Archives for August 2010

FHA Streamline Refi’s with No Appraisal

When HUD changed the guidelines for FHA streamlines last fall,I thought they had pretty much stuck a fork in a program that has been very beneficial to home owners who have an FHA insured mortgage loan.  You see, HUD made it to where if a borrower opted to not have an appraisal, they cannot finance their closing cost or reserves/prepaids.  Back then I never thought we would see rates at their current levels.  With today's rates, many home owners can opt for a slightly higher than "par" rate to have the lender pay for a portion of their closing costs.   In addition, it doesn't matter what your home's current appraised value is since there is no appraisal!

With an FHA streamline refi, if the loan has less than 36 payments, there may be a credit of the balance of the upfront mortgage insurance premium if it was financed (99% of loans have the ufmip financed).  The credit is on a sliding scale (the earlier in the loan, the larger the credit). 

Closing costs are reduced since there's no appraisal fee (and no worry about what your home may appraise for).  The loan amount is limited to the current principal balance plus the new upfront mortgage insurance premium.   With today's pricing, many Seattle area home owners are typically bringing in the mortgage payment they would have "skipped" or funds to start their reserve account at closing and enjoying the benefit of a much lower payment due tot he reduced rate.   Borrowers will receive a refund of the balance of their reserve account a few weeks after closing from their existing mortgage servicer.

FHA mortgage insurance premiums are set to change in weeks (October 4, 2010).  Although the upfront premium is decreasing, the annual (monthly) is increasing and the net effect is more expensive that the current formula.

At Mortgage Master Service Corporation, we are a HUD Endorsed Lender with our own in-house FHA underwriters.   I've been originating FHA loans for over 10 years and I'm happy to provide you a free rate quote for your home located in Washington state.

UPDATE:  In order to qualify for an FHA streamline refinance, the borrower must:

  • have an FHA insured mortgage
  • have made a mimium 6 mortgage payments (seasoning) by the time they apply
  • have a minimum mid-credit score of 620 640 (or higher)
  • document income and employment
  • document assets needed for closing
  • Last but not least, the proposed refinance must create a "net-tangible" benefit to the borrower.

My Thoughts on the Future of Home Mortgages and Home Ownership

Yesterday, I had the Future of Housing Finance playing in the background as I was working away on rate quotes and lock commitment confirmations for a few of my clients in the Seattle area.  Oh how I wish that I, or a fellow mortgage origintor who has been originating mortgages since pre-subprime days could be on the panel.  Since I'm not, I'm going to share a few of my thoughts on this post.

People who currently have a mortgage and who are credit and income qualified (have made their payments on time) should be allowed to refinance without an appraisal.  This would not only help home owners save hundreds of dollars each month with their mortgage payment, the end benefit would be real stimulus for the economy.

I believe all mortgage originators, regardless of the type of institution they work for, should be held to the highest standards of the SAFE Act.  (Currently mortgage originators who work for banks or credit unions are not licensed).  

I also feel strongly that those who present themselves to be residential mortgage originators (licensed or registered) should not be allowed to also sell real estate.  I'm concerned this has huge potential for fraud and the home buyer is not best served when a real estate agent knows the fine details of the buyers finances.  I view this as a huge conflict of interest.   HUD all ready has this standard: real estate agents cannot originate an FHA insured loan.  I'd like to see this implemented with conventional financing.

Last but not least, not everyone in American needs to or should own a home.   Owning a home is not a right, it's a privelidge that's one's personal financial choice.  And there's nothing wrong with renting a home.  Renting a home, like obtaining a mortgage, is a personal financial choice.  

What are your thoughts? 

LQI: The Potential Kiss of Death for On-Time Closings

Potterybarn If you're planning on getting a mortgage to purchase a home or for a refinance, please do not obtain ANY credit, increase your credit debts (use your credit accounts) or please don't even THINK of applying for new credit until your new mortgage loan has funded and closed.   Why hold off on shopping for your new fridge or washer and dryer that you're going to need or that new sofa from Pottery Barn?   Because it could delay your funding (i.e. closing) or worse–it could disqualify you for your loan (kill your deal) right when you're expecting your transaction to close!

