Main Stream Media Misses Message on Mortgages [Rant Warning]

2013-08-14_1419Recently a piece that was aired on ABC news about mortgages and was brought to my attention. It’s been a long time since I’ve seen something so misleading and sensational about what consumers should watch for when obtaining a mortgage.

The segment features Erin Lantz from Zillow who claims to have saved a couple thousands of dollars on their home mortgage. Erin is Zillow’s Director of Mortgage Business and prior to Zillow, her lending career was at Countrywide and Bank of America, during the subrime era.

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One month left before FHA mortgage insurance is permanent…SO WHAT??

Borrowers not wanting to have FHA mortgage insurance as part of their mortgage payment for the life of the loan have about thirty days to take action. This shouldn’t be a reason to panic. 🙂

Effective FHA case numbers issued June 3, 2013 and later, FHA mortgage insurance will become a permanent part of the FHA mortgage payment.

Why do I say “SO WHAT?”

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Ben Bernanke says mortgage underwriting standards are too tight

In his speech at Operation HOPE Financial Dignity Summit yesterday on the challenges of the housing market and mortgage lending, FOMC Chairman Bernanke expressed concerns that mortgage underwriting has become “overly tight”. 

“…Some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices. Mortgage loans that were poorly underwritten or inappropriate for the borrower’s circumstances ultimately had devastating consequences for many families and communities, as well as for the financial institutions themselves and the broader economy.

However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.’

Borrowers who have recently purchased a home or closed on a non-streamlined refinance would most likely agree with Ben Bernanke’s views on underwriting guidelines. And for the most part, I do too. Today’s home buyer will often find every aspect of their income, assets and credit scrutinized. For example, Form 4506 (which was once used primarily for stated or no-income verified loans) is now pulled on every mortgage in process to obtain a copy of the tax transcripts for the the past two years. Any discrepancies between the 4506 and income supplied must be addressed, which often leads to the borrowers having to provide complete tax returns instead of just their W2’s. If a borrower has deposits on their bank statements that are not easily identified, they can expect to show proof of where that deposit came from. Credit reports may disclose information that the borrower may need to address as well beyond the good old “inquiry letter”. Now they disclose information about activity associated to a borrowers address that may or may not relate to the borrower. Don’t get me wrong, loans are closing however the process for some can require a great deal of patience and paperwork.

“When lenders were asked why they have originated fewer mortgages, they cited a variety of concerns, starting with worries about the economy, the outlook for house prices, and their existing real estate loan exposures. They also mention increases in servicing costs and the risk of being required by government-sponsored enterprises (GSEs) to repurchase delinquent loans (so-called putback risk).”

“Putbacks” are also referred to as “buy-backs”. And buy-backs tend to roll down hill to the source that originated the mortgage, including  banks and correspondent lenders like Mortgage Master Service Corporation. This happens when the loan (borrower) is not performing. The lender will go over the loan documents with a fine tooth comb to try to find fault in the underwriting so they can justify sending the loan (forcing a buy-back) to the originating lender. This is why many borrowers are having to over-document their finances.

The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices indicates that lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since.

Ben Bernanke and the Fed cannot control the underwriting guidelines and overlays that banks have for mortgage lending. I certainly do not want to see the loose underwriting of the subprime era return. However I do agree that for the most part, underwriting has become pretty tight and I would welcome more “common sense” for well qualified borrowers.

Mr. Bernanke needs to brush up on Frank Dodd and how it will continue impact the mortgage industry and underwriting guidelines.

Your thoughts?

Mortgage loans and the first Presidential Debate

Did you watch the Presidential debate last Wednesday?  At one point, President Obama and Mitt Romney discussed regulations that are impacting getting a mortgage – namely: Dodd Frank. When you hear media discussing that some borrowers are  having a difficult time qualifying for a mortgage or that the process is cumbersome, odds are it’s regulations like those you’ll find in Dodd Frank that are the cause. 

Here’s a bit from the debate:

President Obama:

…the reason we have been in such a enormous economic crisis was prompted by reckless behavior across the board. Now, it wasn’t just on Wall Street. You had…loan officers…giving loans and mortgages that really shouldn’t have been given, because they’re — the folks didn’t qualify. You had people who were borrowing money to buy a house that they couldn’t afford. You had credit agencies that were stamping these as A-1 (plus) great investments when they weren’t. But you also had banks making money hand-over-fist, churning out products that the bankers themselves didn’t even understand in order to make big profits, but knowing that it made the entire system vulnerable.

So what did we do? We stepped in and had the toughest reforms on Wall Street since the 1930s. We said you’ve got — banks, you’ve got to raise your capital requirements. You can’t engage in some of this risky behavior that is putting Main Street at risk. We’re going to make sure that you’ve got to have a living will, so — so we can know how you’re going to wind things down if you make a bad bet so we don’t have other taxpayer bailouts.

