Archives for December 2010

Happy New Year

Mortgage Master Service Corporation is closed today in observance of the holiday.  We will reopen for business as usual on Monday, January 3, 2011.

We wish you a healthy, happy and prosperous 2011.

Adjustments to Conventional Mortgage Pricing Means Higher Rates on January 1, 2011

UPDATE DEC 19, 2013: New (more expensive) LLPA’s have been released.

UPDATE JAN 3, 2011:  Not all lenders are implementing this fee increase (yet).  This is perfect example of an advantage of working with a correspondent lender since we work with more than one bank or one banks products/rates. 

Conventional mortgages (Fannie Mae and Freddie Mac) are increasing their LLPA, also known as “Loan-Level Price Adjustment” effective on all mortgages with a term greater than 15 years on loans they purchase on April 1, 2011 or later.   Although this doesn’t go into effect until April Fools, wholesale lenders will make these adjustments to their rate sheets well in advance so that they don’t have to take the price hit when the sell the loan to Fannie or Freddie.   I am receiving memos from the lenders we work with stating that these price adjustments will go into effect on loans locked January 3, 2011.

The new price adjustments are outlined in the red box below.  The changed adjustements are in bold in the red box (click on image to enlarge).  You can view Fannie Mae’s complete LLPA schedule here – there are additional hits that may apply depending on your scenario (such as condos, subordinate financing, etc.).


LLPA’s are nothing new.  We’ve had them for the past couple of years and the adjustments are typically factored into your rate.  Remember, typically (but not always) 1% in fee equals 0.25% in rate.   So if your “low-mid” credit score is 700 – 719 and your loan to value is 75.01% or higher, your interest rate is going to be about 0.25% higher in rate than someone with a 740 or higher credit score with a loan to value of 60.01 – 75%.

The hardest hit with this adjustment is borrowers with credit scores of 699 – 640 with loan to values over 80%.   These borrowers should consider FHA insured loans for financing which do not have the same level of price hits as conventional (at this time).

The best pricing is for borrowers with credit scores 700 or higher AND a loan to value of 60% or lower.   Borrowers with a 740 or higher credit score and less than 25% down payment or home equity will now be hit with a 0.25% adjustment.

These price hits impacts loan amounts of $567,500 or lower for homes located in King, Snohomish and Pierce Counties.   For a complete list of Washington state conforming loan limits, click here.

Risk based pricing is one more reason why people who are considering a mortgage, regardless of if it’s to purchase a new home in Seattle or refinance their existing home in Bellevue, should start early with the preapproval process.  Just being one digit off on your low-mid credit score may cost you.  A qualified mortgage professional can help you make the right moves with the goal of improving  your credit score if given enough time.

If you need a mortgage for a home located in Washington State, I’m happy to help you.  I’ve been originating mortgages at Mortgage Master Service Corporation since April 2000 and I’ve been licensed since 2007 (when mortgage originator licensing was first mandated in Washington).

Can Your Mortgage Originator Legally Take a Loan Application Next Week?

You may want to check with your preferred mortgage originator to make sure they have fully renewed their license for 2011.  If they have not, or if they started the process late and are waiting for their 2011 license from DFI, they might not be able to legally take a loan application next week.

Some mortgage originators are not required to be licensed.  Thanks to Congress, the SAFE Act allows mortgage originators who work for credit unions or depository banks (like Wells Fargo, Chase and Bank of America) to only be registered.  It's unfortunate that our elected officials did not create the SAFE Act to have the same standards for any mortgage originator who takes a residential loan application.

Washington State Mortgage Originators who are required to be licensed should check on DFI's website to make sure they have met all the steps required to originate loans in 2011.   If certain steps are missing, including the renewal being approved, DFI has it clearly flagged as "needed".  Some mortgage originators have yet to pay for their renewal fees which will also prevent them from taking a loan application as a licensed mortgage originator as of January 1, 2011.


I am fully licensed to originate mortgages for homes located in Washington State.  I received my 2011 license from DFI in mid-November.  

From DFI:

"As of [Dec. 22, 2010] 59% of Washington MLOs successfully renewed and have been issued their 2011 license.  This percent represents 4,381 individuals who will be working as MLOs come January 1st."

Note:  MLO = Mortgage Loan Originator. 

If you find your mortgage originator has not completed the steps to be NMLS licensed in 2011, it's possible that they may have decided to work for an institution that is not required to be licensed (depository bank or credit union) or perhaps they simply procrastinated.   If you find they're not fully approved to take an application in 2011 per this list, you may want to ask them directly what their plans are for the new year. 

Mortgage Originators (MLOs) who allow their license to expire may have to go through additional steps to renew and may be subject to additional fees. 

If you are a Washington State Mortgage Originator - do double check DFI's list to make sure you have everything set for 2011.

