Home Affordable Refinance Guidelines: This loan program is designed for underwater borrowers who have demonstrated an acceptable pay history, but due to overall real estate market decline cannot refinance their homes per current industry guidelines. The new Home Affordable Refinance Program can be used for the following:
• Pay off the current unpaid principal balance on existing first mortgage (current 2nd mortgage must be re-subordinated).
• Refinance and pay off closing cost, prepaid items and points.
• Available products: DURP15 & DURP30.
Borrower Eligibility:
• A borrower on existing mortgage may be removed; however, documentation to reflect the remaining borrower has been making the payments from their own funds in the prior 12 months period will be required. Borrower to be removed must also relinquish ownership. If borrower is being removed due to death, 12 month pay history is not required.
• A borrower may be added to the new loan as long as the existing borrower is retained. The addition of a non-occupying borrower is not allowed.
Loan to Value/Combined Loan to Value
• NEW! Fannie Mae has recently removed all LTV/CLTV restrictions.
• Investment loans- maximum 80% LTV/CLTV.
Property/Occupancy Restrictions:
• Primary Residence , second homes or investment properties
• 1-4 unit dwellings, Condos and PUD’s.
• No Manufactured Homes.
Appraisal Requirements:
• DU to determine appraisal requirement. Property Inspection Waiver and 2075 available.
• Must comply with Appraisal Independence. (Discuss affordable home refinance guidelines with loan officer)
• If property is located in a natural disaster area, FCM will require a full 1004 appraisal.
Home Mortgage Insurance:
• ORIGINAL LTV’s <= 80%: mortgage insurance will be waived by DU
• NEW! FCM will now allow any existing Fannie Mae loan with an LTV>=80%: which includes mortgage insurance to have insurance transferred by FCM. Insurance must be written from one of the following companies to be eligible for transfer: o Radian
Under heavy pressure to crush the housing crisis, many lawmakers are considering the loan limits for FHA financing. Many FHA lenders in California, Colorado, Virginia, New York and Washington have expressed their concerns regarding the pool of borrowers that would no longer be able to access FHA for purchase mortgage and home refinance options. Most lenders who originate FHA loans in these high cost states agree that higher loan amounts who help many areas that were devasted by housing crisis. The movement to reinstate higher FHA limits is in full-swing in House and the Senate. However it doesn’t appear that government sponsored enterproises like Fannie Mae and Freddie Mac would not be included in the measure or spending bill.
The loan limits fell from a maximum $729,750 to $625,000 on the first of October earlier this year. This affected 600 US counties for FHA, but less than half of that for Fannie Mae and Freddie Mac. FHA is not a lender rather an insurer of home loans for approved lending companies. It is currently the only low down-payment finance option left in the mortgage industry as they only require a 3.5% down-payment from perspective home buyers. The VA does offer 100% financing but it is only available to military borrowers.
Now the FHA market-share could expand even more because it would likely take over some of the share presently held by Fannie Mae and Freddie Mac. In a phone interview today, FHA commissioner Carol Galante said, “This is a scenario that has never happened in the past in which FHA has higher loan limits than Fannie Mae and Freddie Mac. According to mortgage analyst Brian Chappelle at Potomac Partners It could increase FHA volume by 10%. “The higher loan limits would help raise FHA reserves if the defaults don’t increase. Every recent audit has said larger loan amounts perform better than smaller loan amounts says Chappelle. “If it wasn’t for the FHA loans insured in 2009-2011 FHA would already be needing taxpayer assistance.”
In the wake of looming foreclosures and loan defaults, the Obama Administration is once again considering extending federal aid to help struggling homeowners get quicker access to affordable mortgage refinance loan solutions. President Obama proposed to expand access to home refinancing has reignited a debate about the appropriate role for government in supporting the real estate sector. Some economists argue that the best way to spur the recovery is to stop intervening, let matters run their course, and allow home prices to normalize naturally. Mortgage refinancing guidelines have tightened dramatically over the last few years, so many struggling homeowners want to refinance but are unable to qualify.
The new initiative, briefly mentioned by the president in his jobs speech last week, seeks to help homeowners to refinance their mortgages at lower interest rates with hopes to stimulate consumer spending and boost economic growth. Anthony Sanders, professor of real estate finance at George Mason University, says it’s a mere extension of The Home Affordable Refinance Program, which has helped only a small number of homeowners. In his view, the initiative is unlikely to have any significant stimulative effect on the economy.