Fannie Mae has created Loan Quality Initiative (LQI).  According to Fannie Mae, LQI is intended to prevent mortgage lenders from having to buy-back mortgages by increasing the quality of the loan that is being sold to Fannie Mae.   LQI addresses more than undisclosed debts on the loan application, including occupancy and borrower identification issues.  However in my opinion, the re-verification of credit prior to funding has the potential to impact a transaction more often.

LQI requires that if new debt is discovered when the credit is reviewed, that it be disclosed on the final application.  New debt is not limited to a new credit card you used to purchase appliances, it could be that you made a charge on an existing credit card that increased your monthly payment.   Maybe you simply filled up your gas tank at $3.00 a gallon…this could possibly trigger a delay in a transaction closing if the borrower has higher debt-to-income ratios or average credit scores.  If new debt or inquires are discovered just prior to funding, the loan may have to be sent to underwriting again to include the new debts payments. 

Most lenders are doing "soft pulls" on the credit (without the credit score) also referred to as a credit "refresh".   However, if new debt is discovered and the loan is sent back to underwriting, a new full credit report may be pulled.   If the borrowers mid-credit scores have dropped, this may impact qualifying and possibly the interest rate since conforming rates are based on credit scores.  Not so refreshing, is it?

So if you are considering buying a home or refinancing, please do not:

  • apply for any credit or loans after you've completed a loan application;
  • use your credit cards during the transaction (increasing your borrowed amount on your credit line);
  • pay off or close any debts during your transaction without first speaking to your mortgage originator (this can actually drop your credit score).

As tempting as it might be to purchase your fridge (or what ever) so it's ready for your new home when you move in–please don't!!  It may cause a delay in your closing or cost your mortgage approval and at this point in the transaction, your financing contingency is most likely waived

I understand Fannie Mae wanting higher quality loans and that the loan application should reflect the borrower.   However everyone knows that the day after closing, the new home owner is probably going to purchase some new appliances and maybe make a trip or two to Pottery Barn or Restoration Hardware.  This is a classic example of how the underwriting pendulum is swinging too far.  I can tell you that my typical client today is more qualified than those of the subprime era, our current guidelines alone (pre-LQI) have done this.  NOTE:  Please be responsible whenever using credit…especially after just taking on the largest debts you may have in your lifetime: a mortgage.

PS:  Real Estate Agents:  please be sure to make your buyers aware of this newer policy.

Photo credit: Rob Young via Flickr

HUD Announces Possible Principal Reduction: The “FHA Short Refinance”

HUD has been busy!  They just issued another press release stating that starting September 7, 2010, FHA will offer "certain 'underwater' non-FHA borrowers who are current on their existing mortgage and who's lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA insured mortgage".   This program will be available on FHA case numbers issued on or after September 7, 2010 and must close before December 31, 2012.

The biggest catch that I see is that this voluntary program requires that all mortgage lien holders consent to the refinance.  Any first mortgage being paid off must agree to reduce their principal balance by a minimum of 10% and the second mortgage must agree to be subordinated.   There's a maximum combined loan to value limit of 115%.  It will be interesting to see how the banks embrace this program.

Here are some other requirements for the FHA Short Refinance:

  • the home owner must have negative equity
  • the home owner must be current on their existing mortgage that's being refinanced.
  • owner occupied (primary residence) only
  • the mortgage being refinanced may not be an FHA insured loan (NOTE: if you're upside down on your FHA insured loan, you can do a streamline FHA with no appraisal).
  • existing lien holder must write off at least 10% of the principal balance
  • first mortgage maximum loan to value is 97.75% for the new FHA loan and 115% combined loan to value when there is a second mortgage.

Potential borrowers of this program will be subject to "Borrower Certification" which was enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010.  If the borrower has been convicted in the last ten years of any of the following: (a) felony larceny, theft, fraud, or forgery; (b) money laundering; or (c) tax evasion.  More details are expected to follow.

