Category Archives: Regulations

Changes to Closing Process and HUD1 Coming August 1st

One of the most frustrating things in the mortgage business is the last minute rush closing. A client might be closing on a Tuesday and not know the exact amount needed at closing until that morning. That is just unacceptable. I have been in the mortgage business  28 years and finally it looks like this is going to change. Starting August 1st the CFPB (Consumer Financial Protection Bureau) is implementing a new policy where the borrower will see the HUD1 (settlement statement) at least 3 days before closing. The HUD1 will now be called the ‘closing disclosure’. This will force everyone including the lender, the attorney, and the realtor to be more proactive. I applaud the CFBP for making this change. While I’m not jumping up and down at everything the CFBP does, this might be their best idea.

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Who’s to blame for all the last minute items that pop up at closing? Below is a list of the culprits and some examples:

The lender: The lender is king of last minute. Basically, anyone that has gone through the mortgage process can relate. There are 2 big issues I see with the lenders. The first are the conditions. Since the mortgage meltdown in 2008 the conditions have gotten ridiculous. The lender wants everything and the lender trusts no one. I understand to a certain point. They are lending large sums of money and it’s their right to make sure the loan will perform. But currently they are over the top. The 2nd issue is the lender’s process. The closer does not get the file until the loan is CTC (clear-to-close). And guess what? That’s usually last minute. This new rule will force the closers to get involved earlier.

The attorney: I can not tell you how many transactions we’ve had where the file is with the closer a week before closing, the package and instructions have been sent to the attorney, and the attorney waits until the day before closing to open the package. This will no longer be the case.

The realtor: The NAR is obviously aware of this new rule and I believe has either started training or has it scheduled. One of the things I saw on the NAR web-site that will possibly be changing are the walk throughs. The talk is to make these at least 7 days before closing. I believe that’s a good idea. The other issue we’ve run into is that the realtor will make a change to the contract and not send the addendum to the lender or the attorney. Lets say after the inspection that the price is reduced. The day of closing the addendum appears and delays closing because all the figures are incorrect. Hopefully this will no longer happen because everyone will see the closing statement at least 3 days before closing.

There are more things being implemented August 1st by the CFPB but this is the one that I see as a must.

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President Obama to announce drop in FHA Mortgage Insurance Premiums

President Obama is expected to announce a reduction in the mortgage insurance premiums for new FHA mortgage loans tomorrow.

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From Bloomberg News:

As part of an effort to expand homeownership among entry-level buyers, President Barack Obamawill announce a cut in Federal Housing Administration mortgage-insurance premiums during a speech in Phoenix tomorrow, according to three people with direct knowledge of his plans.

The annual fees the agency charges to guarantee mortgages will be cut by 0.5 percentage points, said two of the people, who asked not to be identified because the White House hasn’t yet made the announcement.

This reduction will bring the annual mortgage insurance premium down from 1.35% to 0.85% on a minimum down FHA loan. The annual FHA mortgage insurance premium is part of the borrower’s monthly mortgage payment. On a $400,000 loan amount, a borrower currently pays a whopping $450 a month in just mortgage insurance premiums (400,000 x 1.35% = 5,000, divided by 12 months). With the proposed mortgage drop, the monthly premium would be reduced to $283 (400,000 x 0.85% = 3,400, divided by 12 months), a savings of $167 per month.

This is great news for those who need FHA mortgages as the mortgage insurance premiums have become increasingly expensive over the last few years. A reduction in FHA mortgage insurance premiums will help borrowers who need an FHA loan qualify for a mortgage. This is especially helpful for borrowers who have had a short sale or foreclosure in recent years as FHA has more forgiving guidelines than conventional, allowing one to buy a home again after 3 years since the distressed sale.

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Strong Employment Numbers Push Rates Up

The stronger than expected employment numbers pushed rates up a bit this morning. November non-farm payrolls were up 321,000, the biggest gain since January 2012. Also, upward revisions added 44,000 jobs to September and October. The unemployment rate held at 5.8%. The mortgage bond market initially plunged on the news (good economic news usually means higher rates) dropping 75 basis points. 75 basis points equates to .75 points or on a $100,000 loan $750. This afternoon the market is currently off 47 basis points so it has come back some. So, what does this mean for rates going forward?

If you follow my blog you will know that last month I predicted rates would rise over the next 6 months. These numbers are a good indication of that coming to fruition. I see an overall steady improvement in the economic numbers as we go into 2015. There might be a down month but overall I see the economy improving and rates continuing to increase. Not dramatically but I do see an increase.

Stay tuned. I will continue to keep you updated.

