FHA Making Good on their Word for a Tougher 2010

January 20, 2010 by Leave a Comment

Late last year, HUD gave us all a warning that they were going to toughen up on FHA guidelines in January.  I'm still waiting for the Mortgage Letter with all the nitty-gritty details to be issued which will be issued tomorrow, January 21, 2010.  The changes to FHA are said to go into effect this Spring (wonder if it will be after the home buyer tax credit has expired).

FHA is going is going to increase the upfront mortgage insurance premium from 1.75% of the loan amount to 2.25%.   I'm currently helping some home buyers relocate to Des Moines, Washington.  They're buying a home with a sales price of $395,000 and the (currently available) minimum 3.5% down payment.  Here's how this would impact their mortgage scenario based on:

  • this morning's FHA rate for a 30 year fixed (as of 8:00 a.m.) at 4.875% (5.515% APR)
  • base loan amount of $381,150

UFMIP (upfront mortgage insurance premium) rate of 1.75% = $6670 (base loan amount x 1.75%).  381,150 + 6670 (since it is being financed) = $387,820.  Amortized for 30 years at 4.875% = principal and interest payment of $2,052.38. 

UFMIP rate of 2.25% = $8575 (381,150 x 2.25%).  Base loan amount plus 8575 = $389,725.  Amortized for 30 years at 4.875% = principal and interest payment of $2062.46.

With this scenario, based on a purchase price of $395,000, the difference in payment is ten bucks. 

FHA is increasing the minimum credit score to 580.  Now before you get in a dither, please know that most lenders, including Mortgage Master, will not go lower than 620 for a mid-credit score with FHA because of bank underwriting "overlays". 

FHA is also decreasing the allowable Seller Concessions from 6% to 3% of the sales price.  This will have little impact on my transactions–typcially 3% of the sales price is more than enough since the contribution can only go towards actual closing costs, prepaids and reserves.   Unless the seller was going to pay for the upfront mortgage insurance premium too…

It's my understanding that FHA is requesting to increase the annual mortgage insurance as well.  They actually had risked based pricing of mortgage insurance approved back in the summer of 2008 which was then put under a moratorium which quietly expired October 2009.  I'm sure they need to revamp the levels of risk since back in the summer of 2008, FHA was insuring loans with much lower mid-credit scores than what they (or lenders) would accept today.

HUD's Press Release from this morning.

So take a deep breath as the FHA belt continues to tighten and stay tuned to the Mortgage Porter…I'll keep you posted.

Filed Under: FHA, Underwriting and Qualifying

Do I Really Have to Provide All Pages of My Bank Statements?

October 29, 2009 by 1 Comment
A fisheye image of a mid-30's business woman pouting and looking angry.

A fisheye image of a mid-30’s business woman pouting and looking angry.

When assets are being used for down payment of a new home, towards closing costs on a refinance or even to document that the borrower has enough reserves (typically a couple months of mortgage payments) in the bank after closing; they need to be documented.

[Read more…]

Filed Under: Underwriting and Qualifying Tagged With: , , ,

Don’t Delay Your FHA Streamline Refi

September 29, 2009 by Leave a Comment

HUD has announced revised guidelines for FHA streamline refinances that will go into

Piggybankbelt

effect with case numbers issued on or after November 18, 2009 (60 days following September 18, 2009 the date of the Mortgagee Letter).   FHA streamline refinances take place when an existing mortgage is insured by FHA and is refinanced to a new FHA insured loan. 

Here are a few of the changes:

  • Employment and income will now be verified.
  • Credit scores will be disclosed.
  • Funds for closing must be verified.
  • The borrower must have made at least six payments on the FHA insured mortgage.
  • There must be a "net tangible benefit".  This can be:
    • a reduction in total mortgage payment of at least 5%;  
    • refinancing from an adjustable rate mortgage to a fixed rate; or
    • reducing the term of the mortgage (from a 30 to a 15 year amortization, for example).
  • Streamline refi's without an appraisal loan amounts will be limited to the outstanding principal balance minus the UFMIP (upfront mortgage insurance premium) refund plus the new UFMIP.  In order to have closing costs rolled into the mortgage, you will need an appraisal.
  • Streamline refi's with an appraisalare still up to a 97.75% loan to value and closing costs can be rolled into the new mortgage except for discount points.  Discount points must be paid for by the borrower's assets (which must be verified) as any closing costs that exceed the 97.75% LTV limit.
  • If there is subordinate financing (second mortgage) the total allowed combined loan to value is 125%.

The underwriting belt keeps getting tighter which is one reason why if you are considering refinancing, you may want to do so sooner rather than later. 

Mortgage Master is a Direct Endorsed HUD lender and I have been helping Washington State home owners with FHA mortgages for over nine years.  PS…rates are also very attractive right now!