Merry Christmas and Happy Holidays

I wish you a very happy holiday season and hope you're surrounded with family, friends and loved ones.   Mortgage Master Service Corporation is closed today so that our employees can do just that.  We will reopen for business as usual on Monday, December 27, 2010.


What Determines How Much Home You Qualify For – Part 2: Funds for Closing

piggybankbeltIn Part 1 of this series, I reveal that home buyers qualify for the mortgage payment first based on their income.  The next major factor is the down payment and funds for closing.  Some may say that the down payment more important than the mortgage payment, however the down payment actually can be a variable; one may be able to obtain gift funds to increase a down payment.  You cannot change your income unless you add more qualified borrowers.

[Read more…]

VA Loan Limits for 2011

UPDATE:  VA loan limits will remain the same through the end of this year!

UPDATE December 6, 2011: VA Loan Limits for 2012 (lower than 2011).

Below are the loan limits for VA loans in Washington State for all loans closed January 1, 2011 through September 30, 2011 December 31, 2011.  

  • King, Snohomish and Pierce Counties:  $500,000
  • San Juan County: $468,750
  • Clallam County:  $417,500
  • All other counties in Washington state: $417,000

If a Veteran elects to purchase a home with a sales price higher than the loan limit, they're down payment is 25% of the difference between the loan amount above and the sales price.


A veteran purchases a home in Kitsap county with a sales price of $560,000.  

$417,000 (Kitsap county VA loan limit) x 25% = maximum guarantee and possible entitlement = $104,250.

$104,250 / $560,000 = 19%.  Since this is less than the 25% maximum guarantee, a down payment will be required. 

$560,000 x 25% = $140,000.  

$140,000 – $104,250 (maximum guarantee) = $35,750 required down payment.

The base loan amount for this scenario (not including the funding fee) is $524,250.

A Veteran can purchase this home with 6% down payment!

Zero down loans are also available as long as the sales price does not exceed the VA loan limit. 

Lenders have various limits as to how large of a VA loan they'll fund.  This is one reason why it's great to work with a company like Mortgage Master Service Corporation where we have several sources for government loans.   If I can provide you a quote for a VA loan on a home located in Washington state, please contact me.

Attention Sellers: you're really limited the chances of selling your home if you don't consider buyers who are using VA or FHA financing!

Last but not least, THANK YOU to those who serve and have served our country.

2011 FHA Loan Limits for Washington

UPDATE:  Here are the FHA Loan Limits effective October 1, 2011 through December 31, 2011 for counties in Washington state.

These loan limits are effective through September 30, 2011.  

King, Pierce and Snohomish Counties

1 Unit – $567,500

2 Unit – $726,500

3 Unit – $878,150

4 Unit – $1,091,350

Adam, Asotin, Columbia, Cowlitz, Ferry, Garfield, Grant, Grays Harbor, Klickitat, Lewis, Lincoln,Okanogan, Pacific, Pend Oreille, Spokane, Stevents, Wahkikum, Walla Walla, Whitman and Yakima Counties

1 Unit – $271,050

2 Unit – $347,000

3 Unit – $419,425

4 Unit – $521250

Benton and Franklin Counties

1 Unit – $275,000

2 Unit – $352,050

3 Unit – $425,550

4 Unit – $528,850

Mason County

1 Unit – $310,000

2 Unit – $396,850

3 Unit – $479,700

4 Unit – $596,150

Kittatas County

1 Unit – $328,750

2 Unit – $420,850

3 Unit – $508,700

4 Unit – $632,200

Chelan and Douglas Counties

1 Unit – $342,700

2 Unit – $438,700

3 Unit – $530,300

4 Unit – $659,050

Thurston County

1 Unit – $361,250

2 Unit – $462,450

3 Unit – $559,000

4 Unit – $694,700

Skagit County

1 Unit – $373,750

2 Unit – $478,450

3 Unit – $578,350

4 Unit – $718,750

Whatcom County

1 Unit – $375,000

2 Unit – $480,050

3 Unit – $580,300

4 Unit – $721,150

Island County

1 Unit – $381,250

2 Unit – $488,050

3 Unit – $589,950

4 Unit – $733,150

Clallam County

1 Unit – $384,100

2 Unit – $491,700

3 Unit – $594,350

4 Unit – $738,650

Clark and Skamania Counties

1 Unit – $418,750

2 Unit – $536,050

3 Unit – $648,000

4 Unit – $805,300

Jefferson County

1 Unit – $437,500

2 Unit – $560,050

3 Unit – $677,000

4 Unit – $841,350

Kitsap County

1 Unit – $475,000

2 Unit – $608,100

3 Unit – $735,050

4 Unit – $913,450

San Juan County

1 Unit – $593,750

2 Unit – $760,100

3 Unit – $918,800

4 Unit – $1,141,850

Are Adjustable Rate Mortgages Worth Your Consideration?