Some argue that government efforts to help struggling homeowners would alleviate labor mobility, which has been hampered by the housing woes. But Stijn van Nieuwerburgh, associate professor of finance at NYU Stern Business School, says labor mobility has not been a big issue. “All areas in the U.S. are affected, and it is not the case that there are abundant jobs anywhere.” A recent research from Chicago Federal Reserve also found no evidence that people’s reluctance to sell their homes in declining market to relocate for a new job has contributed to high unemployment. Read the complete CNBC article.
According to real estate data specialist CoreLogic, 75% of the 10.9 million homeowners with underwater mortgage owe more than their homes are worth. The company said Nevada had the highest share of underwater mortgages at the end of the 2nd quarter, with 60% of borrowers underwater, followed by Arizona 49%, Florida 45%, Michigan 36% and California 30%. According the Lead Planet, 20% of refinance leads in 2011 are submitted by underwater homeowners.
The average underwater mortgage share for the top five states has declined over the past year, from 41% to 38%, primarily as a result of foreclosures, CoreLogic said. Negative equity not only restricts loan refinances, but also home sales, CoreLogic said. Unfortunately these underwater homeowners have been unable to refinance into the record low conforming and FHA rates because their negative equity disqualified them from loan eligibility.
In unveiling a new jobs creation plan on September 8th, President Obama said his administration will work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4%. The administration hasn’t yet put forward a formal plan. But the day after President Obama’s address to a joint session of Congress, Fannie Mae and Freddie Mac’s regulator confirmed it’s been “reviewing the mechanics” of the existing Home Affordable Refinance Program to identify barriers that prevent eligible borrowers from mortgage refinancing.
Helping homeowners who are more deeply underwater could cost Fannie and Freddie and therefore taxpayers — hundreds of millions of dollars. Private investors in mortgage-backed securities (MBS) guaranteed by Fannie, Freddie and Ginnie Mae would stand to lose billions.
According to CoreLogic nearly 22.7% of all U.S. homeowners were in a negative equity position with their mortgages at the end of the first quarter of 2011, down slightly from 23.1% in the 4th quarter of 2010. In a report released Tuesday, CoreLogic states that some 10.9 million borrowers have underwater mortgages and another 2.5 million borrowers were in a near-negative equity position, which the housing data and analytics company defines as having less than 5% positive equity.
While the drop in housing prices caused much of the negative equity, equity extraction was also a key driver. Borrowers with home equity loans were twice as likely to suffer negative equity as those with only one lien. 18% of borrowers without home equity loans were underwater while 38% of borrowers with 2nd mortgages were in a negative position. A total of 4.5 million negative equity borrowers have equity loans or other second mortgage liens.
The current CoreLogic report does not attach a total dollar value to negative equity statistics but an analysis of the distribution of negative equity based on fourth-quarter 2010 numbers was published by the company last month which put the aggregate national net equity at $750 billion. The percentage of underwater mortgage loans has only fallen 4 basis points since that time.
Many borrowers in negative equity are still able and willing to make their mortgage payments, Mark Fleming, CoreLogic’s chief economist said. “Those in negative equity and impacted by an income shock of some kind, such as a job loss, divorce, or death, are much more likely to be at risk of a home loan default or a short sale.
Loan default rates rise with the level of negative equity but not necessarily with the number of outstanding loans. At a low level – a CLTV under 5% – the default rate is slightly above 2% with multi-lien properties defaulting at a slightly higher rate than single lien properties. Above the 115% CLTV level where the default rate is 4 %, single lien properties begin to default at a fractionally higher rate than multiple lien properties. Once the combined loan to value reaches 125% the default rate soars, reaching 12% at 150+ % CLTV with single lien properties marginally higher than those with 1st and 2nd mortgage loans.
The negative position of individual borrowers is significant. The average underwater borrower owes $65,000 more than his property is worth. Understanding the significance of the underwater mortgages is significant because it underscores the housing crisis and gives us a clear signal that we are nowhere near escaping the housing depression.