Filed Under: FHA, Refinance, Underwriting and Qualifying

More Upcoming Changes to Underwriting

August 29, 2009 by 2 Comments

I originally wrote this post at Rain City Guide back in June of this year.  Fannie Maes tougher guidelines will go into effect in just a few days on September 1, 2009.  You can read the original post and comments by clicking here. 

Fannie Mae issued Announcement 09-19 amending some very basic underwriting guidelines that will not only impact conventional financing; it will apply to FHA insured loans that are underwriting using Fannie Mae’s DU.   You can read the entire announcement by clicking  here.

Here are some of the changes:

  • Credit documents will be valid for 90 days instead of the current 120 for existing construction.   The age of the document is measured from the date of the document to the date the Note is signed.
  • IRS Forms 4506 or 4506-T is required at application and at closing.  This is due to fraud (misrepresentation of income).
  • Age of appraisal is reduced from 6 months to 4 months.
  • Trailing Secondary Wage Earner Income is eliminated.   Now with a relocation, only the income of the spouse with actual employment may be considered.  Previously, it was possible to use the relocating spouse’s income from their employment prior to the relo without having an actual job.
  • Verbal Verification of Employment required within 10 days of signing the Note for employment income and within 30 days for self-employed income.  (Our company has always performed a verbal VOE prior to funding).
  • Stocks, bonds and mutual funds now valued at 70% instead of 100% to be used as reserves.   Due to market volatility, Fannie Mae is devaluing your portfolio.   This means that if you provide your mortgage originator with a stock, bond or mutual fund statement showing an ending balance of $10,000; the figure used for qualifying and on the application will be $7,000 (70% of the value).   Stock options and non-vested restricted stocks are no longer eligible to use as reserves.
  • Retirement accounts valued at 60% instead of 70% to be used as reserves.  

Fannie Mae’s effective dates are to follow…if the loan is manually underwritten, this applies to applications dated on or after September 1, 2009.   However, expect to see lenders and banks to adopt these guidelines early.

Filed Under: Fannie, Freddie and FHFA, Underwriting and Qualifying

Before You Negotiate the Patio Furniture into your Purchase and Sale Agreement

June 10, 2009 by 3 Comments

You find the home you've been waiting to write an offer on and the Seller has patio furniture (or a bbq,Patiofurnmtgporter riding lawnmower, furniture, etc.) that you'd like to make part of deal.  Perhaps the Seller's offering to leave you these items because it's convenient for them as well.  You and the seller include the items as part of your real estate purchase and sale agreement.  The agent is keen to include on the addendum that these items "have no value"…which may be true or it may be just to try to avoid having to deal with having a sales concession.

A sales concession is something that is not part of the real estate, such as cash, furniture, automobiles, decorator allowances, moving costs, or other "giveaways".  The value of the sales concession must be deducted from the sales price when calculating loan to values. 

For example, if you have a sales price of $200,000 and patio furniture valued at $3,000; the sales price the lender will use is $197,000 (200,000 – 3000).   Let's assume you're putting 10% down payment.   Without the sales concession, 10% down would be $20,000.   With the sales concession, 10% down is going to be a bit more:

The loan amount would be based on 90% of the adjusted sales price of $197,000: $177,300.  However the sales price, per the purchase and sales agreement is $200,000.  So the down payment would be $22,700: $200,000 less the loan amount $177,300.

The underwriter may (or may not) call for the concession item to be appraised or other supporting documentation to determine what the value is (or isn't)–even if the purchase and sale agreement states there is no value and the item was just left for convenience.  

It may sound silly or nit-picky to you…but would you buy the home at $200,000 without the concession?  The lender does not want the concession to be a part of what's factored into the financing.  If you have a significant down payment, this may not impact you.  Even with a 20% down payment, it could. 

20% down payment of $200,000 equals a loan amount of $160,000.  With a sales concession of $3,000; this can be treated a couple of ways:

  • Sales price is reduced by the concession to $197,000 (in the lenders eyes).  20% down payment based on 197,000 equals a loan amount of $157,600.  $157,600 less the actual contract sales price of $200,000 equals an actual down payment of $42,400 in order to have the mortgage still treated as an 80% loan to value with no private mortgage insurance or…

  • Sales price is still reduced to $197,000 and the loan amount remains $160,000.  Now the lender will treat this as mortgage with a loan to value of 81% which means: private mortgage insurance…even though the borrower is putting $40,000 down (20% of $200,000).

So you may want to think twice before you include items that are not real property in your purchase and sale agreement…unless you're putting a significant amount of funds towards your down payment or the items are truly worthless and you can prove it to the underwriter.