Mitt Romney:

Let me mention another regulation of Dodd-Frank. You say we were giving mortgages to people who weren’t qualified. That’s exactly right. It’s one of the reasons for the great financial calamity we had. And so Dodd-Frank correctly says we need to… have qualified mortgages, and if you give a mortgage that’s not qualified, there are big penalties. Except they didn’t ever go on to define what a qualified mortgage was… 

It’s been two years. We don’t know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try and get a mortgage these days. It’s hurt the housing market…because Dodd-Frank didn’t anticipate putting in place the kinds of regulations you have to have. It’s not that Dodd- Frank always was wrong with too much regulation. Sometimes they didn’t come out with a clear regulation.

Read the full transcript of the Presidential Debate courtesy of NPR.

I was actually surprised to hear “qualified mortgages” (also referred to as QRM or qualified residential mortgage) brought  up in the debate. Banks have been waiting for the definition of what constitutes a QRM for some time. One of the biggest concerns is if the government uses loan to value (how much down payment or home equity) to qualify as a QRM

It’s quite possible that in order for a mortgage to be classified as a QRM, a home buyer may have to come up with 10 or even 20% down payment when they’re buying a home. I would imagine that mortgages that fall outside of the QRM criteria will have much higher rates to compensate for the risk that bank will be taking. First time home buyers or those without larger down payments (assuming loan to value is one of the factors) will be penalized. Obviously this would not help the housing market’s recovery nor help our economy.

The Center for Responsible Lending reports:

QRM mortgages requiring a 10% down payment would lock 40% of all creditworthy borrowers out of the market. A 20% down payment would exclude 60% of creditworthy borrowers.

In my opinion, it’s time to move forward with common sense underwriting. We don’t need the government creating underwriting guidelines for those who are wanting to buy or refinance their home (the flaws with “net tangible benefit” requirements illustrates this).

Stay tuned…

From the Mortgage Junk Mail Bag

JunkIt’s been a while since I’ve shared a POS (piece of solicitation) from the junk mail bag. I don’t have an issue with lenders trying to obtain business from home owners by mailing marketing pieces…although I do wonder why they must resort to marketing to strangers instead of working with past clients.  

This letter was sent last month. It was packaged in a folding security envelope to look as if it may have contained important information, such as the code to an ATM card. It was only a trick to get one to open it. 

They start with quoting an APR of 3.125% for a 30 year fixed rate in the upper right corner with a very low payment of $651 on a $250,000 loan amount. That’s a great rate and an amazingly low payment!  However if you read the very tiny print on the bottom of the page, you’ll see that what the rate offered is actually based on a 5 year interest only adjustable rate mortgage (ARM).  Why not have that information in the upper right corner with the teaser rate and payment? 

The lender who sent this is from a company in California. I really recommend working with lenders in your own state where processing and underwriting are done locally as well. Why would they have to mail to Washington state home owners to try to get refinance business?

I also recommend that you use the NMLS Consumer Access site to research any Mortgage Loan Originators you’re considering allowing to assist you with your refinance. The NMLS Consumer Access site will disclose their employment history and whether or not they’re licensed to originate mortgages in Washington.  I think it’s also a good idea to “google” their name and the company’s name to learn more about them. 

Instead of calling a stranger from out of state for your mortgage needs, do your own research. 

If your home is located anywhere in Washington state, I’m happy to help you with your refinance or financing your home purchase. And by the way, I have never bought “a lead” or sent out a piece of junk mail to try to solicit a mortgage prospect.

Hammered with HARP 2.0 Offers from Lenders You Don’t Know?

I received this email from one of my readers:

"My mailbox is being bombarded with out of state Harp 2 "pre-approved" loan offers and I did call one of them and they talked me into running a credit report and when I found out their fees for the loan I didn't call them back and told them I had to think about it. I'm a not sure if this is a scam or not so I thought I would check locally…"

The Home Affordable Refinance Program (HARP aka HARP 2.0) has created a refi boom for mortgage originators. Many large banks are now telling their clients it may take up to three months to process their refinances due to the heavy volumes that are being experienced. Some banks have so much business that they're turning away clients just because they have private mortgage insurance or LPMI with their existing mortgage. NOTE: Our company is closing HARP loans and accepting HARP refinance applications with existing pmi and lpmi for properties located in Washington state.

HARP 2.0 has created a great opportunity for mortgage originators and companies to buy leads. I've always scratched my head at why a mortgage originator or mortgage company would have to buy leads. You have to wonder how their service is if they do not have enough business by clients who return to them for their HARP refinance. Especially if the company is out of state – is their business so bad they have to go out of state to find consumers who have never heard of them?

I would never work with a non-Washington based mortgage originator or company who has to buy leads in order to get a loan. However, should you decide to, please check the NMLS to make sure the company and mortgage originator are licensed to do business in Washington State.  The solicitations you're receiving from these out-of-state lenders must disclose the license numbers for the company. 

Google the company and the mortgage originator to learn more about them. Should you decide to proceed with someone you're about to spend several weeks with while your refinance is in process, you might want to check their credentials first.

If you are considering buying or refinancing a home located anywhere in the state of Washington, I'm happy to help you. I've been originating mortgages at Mortgage Master Service Corporation since April 2000 and I've never paid for a "lead". My business is completely referral, returning clients and those who find me from reading my blog. Our local mortgage company located in King County has been family owned and operated since 1976. 

