Two new changes to the mortgage lending market are about to go into effect that will help make it a bit easier to obtain a mortgage. The first change is that Fannie Mae and Freddie Mac are raising their debt-to-income ratios to 50% from 45%. This change goes into effect July 29th. “In this case, we’re changing the underwriting criteria, and we think the additional increment of risk for making that change is very small,” said Doug Duncan, Fannie Mae’s chief economist. “Given how pristine credit has been post-crisis, we don’t feel that is an unreasonable risk to take.”
I agree with this change. 8 years ago anyone could obtain a mortgage and it lead to the real estate and mortgage crisis. But like anything the market over corrected and the criteria became too strict. A little loosening up is needed. Obviously we don’t want to go back to just needing a pulse to obtain a mortgage but going to 50% on the ratios for borrowers with good credit and reserves makes sense.
The 2nd change is that the nation’s three major credit rating agencies, Equifax, TransUnion, and Experian will drop tax liens and civil judgments from some consumers’ profiles if the information isn’t complete. Your first response might be, “What? That’s crazy!” But I can’t tell you how many incorrect credit reports I have had to deal with over the years with these issues. It seems like once a month we will have a customer with a judgement or lien that has been paid off but still remains on their credit report. This will no longer be the case. If the credit agency can not verify the lien then the lien cannot go on the report. That makes sense to me.
Both of these rules seem like common sense decisions. I applaud Fannie, Freddie, and the credit agencies for evaluating current lending criteria and making smart changes.
It has been reported that Donald Trump may issue an executive order freezing a number of actions by the Obama administration including reducing the monthly FHA mortgage insurance premium. The premium cut was supposed to take place January 27th reducing the monthly mortgage insurance to .6% from .85%. Assuming Trump signs the executive order, this will give the new HUD secretary, Ben Carson, time to review the mortgage insurance reduction and make a decision on whether it should take effect. We will keep everyone updated on what transpires.
Starting January 27th, FHA will lower their monthly mortgage insurance to .6% from .85%. On a $200,000 mortgage that would be a reduction of approximately $41 a month. It looks like we are starting to see the housing and mortgage market remove the roadblocks of first time home buyers. Although FHA is not solely a first time home buyer program, it does help first time home buyers get into the housing market by offering a 3.5% down payment option.
This is the 2nd sign we’ve seen this year that the powers that be look like they are all in for kick starting the housing market and getting the economy moving. Yesterday I posted a blog about Freddie Mac offering a new 1% down program and now FHA reduces their monthly mortgage insurance. These both look like positives signs. I will continue to keep you abreast of any new changes that occur in the mortgage and housing markets.
When our 25 year old son, Alex, broke the news to Penny and me that he was going in The Peace Corps we were stunned to say the least. We are a close knit family and the idea of our oldest son going to Africa for 27 months was a gut check. He went to James Madison but was home for the weekends at least once or twice a month. Plus we could go visit him anytime for lunch. He then went to Arlington and worked for the AmeriCorps for the last year, but same thing, we saw him almost every weekend. But yesterday, after 17 hours on the plane, he landed in Zambia (see picture below, Alex is the one right under the lion’s nose). So Penny and I, as well as Alex’s brother and sister, Drew (22), and Emma (20), have to deal with not seeing Alex for at least the next 15 months (Alex is scheduled to come home for a week next September to be in one of his best friend’s wedding, Joe Cady. Thank you Joe for getting married and having Alex in your wedding!) So how do we deal with it?
Obviously, we will all miss Alex dearly. We all have our special bond with Alex and not being able to spend time with him is going to be hard. Not having him at the UVA basketball games with us, not being able to play golf together, or just not being able to hang out together will be tough. But for me, the way I get through it is to stop and think about what an amazing young man he is. As one of my golfing buddies said to me, he is doing god’s work. How true. Not many people give up 27 months of their life to help the less privileged. Most won’t give up 5 minutes. So the best way I can put it is that Alex makes you want to be a better person. Every time I tear up and start missing him I just have to say, “stop thinking about myself!” There are people dying, starving, and struggling to get through the day and it is people like Alex that make this world a better place.
I will pray that Alex stays safe and has an amazing time in Zambia. I also know that he will change lives there along with all the other amazing people in the photo above. But most of all Penny and I are just proud and honored that Alex is our son.