Last but not least, the Mortgagee Letter advises that borrowers need to be aware that, as with any loan forgiveness action, short refinancing under this program may be reflected as a negative feature on a borrowers credit score and that anyone who is considering this type of transaction should contact their tax advisors regarding the cancellation of debt and possible tax consequences.

It will be interesting to see how many banks will participate in reducing principal balances and how this will work with the Home Affordable refinances.  This could be a nice resource for home owners who don't have Fannie Mae or Freddie Mac securitized mortgage but want to take advantage of our current historic low interest rates.

Stay tuned…I'll keep you posted.


FHA Making Promised Changes to Mortgage Insurance Premiums

UPDATE August 10, 2010:  HUD just announced they are delaying the changes to FHA mortgage insurance until case numbers issued on or after October 4, 2010.

Federal Housing Commissioner David Stevens has issued a "Special Edition" press release confirming that FHA mortgage insurance will be adjusting  on all case numbers beginning next month.  

"It is our intention that effective on September 7, 2010, FHA's upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortizing terms greater than 15 years…"

Currently upfront mortgage insurance on an FHA insured loan is 2.25%.  Effective on new case numbers September 7, 2010 October 4, 2010 and later, the new upfront mortgage insurance premium will be 1.00%.   On a $400,000 loan the 2.25% premium pencils out to $9,000 which is typically financed (added to the FHA base loan amount); in a month the upfront premium will be reduced to $4,000.

At first, this sounds great–however, there's a trade-off.  The annual mortgage insurance (paid monthly) is increasing to 85-90 basis points (currently it's 50-55%).   An increase of 0.3% of the annual premium will increase the monthly payment (based on  a $400,000 loan amount) to $300 (0.90 x $400k =$3,600/12) from $183 (0.55 x $400k =$2,200/12) an increase of $116.47 per month.

Using an interest rate of 4.25% and a based loan amount of $400,000; it looks like this:

FHA Case Number BEFORE September 7 October 10, 2010:

$400,000 plus $9,000 = $409,000 amortized for 30 years at 4.25% = principal and interest of $2012.03 plus the annual mortgage insurance of $183 = $2,195.03

FHA Case Number issued September 7 October 4, 2010 and after:

$400,000 plus $4,000 = $404,000 amortized for 30 years at 4.25% = principal and interest of $1,987.44 plus the annual mortgage insurance of $300 = $2,287.44.

The new FHA mortgage insurance premiums have an increase in payment of $92.41 based on this example.   This impacts both purchases and refinances using FHA insured mortgages.

Stevens acknowledges that this is "short notice" however this shouldn't surprise anyone who's been a subscriber to The Mortgage Porter, this has been in the works.   A mortgagee letter is expected to follow soon.

Mortgage Master Service Corporation is a Direct Endorsed HUD approved lender.  I've been originating FHA insured loans for over ten years.  If I can help you with your mortgage needs on a home located in Washington, please contact me.

The Cash-In Refi

You’ve probably heard of a “cash-out” refinance where a home owner is taking equity out of their home for home improvements, debt consolidation or if they’re paying off a second mortgage that was not obtained when they purchased their home.   A “cash-in” refinance is a fairly new term and something I’m seeing first-hand due to the current insanely low mortgage rates.

Freddie Mac reports that “in the second quarter of 2010, 22 percent of homeowners who refinanced tehir first-lien home mortgage lowerd their principal balance…this ties the record for the third highest “cash-in” share since Freddie Mac began keeping records on refinancing patterns in 1985.  The revised cash-in share in the first quarter was 18 percent.”

“Cash-in” means that the home owner is bringing funds to escrow for closing.  Their loan amount is not high enough to cover closing costs and prepaids.   Sometimes home owners, with a healthy savings, will opt to pay for closing costs separately instead of financing it into the new loan but a majority of home owners opt to have the cost added to their payoff amount, thus increasing their original principal balance.   Some are deciding to plunk down enough cash to reach a certain loan amount or loan to value to obtain an improved interest rate.  For example, a Seattle area homeowner with a current loan balance of $575,000 might decide to use $10,000 towards her loan amount to obtain a high balance conforming mortgage rate instead of a higher non-conforming/jumbo rate.  (Current loan limits in King, Snohomish and Pierce County for a single family dwelling for high balance is $567,500).  UPDATE 1/1/2012: Loan limits currently $506,000 for conventional and $567,500 for FHA (and may change following years).

