HARP 2.0 Questions to ask your Mortgage Originator

HARP 2.0 (Home Affordable Refi Program) was revamped late last year to remove loan to value restrictions allowing more underwater home owners to refinance. So you may be wondering, why should you need to ask your mortgage originator if they have any loan to value restrictions with the HARP 2 program. In two words: UNDERWRITING OVERLAYS.

HARP 2.0 overlays are underwriting guidelines that are in addition to Fannie Mae or Freddie Mac’s program guidelines. Underwriting overlays are mandated by the bank and/or lender.  For example, as a correspondent lender, I work with several big banks, wholesale lenders and I can broker loans too. Currently most of the banks I work with have underwriting overlays that limit my maximum loan to value with HARP loans anywhere from 95 to 105% depending on the bank and scenario. Thankfully I also work with lenders who offer unlimited loan to values with no underwriting overlays for HARP 2.0, as the program was intended to be. 

Before you submit a loan application for HARP 2.0, ask the mortgage originator what is the max loan to value they can lend on.  If they are limited to 105% and your loan to value exceeds 105%, find another mortgage originator. HARP guidelines have an 105% ltv limit on adjustable rate mortgages and loans with a term greater than 30 years.

If you have PMI or LPMI, ask your mortgage originator if they are accepting transferred pmi BEFORE you start your application. Many lenders are not accepting HARP loans with existing pmi or lpmi (lender paid mortgage insurance). If you’ve been told this by your bank, seek another lender.

There are some scenarios where because of certain “credit enhancements” a loan may not be available for a HARP 2.0 – it’s more the exception than the norm.  And I’m hoping when (if) HARP 3.0 becomes available, those loans are allowed to take advantage of this program.

If your LO has told you that an appraisal is required, get a second opinion. Appraisal waivers are not automatically provided on all HARP 2.0 loans. It is not determined until your loan is ran through Fannie Mae or Freddie Mac’s automated underwriting systems (DU or LP) whether or not an appraisal is required. Sometimes the smallest detail may impact whether or not an appraisal waiver is granted, such as how your address is entered into the AUS. You many not need to spend money on the appraisal and it’s possible that you may receive an appraisal waiver at a later date as the valuations that Fannie and Freddie use change.

Because of the increased refi volumes created by expanded guidelines with HARP 2.0 and the reduced mortgage insurance now available for some FHA streamlined refi’s, banks and lenders are “cherry picking” what refinances they want. One way of doing this is by creating underwriting overlays. Due to these increased volumes, large banks and credit unions have hired on loan originators (or “mortgage tellers”) who may lack experience in the mortgage industry. (Remember, LO’s who work for banks or credit unions are not required to be licensed per the SAFE Act). They’re simply hired to fill out an application and are not savvy to actual guidelines.

I’ve been helping home owners who have been told by a mortgage originator that because they have pmi or their loan to value is 108%, that they don’t qualify for HARP 2.0 when actually, they do.  I’m not sure if LO’s don’t read Fannie/Freddie guidelines or if because they cannot offer it, they prefer to portray certain features are not available when what they should do is convey that they do not have access to those features (such as ltv’s over 105%), however another lender may.

If you’re considering refinancing or buying a home located anywhere in Washington, I’m happy to help you.  Click here if you would like me to provide you with a mortgage rate quote.

EDITORS NOTE: Since this was published, most of the banks we work with as a correspondent have pulled back their LTV guidelines to 105%. Wholesale lenders where we can broker have also made changes to guidelines or policies or have stopped accepting applications due to extreme volumes. Hopefully Congress will pass HARP 3.0 to help the Home Affordable Refi become more available. 

How often will I have to supply documentation for a mortgage?

OnionI've often thought that the loan process for a borrower is similar to peeling an onion. At the very beginning stages, when a borrower is considering obtaining a mortgage and they discuss their scenario with their mortgage originator, they appear to be a smooth, shiny Walla Walla Sweet. As the process continues, more layers are removed as documentation is provided. Sometimes when several layers have been peeled away, you no longer have an onion or at least, not the one you originally started with. It's crucial that a mortgage originator takes an in-depth interview with their clients before they enter into a transaction (purchase or refinance) to make sure as much their financial information has been addresses as possible. There may be a significant difference between how a borrower views their financial scenario and what their supporting income and asset documents tell to an underwriter. 

