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

December 30, 2010 by 1 Comment

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.).

FannieLLPA

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).

Filed Under: Credit Scores and Reporting, Fannie, Freddie and FHFA, FHA

My Interview on NPR: Credit and Refinancing

November 10, 2010 by 3 Comments

If you listen to the soothing voices of NPR in the mornings, you may have heard NPR's Wendy Kaufman's interview discussing the challenges of refinancing with lower credit scores.  I actually meet with Wendy about a week ago in Bellevue so she could interview me for this piece which I'm told will be airing again around 8:50 this morning PST on KPLU (88.5 a.m.).

You can also read the text version which includes a link to the broadcast:  Home Loan Blues: Refinancing Isn't So Easy

Here are some points I'd like to add to the interview:

It is more challenging to refinance (or purchase) in today's market.  Especially if you compare it to the wild subprime era of a few years ago…however the pendulum is still swinging tighter.  Mortgage guidelines absolutely needed to swing back from subprime, however some people may surprised to experience a mortgage transaction today.   The broadcast included a borrower who had to take clear copies of his documents–that would have happened before too assuming his supporting documentation (bank statements) were even required.   Today's underwriter is asking a lot more "why" instead of simply checking off a box that was generated by a streamlined automated underwriting system.  Qualifying for a mortgage is not impossible but you do need to be cooperative and provide what your mortgage professional asks of you…including that last page of your bank statement, even if it's blank.

With regards to credit scoring, we continue to see the minimum allowed credit score being raised.  It used to be that a 700 credit score or higher was considered great.  Now there are three different credit score "brackets" with conforming mortgages if your score is in the 700 range.   With higher loan to value loans, like FHA, many lenders are requiring a mid-score of 640 or higher (some lenders may go lower but I expect their credit score standards to increase too at a higher rate).

There are programs available for refinancing your home if you have lost equity and/or have a lower credit score.  If home owners currently have an FHA mortgage or conforming mortgage that qualifies for a Home Affordable Refi, they may still be able to take advantage of today's low rates.  If your home is located in Washington state, I'm happy to review your scenario at no obligation to see if refinancing makes sense for you. 

Listen to the NPR interview where I discuss credit scores.

 

Filed Under: Credit Scores and Reporting, Interviews, Podcasts, Refinance

Does Your Mortgage Originators Credit Score Matter to You?

November 1, 2010 by Leave a Comment

Would you work with a mortgage originator who has a 620 credit score?   Would you prefer to work with a mortgage originator who has a 720 or higher credit score?   Does how someone manages their credit history important to you if they are providing you advice about credit scoring and/or helping you with one of the largest debts you may have in your lifetime?

Starting November 1, 2010, the NMLS and Washington State DFI will begin pulling credit reports on LICENSED mortgage originators.  This is one of the final "background" checks being performed as required by the SAFE Act.  If a mortgage originator works for a depository bank (like Chase, Wells Fargo, Bank of America, Washington Federal, etc.) or any credit union, they will not have their credit pulled and reported to DFI.

I'm not aware of what the "magic number" is that DFI will use for weeding out mortgage originators with lower scores.  I believe they're looking more at credit history than the actual score…but I don't know for sure.  

What I do know is that mortgage originators who are licensed are held to higher standards per the SAFE Act than mortgage originators who are merely registered.   If you're curious about whether or not your mortgage professional is registered (bank/union union LO's) or licensed, you can visit www.nmlsconsumeraccess.org.

Filed Under: Credit Scores and Reporting, Legislation

What should I do about my credit score, if anything?

September 2, 2010 by Leave a Comment

I was asked this question via a friend on Facebook:

I had a 785 mid score, with 3 open trade lines (all at less than 30%) until the bank dropped my credit limit to the exact dollar amount of my balances. Now I'm down in the 714 range. I'm now considered a low-mid risk…hmmmmmmmmmpppphhhh! Only way out I can see is paying off Visa.

On the flip side, I don't need my credit score now…don't need a mortgage re-fi, and already have all the insurance I need.

It's pretty stinky when banks reduce your total available credit because the side effect is, your credit is dinged.  What the bank has effectively done is make it appear as though you're a credit user who has maxxed out their credit cards to their limit!  I'd probably contact the bank manager to express you disappointment (to put it mildly) and to see if they will correct this and to learn why they did this.