Some home owners are doing this because of loan to value issues–not because they have an extra grand or two burning a hole in their pocket.  I’ve had a few clients who have paid off and closed their home equity lines of credit to qualify.  Or perhaps they have an appraisal come in slightly lower than expected, exceeding the allowed loan-to-value guidelines.  For example, if a home owner in Bellevue was anticipating a minimum appraised value of $380,000 for his home to finance his Home Affordable Refinance loan amount of $399,000 with a 105% loan to value yet his appraisal comes in at $376,000; he could have his loan amount adjusted to 105% loan to value at $393,750, bringing in $5,250 to closing. 

Funds for closing will need to be documented, just as they would a mortgagae being used a home purchase, with statements from the accounts the funds came from.

Frank Nothaft, Freddie Mac Vice President and Chief Economist states:

“Interest rates on fixed-rate mortgages are at 50-year lows, making refinancing attractive if borrowers qualify, and similarly rates on savings instruments like CDs are also very low, which makes the choice of paying down mortgage principal very attractive to borrowers with extra cash reserves.”

I’m happy to review your current mortgage scenario at no obligation to help determine if refinancing makes sense for you.  The only catch is, your property needs to be located in located in Washington state since that’s where I’m licensed.

Disclosure Periods: Three Days Counted Three Different Ways

Anyone who's refinanced a home they live in probably remembers having to wait a couple days after signing before their loan can close.  This is called the Three Day Right of Recsission.  Thanks to all our new guidelines over the past year, we now have waiting periods triggered if your rate changes (for better or worse) with MDIA and once you receive your appraisal thanks to HVCC.   All of these waiting periods are for three days and each one is counted differently–go figure!   Here's a quick overview.

Home Value Code of Conduct. (HVCC) On residential transactions where there is an appraisal, we are required to provide the borrower a copy of the appraisal three full days before signing.  This is very similar to the right of recession where it's "postal days" that are counted.  A rush transaction can be put into a pinch if the appraisal is received late.   Receive the appraisal on a Friday, and the earliest the borrower can sign is Wednesday.

Three Day Day Right of Rescission:  This applies to refinances of a primary residence and is triggered the day of signing.  Three, what I like to call "postal days" must pass after you sign before your transaction can fund.  So if you sign on Monday, the earliest the loan can fund (close) is Friday; sign on Tuesday, the earliest your mortgage can fund is Monday.  

Mortgage Disclosure Improvement Act:  MDIA has two waiting periods: how soon a mortgage originator can collect funds after an application–depending on how an application is taken AND a redisclosure period if your APR (annual percentage rate) changes by an 0.125% for fixed rates and 0.25% for an adjustable rate.   The redisclosure period is also three days however the first day starts after the redisclosure and the earliest a borrower can sign is on the third day.  Most Seattle area real estate contracts have language providing an automatic extension of the closing date should closing be delayed due to MDIA (this is different than your rate lock extension).

Lately I've been renegotiating rate lock commitments for my clients, and even when I'm improving their rate, I need to redisclose and trigger the MDIA waiting period.  If it's a refinance, I need to be especially careful of not causing a lock extension if we run out of time due to the MDIA disclosure AND the Right of Rescission time period.

What was done "for the best interest of the consumer" has caused some transactions to be delayed.  It's important to be aware of the various timing factors that may be involved with your transaction.  Delaying your appraisal or not being able to get to your signing appointment in time with a refinance can wind up costing in the form of an extension fee when you factor all the timing periods…which everyone wants to avoid (and is why I like to lock a little longer when possible).

If I can help you with a mortgage on a home located in Washington state, please contact me.  Click here if you would like a rate quote for your home located in Washington.