Here are some of the stages that a borrower can expect to have documentation requested by their mortgage professional:

Preapproval. A preapproval is different than a "prequalification". When you're preapproved, expect to provide income/employment and asset documentation to support the information you've provided to your mortgage originator. The items that are requested may be standard or specific if the mortgage originator used an "automated underwriting system" (AUS).  NOTE: if you have not provided any supporting documentation to your mortgage originator, you probably have not been "preapproved".  It's possible that if it's been a while since your mortgage was preapproved, you may need to provide additional information (recent paystubs or bank statements, for example) to update your preapproval.

Processing. Once you have a bona fide transaction, your loan application is "in process". At this time, my Processor will review my clients file with a fine tooth comb to see if there's anything I may have missed. It's possible at this stage, that a borrower may be asked to provide additional documentation. Depending on the loan program, sometimes longer time periods are required (30 days of most income documents or two months most recent paystubs, for example). This is also the stage when IRS tax transcripts are pulled (from your signed 4506T) which may also trigger questions and the need for additional documentation. Our goal is to provide a solid file to our underwriters so the end result is less "conditions". 

When your appraisal comes in you will be required to sign disclosures acknowledging you received a copy of your appraisal. By the time you're done autographing all of your paperwork required in a mortgage transaction, you may feel like a very popular rock star.

Underwriting. Once we have a complete loan package with all of the supporting documents, the file is submitted to our underwriting department. Once again, the transaction is being closely reviewed to make sure the documentation provided is in-line with the program guidelines and lender overlays. Once we have preliminary approval from underwriting, it's normal to have some "conditions" which typically means…yep, you guessed it, providing more documentation or writing a letter explaining a specific circumstance (LOE). 

There are primarily two types of conditions from underwriting:

  • Prior to Doc: these items must be provided before loan documents can be prepared.
  • Prior to Funding (or Closing): these items will not hold up your loan documents being prepared and can be provided prior to your loan closing.

Prior to funding, your employment is re-verified and a soft pull on your credit report may be done to verify you do not have any new debts and that you are still employed. If there are changes to your loan application (new debt or employment) be prepare to provide more documentation. If you've made changes to your application (debts, assets, income or employment) during the transaction – you must notify your mortgage originator. You're signing a "final" loan application at closing which needs to reflect your financial scenario – if it does not, you may potentially be commiting fraud. In addition, when changes to an application are found at this late stage in the transaction, it's probable the closing will be delayed.

Every time a document is provided to underwriting for review, it's possible it may trigger a new condition.  For example, a bank statement may disclose large deposits, which will need to documented where the source of funds came from or it may show the borrower has bounced checks, which could require a written letter explaining why the NSF happened. 

Why all this documentation? Basically, it's thanks to recent years past with the mortgage meltdown and fraud. Providing everything that is requested by your mortgage professional will help expedite your transaction. 

The days of "stated income" loans are gone. There are some streamlined mortgages that allow for less documentation, such as an FHA streamlined refinance and HARP, depending on the automated underwriting response from Fannie or Freddie.   

If you're interested in getting preapproved for a mortgage for a home located anywhere in Washington State, I'm happy to help you. I have been helping Washington home owners at Mortgage Master Service Corporation buy and refinance since 2000.

Photo Credit: Doc Wert via Flickr

What Do You Need for a Preapproval?

preapprovalIf you’re considering buying a home, many real estate agents and/or sellers will require a preapproval letter. A preapproval letter is different than being “prequalified”. Being prequalifed means that you have provided verbal information to a mortgage originator to get an idea of what you qualify for. Being preapproved means that you are providing documentation that supports the information you have provided. Income, employment, assets and credit are verified for a preapproval.

Some preapproval letters aren’t worth the paper they’re written on. Especially if the mortgage originator you’re working with does not require supporting documentation before preparing the letter. If you have not provided supporting documentation (listed below) to your mortgage originator – you’re probably just prequalified and not actually preapproved.

