good faith estimate isn't very useful or meaningful.

I do like that the new GFE is a uniform document required to be used by all mortgage originators however it is not effective for consumers who actually want to compare potential scenarios. 

I find the new good faith estimate conflicted since it has a heavy emphasis on shopping rates (page 3 of the document includes a shopping chart), yet mortgage originators are (and will be) discouraged from using it for "rate shoppers" since the document is binding for a minimum of 10 business days even though the consumer does not have to sign it or commit.  It's one thing to be bound by our lender fees I quote (I've done that for years without this new document), however to be stuck with third party fees that I have no control over for 10 business days is something I'm not too happy about.

Many mortgage companies, banks and loan operating systems are in the process of creating forms that can be used for the purpose of rate quotes and/or illustrating what the new good faith estimate has missing.  This recreates the very same scenario which I thought HUD was trying to correct: consumers will have to sift through various documents which will not be uniform from lender to lender.  It's very puzzling to me and I'm sure it will be to the consumer as well.

Good Bye to 2009. Hello to 2010!

I must confess, even though 2009 brought many challenges to the mortgage industry, it was a pretty good year to me.  I have been very fortunate to have worked with some wonderful clients over this past year thanks to referrals from past clients or real estate professionals and to those of you who read this blog and decide to select me as your mortgage professional.  I thank all of you.

During 2009, I was honored to receive recognition beyond my wildest imagination. My peers, Washington Association of Mortgage Professionals, awarded me the Jim Fitzgerald Distinguished Service Award.   I also received social media kudos from the Seattle Weekly as Seattle's Best Tweeting Mortgage Brokerin 2009 and Inman News included me on their list of the 50 Most Influential Online 2009.

If 2010 is anything like 2009, I'll count myself a lucky woman. 

2010 will continue to be an interesting year for the mortgage and real estate industry.   I predict that at the first of the year, we will see many Washington State mortgage originators call it quits due to the new licensing requirements along with RESPA reform (the new good faith estimate).  This job isn't getting any easier.   I'm sticking around.

Happy New Year!