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Fannie and Freddie Finally Stepping Up To the Plate For First Time Home Buyers

Since I started my blog almost 1 year ago (November 1st, 2013 to be exact) I have been calling for Fannie and Freddie to step up to the plate and help out first time home buyers. It looks like they are about to do just that! Director of the Federal Housing Finance Agency, Mel Watt,  is expected to announce this week programs that will allow borrowers to put down as little as 3 percent of the purchase price on loans backed by Fannie Mae and Freddie Mac. Currently the only low down payment loans available are Rural Development and FHA. But RD loans have income and property restrictions and FHA is just downright too expensive. While we don’t know the details of Fannie and Freddie’s new programs it has to be better than FHA. For one it’s 3% down instead of 3.5%. Second, we can assume it will not have the 1.75% up front mortgage insurance that FHA has. Third, there is no way the monthly mortgage insurance will be as expensive as FHA’s 1.35% monthly fee. My prediction is that the monthly fee will be based on credit scores and if a borrower has over 740 scores I’m thinking the mortgage insurance will be around .6%. Just a guess of course. I will keep everyone posted and as soon as the program is out I will have a blog with all the details.

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Are There Any Good Lenders Left?

Last week I received a call from a realtor I’ve done business with for years. Her clients had gone to their bank where their money is (I’ll leave that bank un-named) for their mortgage on a new home they were buying. The day before closing the bank called the borrowers and told them their mortgage had been denied. To make matters worse the bank did not give a reason for the denial. The bank said they would put the adverse action in the mail. So the borrowers called me and we started the process. They had great credit, great income, and plenty of assets. I saw no problem what-so-ever. To make matters even stranger, when the adverse action came, the reason for denial was insufficient income and assets. What? Not only was it baffling, the bank also didn’t even try to save the mortgage by asking questions as to whether the borrowers had any additional assets or income. By the way, the borrowers did have additional assets. Guess where? That’s right. In their very own bank that was denying them!!

So, what’s going on out there in the lending world? Are there any good lenders left? That’s a tough question and the answer is coming. There are 2 things driving the mortgage world right now. QM (Qualified Mortgage) and ATR (Ability-To-Repay). What that means is all lenders have to play by the same rules to avoid buybacks and penalties. No lender gets to bend or warp the rules to gain an unfair advantage over the rest of the lender universe and every lender offers up the same mortgage approval gauntlet. It also means that lenders are going to scrutinize the files like never before. The lenders will make sure the borrowers actually file their income taxes by checking with the IRS. The lenders will want to know where any large deposits came from. Was it a gift, was it a loan, was it terrorist activity money? The lenders will double check the borrower’s employer before closing to make sure they are still on their jobs.  The lenders will double check to make sure the borrowers are not using a fake social security number. They will re-pull the borrower’s credit before closing to make sure they have no new debts. You get my drift. Whatever trust there was before is now gone. On top of that add in the over-the-top compliance now in effect from the Dodd-Frank bill and you have an atmosphere like never before. In my 27 years in the mortgage business this is the worst I’ve ever seen it.

Now, back to my question. Are there any good lenders left? Answer…….NO. The only thing left are good loan officers and support staff. And if you don’t have them you’re in trouble. Good loan officers and their support staff get as much information up front as possible. They also see potential issues and address them up front. They also look at the approvals and deal with meeting the conditions long before the day of closing. The lenders are all basically the same. The condition sheets and the rules will be similar. The days of using any bank and any loan officer are over. If you can not immediately get your loan officer and support staff on the phone then don’t use them. If they are out of town, don’t use them. If they are inexperienced, don’t use them. If they are not recommended by someone, don’t use them. Buying a home is one of the biggest decisions and experiences in your life. Make sure you make the right decision. Don’t choose by bank, choose by loan officer.

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Why Is The First Time Homebuyer Market Struggling?

Why Is The First Time Homebuyer Market Struggling? There are numerous reasons and below are a few:

1) Buybacks. It seems like the authorities are now forcing buybacks and fines over relatively minor errors, and as a result, lenders are refusing to extend credit to low-income / low FICO borrowers. Many first time homebuyers fall into the low-income / low FICO category. Of course the Administration continues to exhort the industry to loosen standards at the same time it announces record settlements.

2) Tougher on credit scores. Most first time homebuyers are young and nearly 70% of individuals under age 30 have FICOs less than 680. Lenders are tougher on lower credit borrowers, therefore hurting many first time homebuyers.

3) Tight lending standards have discouraged borrowers with low credit score from applying for mortgages. In the last year borrowers with FICO scores below 680 were rejected 6 times the rate of those with FICO score of 760 or above. This has caused a fear and a feeling of ‘why bother’ in many first time homebuyers.

4) The Qualified Mortgage Rule under Dodd-Frank. The Qualified Mortgage standards regulate borrowers’ total debt load can’t climb above 43% of their monthly income without being backed by Fannie Mae, Freddie Mac or a federal housing agency. This has taken some first time homebuyers out of the market.

5) Lack of excitement with appreciation. Prior to 2008 many first time homebuyers would follow the advice of their parents. That advice would be to buy a house. Even if they were only going to have it a short time the general feeling was it was a quick way to make some money. Prior to 2008 parents were much more willing to gift or lend their children money for a house, knowing it would be a great investment. Now that feeling has changed. Buying a home now is more of a long term investment and when many first time homebuyers are not sure how long they will be in a particular area, their excitement of owning a home declines somewhat.

So why is it important that the first time homebuyer market picks up? In a normal healthy housing market the first time homebuyer rate is roughly 40% of total housing. It currently stands around 30%. This hurts the whole housing market. Without the first time homebuyer the move up buyer is stalled, therefore affecting the entire housing market. If the housing market is not healthy the whole economy is negatively impacted.