As many loan professionals are already aware, April 1st is the date that the Dodd-Frank mortgage reform bill kick in and significantly change the way brokers and loan officers are compensated. Clearly the compensation plans for loan originators will see drastic changes any day. We wanted to remind industry insiders that this bill was created to help U.S. consumers. Clearly there was very little thought to how these changes will impact the mortgage and real estate industry. According to a spokesman for Real Estate News, “Many loan companies have already started to let loan officers go.”
The compensation for mortgage brokers will change as well on 4/1/2011. Home loan brokers will not be able to be paid from the mortgage lender and the borrower. Some insiders believe that these changes could impact the mortgages rates being hiked. In the end, the borrower could be charged more points and fees to achieve a specific interest rate.
New subsection 129B(c) [1] prohibits yield spread premiums (“YSPs”) from being paid to or received by mortgage originators. Compensation paid to a loan originator in the form of YSPs or “other similar compensation” may not result in a loan officer’s total compensation to vary based on the terms of the loan, other than the amount of the principal. Incentive payments based on the number of home loans originated within a specified period of time are not considered YSPs.
This new loan origination provision also restricts attempts to structure the payment of compensation to home loan originators in another form that could have the same effect as YSPs, which is to steer consumers to higher priced loans. A mortgage originator may not receive any origination fee, whether or not a YSP, except from the consumer, and any person who knows that a consumer is directly compensating a loan originator may not pay an origination fee. (Bona fide third party charges that are not retained by the creditor, mortgage originator, or an affiliate of the creditor or mortgage originator are not considered origination fees). If the loan originator receives no “compensation” directly from the borrower and the borrower pays no upfront discount points or origination points, then the loan originator may receive and any person may pay an origination fee.
Presumably, these mortgage loan restrictions are based on the assumption that, ultimately, the origination fee comes out of the consumer’s pocket, and these payments would tend to steer a consumer to higher priced loans or otherwise increase the cost of the loan. But as the mortgage originator is entitled to compensation, this provision assures that the originator is allowed to be compensated, only once. Section 129B also provides that the Board may, by rule, waive or create exceptions to this provision.
Other Prohibitions for Loan Origination
Section 129B further directs the Board to write regulations to prohibit:
loan originators from steering a consumer to obtain a loan that the consumer lacks a reasonable ability to repay;
originators from steering a consumer to obtain a loan that has predatory characteristics (such as equity stripping, excessive fees, or abusive terms);
loan originators from steering a consumer from a “qualified home loan” for which the consumer is qualified to a loan that is not a qualified home loan;
abusive or unfair lending practices that promote “disparities” among equally creditworthy consumers based on race, ethnicity, gender, or age;
home loan originators from mischaracterizing a consumer’s credit history or the available loans or mischaracterizing or suborning the mischaracterizing of the appraised value of the property securing the loan; and
if a loan originator is unable to suggest, offer, or recommend a loan that is not more expensive than the loan for which a consumer qualifies, discouraging a consumer from seeking a loan from another loan originator.
The Mortgage News Post reported less favorable financial news today as, Bank of America Home Loans announced higher than expected home loan defaults. The Bank of America Corp., the largest U.S. bank by assets, reported a $1.24 billion fourth-quarter loss as costs mounted for refunds, write-downs and litigation tied to delinquent home mortgages. The home loan lender increased the amount set aside to cover bad credit mortgage units for the second time in less than a month and added $1.5 billion for legal expenses. Brian T. Moynihan, 51, who started as chief executive officer a year ago, booked $12.4 billion in 2010 impairments on credit-card and home loan units purchased by predecessor Kenneth D. Lewis. The 2008 acquisition of Countrywide Financial Corp., then the largest U.S. home loan originator, has saddled the bank with lawsuits and demands to buy back bad credit home loans. The bank said earlier this month it agreed to pay Fannie Mae and Freddie Mac $2.8 billion to settle or preclude disputes over home loans, triggering a $3 billion fourth-quarter provision. The sum was expanded to $4.1 billion, Bank of America said today, citing outstanding and future mortgage buyback claims.
The last few years have been pretty stagnant for emerging home loan trends, but many mortgage professionals expect 2011 to present new opportunities for home purchase loans and refinancing. Congress passed a financial reform law last year that will go into effect in March that is supposed to curb mortgage fraud and reduce the home loan costs for consumers. The reality is that due to this reform bill, home loan origination costs are expected to arise and unfortunately the increased costs will passed down to the consumers thus nullifying one of the primary goals of the Dodd-Frank bill.