Why May 31, 2009 is the cut-off date for Home Affordable Refi Program (HARP 2)s

I'm on a confererence call with Fannie Mae regarding the updates made to HARP 2. Someone has asked about how the date was selected for the cut-off of when when a mortgage is eligible for HARP 2.  The answer from a gentleman representing Fannie Mae said (paraphrased – this is a conference call):

Because anyone who bought a home or obtained a mortgage June 1, 2009 or later, knew the they type of housing marketing were getting into.  

The Fannie Mae rep insinuates that those who financed prior to June 1, 2009 may have not been aware of the dramatically changing climate in the housing industry.  

By the way, the date of May 31, 2009 is not the closing date – it is the date Fannie Mae securitized the loan which may be weeks after the closing date. I have had clients who have missed qualifying for a HARP refi because Fannie Mae securitzed their loan ON June 1, 2009, disqualifying them by one day!

I was surprised by the Fannie Mae rep's response. I assumed there was a more scientific reason for the date of loans securitized prior to June 1, 2009 instead of "these borrowers knew better".

In my opinion, the date should be removed. Why punish borrowers who happened to refinance or buy after that time period. If Fannie Mae's argument is that these borrowers knew better, how could they continue to have mortgage programs available during that time? I feel that if borrowers are qualifed and can benefit from a HARP refi, they should be allowed to have access to this program to help their personal finances and therefore, the economy to improve.

Other factors Fannie Mae is stressing is that loans are still underwritten based on risk – especially borrowers in a negative equity position.  It's not guaranteed that HARP refi's will receive an appraisal waiver and not all scenarios will receive an approval for a HARP refinance.  I've been contacted by Washington area home owners who lack steady income or have blemished credit assuming they will qualify – they may not. We won't know until we submit your loan scenario to Fannie Mae's automated underwriting system DU Plus and have a response before we can determine IF someone qualifies for HARP and what documentation will be required.

If you are interested in a Home Affordable Refi (HARP 2) for your home located anywhere in Washington, please click here.

It’s time for HUD to revamp the FHA Streamlined Refi

HUDHUD's Shaun Donovan was recently promoting Obama's jobs bill and the recently revised the Home Affordable Refinance (aka HARP 2.0).  Fannie and Freddie have revamped the Home Affordable Program to reduce the closing cost and eliminate the need for an appraisal on many qualified homes.

From Donovan last week on HARP for conventional refinances:

"…There are still millions of Americans who have worked hard and acted responsibly, paying their mortgage payments on time. But because their homes are worth less than they owe on their mortgage, they can’t refinance….

Just yesterday, the FHFA announced changes that will help more responsible borrowers take advantage of today’s low mortgage rates. These changes will knock down barriers such as closing costs and fees that can sometimes cancel out the benefit of refinancing altogether.

And by creating more competition so that consumers can shop around for the best rates, these changes will save homeowners on average $2,500 per year — that’s the equivalent of a pretty good-sized tax cut…"

With HUD promoting HARP 2.0, I'm hoping that they're taking a strong look at their own FHA Streamlined refinance.  FHA streamlined refi's already do not require an appraisal as long as the loan amount is not being raised over the balance of the existing FHA loan.  

The problem with the FHA streamlined refinance is that with the last adjustment to FHA's annual mortgage insurance and funding fee, it's more difficult to have these refi's pencil out. The annual premiums are so much higher than past insurance premiums that despite today's much lower rates, the higher insurance fees often cancel out the reduced rate benefit. Seattle area and other home owners who are not underwater with their home values may be able to switch to a conventional mortgage (with or without private mortgage insurance depending on the loan to value) and an appraisal will be required to prove the current value of the property.

In my opinion, with FHA streamlined refi's, HUD should either allow a reduced mortgage insurance rate for streamlined refi's and perhaps not offer a credit of the remaining upfront mortgage insurance premium. VA's IRRL loans offer a reduced funding fee of 0.5% for refi's.

Another option would be for HUD to allow the FHA borrower to refinance their FHA mortgage with the same FHA mortgage insurance premiums of their current FHA loan.  

HUD should also make it easier for borrowers with FHA ARM's to be able to do a streamlined refi into a fixed rate program.  Current guidelines require a reduction in payment of 5% and a caps the interest rate at no more than 2% higher than the ARM. If the borrower qualifies for the higher payment and they are opting for a fixed rate program, they should be allowed to do so.  Currently this eliminates borrowers from being able to streamline refi from an adjustable rate to a 15 year fixed.

HUD already has the risk with the loan, why not help Americans with FHA insured loans reduce take advantage of this current low rate environment by making FHA streamlined refinances more feasible? 

Mr. Donovan, it's time for HUD to knock down barriers such as closing costs and fees that can sometimes cancel out the benefit of refinancing altogether for FHA streamlined refinances.

EDITORS NOTE: This post was updated 11/21/2011 with the addition of the paragraph addressing changing the requirement for a steamline refinance out of an adjustable rate.