Recently I talked with a Seattle home owner who's considering refinancing their 30 year fixed rate mortgage for an adjustable rate mortgage.  Adjustable rate mortgages (ARMs) have fallen out of favor in recent years due to the mortgage melt-down.   I've never been a fan of option ARMs, however there is nothing wrong with adjustable rate mortgages as long as the borrower understands the terms and it's suitable for that person's financial scenario.   This home owner's financial plan is to be mortgage free in seven to ten years after his children are out of college.   Cash flow is important right now so he would rather not do a 10 or 15 year amortized mortgage.

You very well could be scratching your head right now thinking "with how low fixed rates are right now, why on earth would anyone consider an ARM?" 

With his scenario, we're looking at a loan amount of $400,000 and a loan to value of 60% with excellent credit (scores are above 740).   I priced the following scenarios with zero points (origination or discount).   These rates are effective as of 5:00 p.m. December 15, 2010.

4.875% for a 30 year fixed (APR 5.020).  Principal and interest payment (P&I) = $2,117.   With this scenario, your principal and interest payment is never scheduled to change.

4.375% for a 10/1 ARM 12 month LIBOR with 5/2/5 CAPS 2.25 Margin (APR 5.731). P&I = $1997.    With this scenario, after 120 payments (10 years) the rate will adjust based on adding the 1 year (12 month) LIBOR is plus the 2.25 margin limited by the first "cap" of 5%.  The rate in 120 months cannot be higher than 9.375% nor lower than 2.25% (the margin also acts as "the floor" limiting how low the rate can adjust).  After the first adjustment, the rate will adjust once a year on that anniversary of the first adjustment limited by 2% up or down.  The highest the rate can be on this scenario during the lifetime of this loan is 9.375%. 

3.625% for a 7/1 ARM 12 month LIBOR with 5/2/5 CAPS 2.25 Margin (APR 5.742).  P&I = $1824.  With this scenario, after 84 payments (7 years) the rate will adjust based on adding the 1 year (12 month) LIBOR p the 2.25 margin limited by the first "cap" of 5%.  After 84 payments/months, the rate cannot go higher than 8.625% or lower than 2.25% (the margin/floor).  After the first adjustment the most the rate can adjust annually is 2% up or down following 12 the anniversary of the first adjustment (at 96 months) and annually thereafter.  For example, worse case at the second adjustment (96 months) the rate could be 10.625% (3.625% plus 5% at 7 years and plus an additional 2% at 8 years).

Selecting a 30 year fixed mortgage provides security of a fixed and options with your mortgage payment.  The home owner can pay additonal towards principal to pay down the mortgage.  A 15 year fixed mortgage is also more "safe" than an adjustable if you're concerned about retaining the mortgage beyond the ARM's fixed period.  However there is no flexibility with the payment (you can make a 15 year payment on a 30 year mortgage; you cannot make the 30 year payment on the 15). I'll admit I'm biased towards the 30 year fixed mortgage, however Americans currently still has a choice as to what mortgage options they prefer unless Congress changes this (as I'm afraid they'd like to).

Adjustable Rate Mortgages will reamortize based on the remaining term at their adjustment points.  For example, after 120 payments with a 10/1 ARM, the payment will be based on the new rate and a 20 year amortization.  With a 7/1 ARM, the payment will be based on the new rate and a 23 year amortization (7 years minus 30 years).

My client is actually considering an ARM because of the amount saved in monthly payments over the term he plans on retaining his mortgage.  

Let's compare the ARMs and 30 year fixed scenarios at 84 months…of course, there is no way for us to know what the LIBOR rate will be 7 years from now to predict an 100% accurate rate.

30 Year Fixed Rate at 7 Years.  Principal Balance = $350,879.  P&I=$2,117.  No change.

7/1 ARM at 7 Years.  Principal Balance = $341,250 providing a principal savings of $9,629 over the 30 year fixed rate.  The difference in payment between the 30 year and 7/1 ARM over this time period is $24,612 (2117 – 1824 = 293 per month.  293 x 84 = 24,612.  However…the payment is set to adjust.  Worse case scenario, the rate could go up to 8.625%.  Amoritzing $341,250 at 8.625% for 23 years provides a principal and interest payment of $2,156 – worse case scenario, this is only $39 more a month than what the 30 year fixed scenario has been paying the full 7 years.  

10/1 ARM at 10 Years has a principal balance remaining of $347,156.   The payment is $120 less per month than the 30 year fixed providing a monthly payment savings of $10,080.  And the 10/1 ARM will continue to have a fixed payment 3 years beyond the 7/1 ARM; at 7 years, the rate for the 10 year ARM is still 4.375% with the same principal and interest payment of $1997 where the 7/1 ARM payment at 85 months is unknown.

Bottom line, it's important to review your options and to consider your personal life plans.   A 30 year fixed rate mortgage if you're not planning on retaining that financing or home more than 10 years may be costly–however if you cannot stomach the thought of your rate ever adjusting, the 30 year fixed rate may be your cup of tea.  It is (and should remain) the homeowner's choice.