The question that consumers and loan officers across the country all want to know is “Is the era of the best home loan rates behind us? No matter what anyone tells you…nobody knows which direction rates are going. Timing the market is very difficult so getting aprroved for a loan that saves you money, should be a priority for homeowners & first time homebuyers alike.
FHA Home Loans – First time home buyers will continue to flock towards FHA mortgages for the simple fact that they only have to come up with 3.5% for a down-payment compared with 10 to 20% for conventional home loans. If a borrower needs a bad credit mortgage, they will need to come up with 5-10% for a down-payment, according to revised FHA guidelines. There will likely be less FHA refinance transactions in 2011 than 2010 because the trend for higher home loan rates seems to have kicked in.
VA Home Loans – VA home financing will be continue to flourish in 2011 throughout the military community, because as home prices become more affordable, the program for VA home loans will continue to be the most aggressive home loan programs in the industry. VA refinancing will remain popular as the VA streamline programs will help the veterans who didn’t refinance last year uncover some savings with lower monthly payments.
Conventional Home Loans – Conforming loan limits appear safe for 2011, but conventional loan guidelines remain too tight for most Americans to seize the opportunity to realize record low home loan rates. If rates exceed the 5% barrier in 2011, we anticipate that conventional loan origination to drop dramatically, but if the economy continues to sputter the low rates may c0me back in style.
It’s been quite a ride this week for mortgage professionals trying to follow the rise and fall of home loan rates. Making sense of the movements in home mortgage rates is difficult for those hoping to get ahead of the market in order to secure the lowest possible borrowing costs. Every day this week we have seen mortgage lenders make rate adjustments.
4.125% FHA Rates
4.25% VA Rates
4.25% Conforming
Lenders reported a see-saw for nterest rates this week. Time will tell if rates will stay high. Today was the other scenario, where MBS prices moved frighteningly downward for most of the session, effectively bringing lender mortgage rate quotes to their highest levels of the week, only to stage a moderately sized and exceedingly stable recovery back to the middle of the week’s range here in the final hour of trading. Multiple mortgage lender re-prices continue to be reported. The best 30 year fixed FHA mortgage rates are in the 4.125% to 4.50% range for qualified loan applicants. The best 15 year fixed mortgage rates remain in 3.500% to 3.875% range.
Loan originators will only be able to offer these rates on agency conforming loan amounts to borrowers who are have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments, your loan quote will be higher. If you do not fall into the “perfect borrower” category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. A no point home loan does not mean a no cost mortgage. The 30 year fixed mortgage rates still include closing costs such as: third party fees + title charges + transfer and recordation + escrows.
Just when you though interest rates had fallen to the bottom, home loan rates drop to a level not seen in since 1951. Freddie Mac found the latest drop in the 30-year rate brought it to a level that the FHA home mortgage loan programs have reported lowest FHA rates in almost 60 years. Most mortgage industry insiders believe that the recent statements of the Federal Reserve signal additional possible downward pressure could be seen. Although Freddie Mac’s survey for 30-year loans started only in 1971, it has FHA data going back to 1948 showing long-term rates have been not only been at survey record lows, but lows that pre-date Freddie Mac’s formation in 1970 by decades.
Home Loan Rates Below 4% Nationwide!
Freddie Mac deputy chief economist Amy Crews Cutts commented that home mortgage rates could decline even further. She informed National Mortgage News that the Fed officials’ recent indication that they’re open to the idea of purchasing more securities-likely Treasuries-has likely contributed to downward pressure on rates and may continue to. But she warned that there also is the possibility that Fed officials may not take further action. “Sometimes they can simply say something and then they don’t have to do anything because they’ve gotten the market to move,” she said. If the Fed does buy more securities, it could put downward pressure on rates determined by the extent and speed of home buying factors that had not been discussed or signaled at press time.
During the week ending Oct. 14, the average 30-year mortgage rate fell to 4.19% from 4.27% the previous week and 4.92% a year ago. The 30-year interest rate has been below 5% for 23 weeks in a row. Average points on 30-year home loans, however, are higher than for any other loan product tracked by Freddie Mac except for one-year ARMs-which match it—at 0.8.