Photo: Alex at age 6 with Emma and Drew
Now that TRID ( TILA-RESPA Integrated Disclosure rule) has been in place for two months, how is it going? I LOVE IT! I stated in a blog before TRID came out that I was in favor of TRID, especially getting the Closing Disclosure (old HUD1) out 3 days prior to closing. I’ve been in the mortgage industry since I graduated from George Mason University in 1986. That’s 30 years. My biggest beef with how the industry operates has been the last minute nature of everything. A customer going to closing and not knowing how much money they need is just unacceptable. Finally this has been resolved. With TRID, closing can not occur any sooner than 3 days after The Closing Disclosure has been sent out. And on top of that The Closing Disclosure needs to be correct. There are tolerances allowed but only slight ones. No more closings where the customer thinks they need $10,000 only to find out it’s $15,000, therefore basically forcing the customer into making a decision under severe stress. The other great aspect of TRID is that The Closing Disclosure has to be in line with the initial disclosure, The Loan Estimate. The Loan Estimate has to go out within 3 days of application so this rule also helps eliminate surprises before closing.
There has been a slight learning curve but all in all the implementation of TRID has been going well. I do have one tip about TRID when it comes to picking a mortgage company that I believe is essential:
When picking a mortgage company for a purchase make sure the mortgage company sends out The Closing Disclosure before the loan is clear-to-close. Some mortgage companies will not send out The Closing Disclosure until the loan is clear-to-close and this can delay closing. There is no reason for the company to wait that long, it is just not acceptable.
If you’ve closed a loan under the new TRID rules please share your experiences.
Buckle up, only 25 days til TRID (TILA-RESPA Integrated Disclosure) goes into effect. What is TRID? TRID consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms:
• a Loan Estimate (combines the Good Faith Estimate and the Initial Truth-In-Lending Statement)
• a Closing Disclosure (combines the HUD-1 and the Final Truth-In-Lending Statement)
The first new form (the Loan Estimate) is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. The Loan Estimate must be provided to consumers no later than three business days after they submit a loan application. The second form (the Closing Disclosure) is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. The Closing Disclosure must be provided to consumers three business days before they close on the loan.
These forms go into effect starting with applications taken on October 3rd or after. The purpose of these changes is to improve the mortgage loan settlement process for consumers. They are being implemented by regulations issued by the Consumer Financial Protection Bureau (CFPB), a federal government agency set up to look out for the interests of consumers seeking financial services.
Hopefully all goes smooth and few closings are delayed. I believe in the long run TRID will be helpful but there are certain to be glitches in the beginning. Some of the details of the forms have been left up to interpretation. Therefore, don’t be surprised if you have one lender delay closing because the form is incorrect while another lender closes the transaction without a delay because the lenders interpret the form differently. In time, everyone will be on the same page.
So buckle up and be as patient as possible as we work through yet another change in the mortgage and real estate industry.
The Republicans want to get rid of the Dodd-Frank Bill and The CFPB (Consumer Financial Protection Bureau) because they feel the excess regulations are actually hurting consumers. The Democrats want to keep both because they feel the regulations protect the consumer. Here is a direct quote from President Obama on Saturday, “As long as I’m president, I’m going to keep doing whatever I can to protect consumers, and our entire economy from the kind of irresponsibility that led to the Great Recession in the first place,” the president said in his weekly address.
I can see both sides of the argument. Some of the regulations set up by the Dodd-Frank Bill and The CFPB have been helpful to the consumer. Some have downright hurt the consumer. Whenever you have a bill with over 2000 pages and 398 new regulations you will please some people and upset others.
But as I read the President’s comments this morning it got me thinking. His direct quote was , “I’m going to keep doing whatever I can to protect consumers.” If that’s the case then why did Fannie Mae and Freddie Mac up their guarantee fees last month? Lets say you are buying a $400,000 home, putting down 20%, have 800 credit scores, and getting a 30 year fixed rate mortgage. That means, more than likely, the mortgage will be sold to Fannie or Freddie. The old guarantee fee with Fannie and Freddie meant the consumer would have to pay $1000 extra to get the mortgage. That’s crazy enough but now Fannie and Freddie have doubled that fee. It’s now $2000 or roughly .125% higher in rate. What? Fannie Mae made $1.9 billion in the 1st quarter of 2015 and they are increasing their fees?
Fannie and Freddie are regulated by The Federal Housing Finance Agency (FHRA) which was created before The Dodd-Frank Bill and The CFBP were implemented. President Obama may not even know that Fannie and Freddie increased their fees and more than likely he doesn’t know all the ins and outs of the new 398 new regulations. But the comment just grabbed me and made me ask the following questions:
Are the Dodd-Frank Bill, The CFPB, The Federal Housing Agency, and all the other government agencies here to protect the consumer? Where do you draw the line between too much regulation and not enough regulation? How does raising Fannie’s guarantee fees protect the consumer?