Here is a list of documents you may be required to provide in order to obtain a preapproval:

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Explaining the “Letter of Explanation”

preapprovalIt’s not unusual these days to have a lender request a “letter of explanation” from a home buyer or someone who is refinancing their current property.  I letter of explanation (or LOE) is often used to help provide more information to the underwriter or lender based on information that is disclosed on an application or credit report. LOE’s may address anything from gaps in employment to inquires on a credit report and is intended to help explain or add support to the transaction. If a borrower has had an extenuating circumstance and is trying to have an exception made to an underwriting guideline, they may be asked to write a LOE.

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How Disputes on Your Credit Report May Impact Obtaining a Mortgage

Reviewing your credit report and disputing information that is being wrongly reported about you is your right under the Fair Credit Reporting Act. Obtaining your credit report and making sure that it’s accurate is financially responsible and your duty to protect your credit. And the Federal Trade Commission provides you tips on how to dispute items on your credit report.  Did you know that lenders may not accept a credit report where it indicates there is a disputed item? 

It doesn’t matter if you have perfect credit or a low loan to value, Fannie Mae and Freddie Mac guidelines are forcing lenders to provide a credit report without disputes. I’ve recently had transactions where the borrower doesn’t recall disputing anything and the debtor doesn’t have record of the dispute yet this “dispute” needs to be removed from the credit report or the lender/bank will not accept the loan. This is one reason why anyone considering a mortgage for refinancing or purchasing a home should obtain a copy of their credit report very early on. It can take a great deal of time to have disputes removed if a borrower does this on their own.  

The other option is for a “rapid rescore” which whittles down the process to days. The irony in this is that rapid rescore is not free and it is the credit bureaus and reporting agencies who profit when this service is done – I really have a problem with this when my client and the creditor state there are no disputes of record yet somebody has to pay to have these items quickly removed to accommodate a closing date. Often times, the lender absorbs the cost of the rapid rescore however this eventually drives up the overall cost of doing business and eventually, the consumer pays.

In my opinion, this is something that Fannie Mae and Freddie Mac need to change pronto. Well qualified borrowers should not have to go through these hoops or have their mortgage denied. A simple written letter of explanation signed by the borrowers and possibly the creditor *should* suffice instead of requiring the credit report not show any sign of a dispute. Apparently back in 2009, Fannie was reviewing their policy however, I’m not aware of any significant changes.  

If our government wants to help the housing industry and our economy, this practice needs to stop now.

5 Ways to Derail Your Loan Approval

MonorailYou’re getting ready to buy a home or refinance your home with your closing day around the corner when your mortgage originator contacts you to let you know there may be a problem.  Some issues may not revealed until days or sometimes weeks into a transaction.  Anytime documentation is provided to the mortgage company, it has the potential to raise more questions or require more documentation to satisfy underwriting guidelines.   Here are five situations to be aware of that can cause headaches during the loan process.

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The Mortgage Process: Contemplating Buying a Home to Getting Preapproved

For a while now, I’ve had this idea floating around in my head that with four years of articles at Mortgage Porter, I really should organize the post by the actual mortgage process.  Right now, my blog is traditionally organized chronologically and by categories.  I’m not changing that at all…what I am planning on doing is reposting the articles I most commonly refer to for my clients in an order that follows the mortgage process.  This will be a post I will continue to update with new content via links to the article…it’s a work in progress!  

In my opinion, someone considering buying a home should start researching the process months before actually entering into a purchase and sales agreement.  So that’s where we’ll start:

Considering Buying a Home?

Getting on Track to Buy Your Home

Basic Tips for Homebuyers

How Much Home Can I Afford?

That new car with cost you!

Tips for Improving Your Credit Score

Game Plan for if your credit score is low.

Getting Preapproved

Are You Really Preapproved or just Prequalified?

Debt to Income Ratios (aka DTI)

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

What is required to document income?

Documentation for Self Employed or Commissioned Paid Borrowers

Why it pays to get preapproved early:  You may think you know your credit score

Preapproval Letters Defined

What should a preapproval letter contain?

Relocating to Washington State and getting preapproved for a mortgage

Is my Preapproval Letter Still Valid wth all the Rate Changes?

Planning Your Funds for Closing

Funds for closing when you’re buying a home

How much do I need for a down payment?

Gifts from Parents:  FHA and Conventional

We’ve just started the process with this post addressing considering buying a home to getting preapproved!  Watch for future post where I’ll organize articles I’ve written on being in a transaction.

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

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.

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