The Federal Reserve was busy Monday eliminating commission opportunities for mortgage brokers across the nation. The Fed announced several new rules like banning YSP loan commissions in an effort to minimize abusive mortgage lending practices. According to the Lead Planet, a mortgage marketing company in Southern California, the Fed actually said that mortgage lenders paying yield spread premium, also known as YSP led to the collapse of our housing sector. The truth is that the Fed has had knowledge of broker paid commissions since it began well over a decade ago.
Will Banning Mortgage Rebates Help the Mortgage Industry?
These new home lending regulations are part of the new financial reform legislation mandated by Congress. The new rules apply to mortgage loan originators, brokers and loan companies, including banks and mortgage firms employing them. Under the new regulations loan originators may no longer be paid a increased commissions for suggesting one home loan over another.
Will this be the end of No Cost Mortgages? The rule change is intended to prevent loan originators from receiving higher compensation at the cost of damaging consumers. Mortgage lenders can still continue to receive fees that are based on a percentage of the loan amount, however, which is common in the mortgage business. Many loan originators have been sharing their yield spread premium commissions with their borrowers in an effort to reduce or even eliminate closing costs. Where do you think no cost mortgage loans originated from?
Loan originators will also be prohibited from receiving compensation from both the consumer and another party such as a bank or mortgage company. Consumers were typically not informed that loan originators and brokers often received payments for their work from both parties. The new rule seeks to protect consumers who agree to pay the loan agents through a higher interest rate or through fees such as points charged up front on a mortgage are not paying more as a result.
Another rule finalized Monday would require borrowers to be notified when their home mortgage has been sold or transferred. The Fed also proposed a rule to make it easier for consumers to learn who owns their loans. Under the provision, once a mortgage servicer is asked by a borrower for that information, the loan servicer would have to provide it within a reasonable time, which generally would be 10 business days.
Freddie Mac has seen their highs and lows in the last few years, but does it make sense for taxpayers to continue to bail out this mortgage giant? Freddie Mac was created in 1971 by the U.S. government to act as a home mortgage buyer. After several decades of success, the government mortgage company had to bailed out. Just a few years later, Freddie Mac is requesting for $1.8 billion in additional federal aid after posting a larger loss in the second quarter. Freddie Mac said Monday it lost $6 billion, or $1.85 per share, in the April-to-June period. Even as home mortgage rates hit record lows, Freddie Mac continues to struggle. The company is required to pay a 10 % annual dividend to the Treasury Department on money it has received from the government. That made up $1.3 billion of the company’s second-quarter losses. The company lost $840 million, or 26 cents a share, in the same quarter last year. Many mortgage executives have started to wonder if Freddie Mac is struggling when home loan rates are this low -- - -- How will they do when interest rates rise?
Freddie Mac VP on Getting a Mortgage
The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae from the brink of failure nearly two years ago. The new request means they have needed $148.2 billion to stay afloat, about $63.1 billion of which is being used by Freddie Mac. Freddie Mac is losing money from bad loans it backed, many of them before the housing market went bust. It had $118 billion in bad loans at the end of June, up from $103.4 billion at the end of last year. It owned more than 62,000 foreclosed properties in June, up from about 35,000 a year earlier.
Can the U.S. Afford Another Mortgage Bail-Out?
Both Fannie Mae and Freddie Mac have both lost tens of billions of dollars during the past two years and both are asking the government to prop them up. Last week, Fannie Mae requested $1.5 billion after posting a loss of $3.13 billion, or 55 cents per share, in the second quarter. Still, the two companies are taking different approaches to their situations. Fannie Mae sounded optimistic about its future. Freddie Mac offered a more tempered view. “We recognize that high unemployment and other factors still pose very real challenges for the housing market,” CEO Charles Haldeman said in a statement. “With that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds.” Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. They buy home loans from lenders, package them into bonds with a guarantee against default and sell them to investors.
During the housing boom, Fannie and Freddie faced political pressure to expand homeownership and competitive pressure from Wall Street to back ever-riskier loans. When the market went bust, defaults and foreclosures piled up, and the government had to take them over. Over the next year, lawmakers plan to review the nation’s mortgage-lending system and consider a potential replacement for Fannie Mae and Freddie Mac. The financial overhaul signed by President Barack Obama didn’t address that issue, despite protests from Republicans that it was incomplete without a such a plan. The administration is holding a public conference on Aug. 17 in Washington to discuss the mortgage system