Filed Under: Residential Purchase, Underwriting and Qualifying

Relocating to Washington State and Getting Preapproved for a Mortgage

May 5, 2009 by 1 Comment

When relocating to a new State, many want to have their next home purchased to avoid the inconvenience of having to move twice from temporary housing to their permanent home in Washington.  Lenders want to know that the borrower have employment and the ability to make their mortgage payments.

If you have a job waiting for you at your new location, often times a copy of your employment contract documenting the start date, salary and probability of continued employment.  A verification of employment will be performed either/or verbally or with a VOE (verification of employment) form to be completed by the new employer.  It’s also important to know that the new employment must be in the same line of work as the previous employment.

What if you’re self employed and moving your business out of area?  Unless your clients are able to follow you, such as an internet based business, it may be challenging to use your past income for qualifying as you are leaving your client base behind.

There various types of income may not impacted by relocating (subject to underwriting guidelines), such as:

  • Rental income
  • Retirement/Social Security
  • Alimony or Child Support
  • Notes receivable
  • Interest and dividends
  • Income from Trust

Other types of income may be considered as well…but if you’re planning on qualifying based on income from your “future” job–make sure you’re actually on pay-roll and do discuss your personal scenario with a qualified Mortgage Professional before you make any moves.

Filed Under: Residential Purchase, Underwriting and Qualifying Tagged With: ,

Documentation for Self Employed or Commission Paid Borrowers

April 27, 2009 by 2 Comments

Update: Underwriting guidelines constantly change. There are many programs available for self-employed borrowers beyond going “full-doc”. Please contact me for more info!

Sonia asks via commenting on a post at The Mortgage Porter:

“I’m a first time home buyer, but I am self employed I would like to be preapproved for a mortgage loan and want to know what paper work will be required by the bank…”

[Read more…]

Filed Under: Refinance, Residential Purchase, Self-Employed, Underwriting and Qualifying

Why I’m Thankful I Don’t Work for a Bank or a Mortgage Broker

April 22, 2009 by Leave a Comment

Mortgage Master Service Corporation, my employer for the past nine years, is a Correspondent Lender–which is kind of like a blend of a bank and a broker.  I think it's the best of both worlds because like a broker, we have the ability to select which bank/lender we're going to work with and like a bank, we fund the mortgage.  We also process, underwrite and prepare loan documents at our location in South King County (this may be unlike a bank who'd processing center can be located in another State).

I've recently been provided a few examples of why it's advantageous to be a Correspondent Lender.   Ardell wrote a post at Rain City Guide about home buyers (or borrowers) being informed of when loan docs are "ordered", "sent" and "in".  A mortgage broker has to "order" loan documents from the wholesale lender/bank.   A form is submitted on paper or on-line requesting the loan documents be drafted.   The wholesale lender/bank where the loan is being brokered to will notify the mortgage broker once loan documents have been "sent" to the escrow company.  The escrow company will then send a confirmation to the mortgage broker that they have received loan documents–docs are "in". 

At our office, once conditions are met and we have final loan approval from our in-house underwriters, my processor prepares loan documents.  They are reviewed and then delivered electronically to the escrow company.  I receive notification from my processor that loan docs have been delivered to escrow and escrow confirms.  Our loan doc steps are "sent" and "in".

This creates a much smoother transaction since we remain in control of these vital steps.  Especially if there are any modifications or corrections that need to be made to the loan documents.  Instead of having to order a correction from the wholesale lender, our company is able to quickly react to any required changes.

The reason why I'm thanking my lucky stars I work for a correspondent lender and not a bank is because the bank is generally limited to their products and guidelines.   (A bank loan officer will tell you that they can broker or use outside lenders–just ask them how often they do–they're often compensated at a lower split if they send a mortgage outside of the bank).   Recently Wells Fargo decided they are going to start requiring appraisals on VA Streamline refinances.  (Hopefully other banks don't follow).  One of the benefits of a VA (or FHA) Streamline refinance is that an appraisal may not be required.   If I was a mortgage originator employed at this bank, then I would be stuck with their underwriting overlays (guidelines in addition to what VA is requiring); my clients who are Veterans would be required to prove their homes values and may not receive the benefit of reducing their mortgage rate.

As a correspondent lender (or mortgage broker), I know that odds are, if I have a VA Streamline refi (aka IRRL: Interest Rate Reduction Loan) I'm going to use another source for my client where an appraisal is not required.  

During these times, many banks/wholesale lenders have their own underwriting overlays in addition to what is being required by Fannie Mae, Freddie Mac, HUD or VA.  Correspondent lenders and mortgage brokers have the ability to review wholesale lending guidelines to help direct their clients to a product best suited for their needs.

It's nice to have options and control–it's nice to be a correspondent lender.

Filed Under: Escrow and closing, Mortgage, Underwriting and Qualifying, VA Mortgage Loans
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