Credit scoring modules reward borrowers who use 30% or less of their available credit line.  Borrowers who use less 50% or less of their available credit also receive favorable scores.   Borrowers are also being whammo'd by banks when they reduce their home equity lines of credit (HELOCs) if it increases their loan to value over 50%.

If this person was interested in improving their credit score, their goal could be to work on getting each credit card paid down to 50% of the new credit line limit.  I would start with the smallest debt first as the credit scoring system doesn't distinguish between a $5,000 credit card limit or $500 credit card limit.  If this borrower has a $500 limit and they pay it down to $250, it should have the same impact as paying the $5,000 down to $2,500.  Once one card is paid down to 50% of the new limit, continue to make minimum monthly payments and move on to the next lowest credit line limit and repeat until all of your credit cards are under 50% of the available credit line.  The next level of improvement would be to pay your credit cards down to 30% of your credit line limit; so if your lowest credit card line is $500 and you've been maintaining a $250 balance, the next target would be 30% of the credit line or $150 (500 x 30%).

I do not recommend paying off credit cards completely and closing if they're older as the credit scoring modules love established credit with a good history.  You can use your cards to fill your gas tank or buy groceries and paying it off monthly.

Of course, if you don't really care what your credit score is currently because you're not planning on making purchases that will require your credit score, you don't have to do anything.  However, I think it's best to try to have a credit score of 740 or higher as so many things in our lives are priced based on our credit scores. 

Related posts you might find interesting:

New Credit Card Regulations and Games Creditors Play

Overdraft Protection and Your Credit Score

The Fed is Getting Tougher on Credit Card Companies

Filed Under: Credit Scores and Reporting

Is 714 a Good Credit Score for Buying a House?

September 1, 2010 by 2 Comments

This is a term someone entered into a search engine, like Google, who wound up on my blog.  “Is 714 a Good Credit Score for Buying a House?” is a fair question.  Just a couple years ago, having clients with credit scores 700 or higher was considered “excellent”.  In fact, previously credit scores of 680 or higher were considered good. Now with conventional loans, we have several brackets based on credit scores and loan to value.  Many lenders are adopting this with FHA loans too.

[Read more…]

Filed Under: Credit Scores and Reporting, Residential Purchase Tagged With: , ,

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

August 11, 2010 by 1 Comment

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

Filed Under: Credit Scores and Reporting, Underwriting and Qualifying

Why It Pays to Get Preapproved Early: You May Think You Know Your Credit Score

April 7, 2010 by Leave a Comment

I recently met with a couple who had relocated to the Seattle area and were ready to make an offer on a home.  They’re very qualified with their income stability and enough savings to put a twenty percent down payment on their next home.  What surprised them was the credit report.  [Read more…]

Filed Under: Credit Scores and Reporting, Refinance, Residential Purchase Tagged With: ,

More Changes Coming to FHA Insured Mortgages

March 5, 2010 by Leave a Comment

Federal Housing Commissioner David Stevens has released a letter confirming that the upfront mortgage insurance premiums on FHA insured loans will increase effective on case numbers issued on April 5, 2010 and after.  Most FHA transactions will see an increase of 50 basis points to 2.25%.  Currently the upfront mortgage insurance premium (which is typically financed–added to the loan) is 1.75% of the loan amount.  This was issued in a Mortgagee Letter in late January and is "old news". 

His letter also provides notice that other changes that were discussed by HUD earlier (but not included in that mortgagee letter) will be posted in the Federal Register soon and will go into effect this summer.

What will impact most FHA borrowers this summer is the decrease in allowed seller concessions.   Currently FHA allows sellers to pay up to 6% of the sales price towards allowable closing costs.  In a few months, this will be reduced to 3%.  

Also this summer, FHA will require borrowers with a credit score of less than 580 to have a 10% down payment.  Most lenders, including Mortgage Master, have a minimum credit score of 620 currently for FHA loans.

Commissioner Stevens also addresses a recent announcement:

FHA has waived the regulation that prohibits the use of FHA financing to purchase properties that are being resold within 90 days of previous acquisition.  The waiver of regulation took effect for all sales contracts executed on or after February 1, 2010.

A Mortgagee Letter which will have more details, will follow and there are certain conditions that must be met for a property to be eligible for the property waiver.

As you can see, mortgage guidelines are still very much in a tightening mode.  It's hard to say just how long this trend will continue or how long it will last.

Filed Under: Credit Scores and Reporting, FHA, Underwriting and Qualifying
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