What can be done to turn things around? Time will help. The further we get from the housing crisis the more things will improve. There has been a major over reaction from the government and this will let up eventually. It’s also a supply and demand issue. With all the refinances basically gone banks need more loans. Therefore, credit will loosen and new programs will become available.

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Monday Morning Tidbits!

The percentage of all cash transactions in the U.S. housing market in December of 2013 was 47%, up from 27% a year ago. According to Michael Simonsen, co-founder and CEO of Altos Research, less of these transactions were by big institutions on Wall Street and more were from cash-rich consumers buying a second or third property.

Credit scores are easing for FHA mortgages but not conventional. The average credit score for FHA loans this year has been dropping steadily while conventional loans are roughly the same as 2013. The average score for conventional loans is currently 755.

New regulation stemming from the financial crisis has cost the six largest U.S. banks $70.2 billion as of the end of last year, according to a new study from policy-analysis firm Federal Financial Analytics Inc.

The number of appraisers dropped Nationwide to $80,500 down from $90,500 in 2010.

Freddie Mac has officially declared that the refinancing boom is over.  The company’s Refinance Report for the second quarter of 2014 said that the longest refinance boom in the 24 years since it started keeping records officially ended in the second quarter.  That occasion was marked when the share of mortgages originated for refinancing fell below 50% for the first time since the third quarter of 2008.

The number of loans from $1 million to $10 million to buy single-family homes in the 100 largest metropolitan areas surged to more than 15,000 in the second quarter, the highest ever, according to property data firm CoreLogic.

Fannie Mae and Freddie Mac have changed their large deposit rule. Borrowers now have to source deposits that are 50% or more of their qualifying income. The old requirement was 25%.

There was talk before the Friday jobs report that rates would rise because the jobs report would be awesome. Didn’t happen. The report was a bit worse than anticipated therefore keeping rates down again for at least another month.

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Getting a Mortgage? What to Expect in Today’s Environment

You’ve been pre-approved by a lender, put a contract in on a home and had it accepted. Exciting! Now it’s time to go forward with the mortgage application and get the lender all the necessary documents the lender requires. Below is a list of items to help you get a head start;

1) Copy of your driver’s license and social security card.

2) Copy of the ratified contract.

3) Last 2 years full tax returns with all schedules including w2’s and 1099’s if applicable.

4) Last 2 months full bank statements to all asset accounts (all pages) including retirement accounts. The statements must have your name, the bank name, and the account number.

5) Last 2 pay stubs.

6) You will need to list at least your last 2 years full employment history and address history.

7) Copy of diploma if you have graduated high school, college, or graduate school within the last 2 years.

8) Copy of divorce degree and separation agreement if applicable. If you are using alimony or child support income then you will need proof of last 6 months receipt. This can be either cancelled checks or bank statements showing monthly receipts.

Here are a few tips to help expedite the process.

1) On your bank statements, if you have a deposit that is more than 50% of your monthly income then you will need to source the deposit.

2) Don’t open up any new credit accounts during the mortgage application and use your credit cards as little as possible.

3) If you go out of town during the application make sure the lender can get in touch with you.

Getting a mortgage can be stressful but if you are prepared and know what to expect the stress will be reduced. You may feel that the lender is being too picky and asking for everything under the sun. But when hundreds of thousands of dollars are at stake you can see why the lender might get picky. So be prepared and patient and things should be smooth.

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Freddie Mac Loosens Up on Large Deposit Rule

One of the biggest pains of the mortgage business is asking our clients to document their deposits. When you hear from family and friends what a hassle it is to get a mortgage this is usually one of the biggest complaints. I get it when the lender ask the borrower to document a $50,000 deposit. The lender wants to make sure it’s not a loan or not from the seller. Makes sense. But when the lender wants the borrower to document a $200 deposit then it’s gone too far. It got so bad last year that we would dual submit the same loan to 2 different investors just because of this rule. One lender might ask the borrower to source 8 deposits where the other lender would only want 2 deposits sourced. It was extremely frustrating for everyone. Well, finally Freddie has heard the complaints and is changing their rule.

Freddie Mac’s guidelines may only require proof of large deposits when those deposits are more than 50% of the borrowers monthly gross income. 

I believe this is just one sign of the mortgage industry loosened up some. The industry got in trouble by being too lax and making too many loans that should not have been made. But it also went overboard the other way and made it way to difficult and cumbersome to obtain a loan. We are now getting back to the middle ground.

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Former Wells Fargo CEO: US Risks Becoming a Nation of Renters

Former Wells Fargo chairman and CEO Richard Kovacevich told CNBC on Thursday,  “The United States is at risk of becoming a nation of renters because of the totally unnecessary constraints that continue to prevent lenders from giving out mortgages.” I couldn’t agree more. Kovacevich blames two factors, the Dodd-Frank financial overhaul act and the buy backs banks are incurring from Fannie and Freddie.

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Dodd-Frank

Kovacevich said, “the litigation risk … says we should not make any loan that a borrower can’t repay.” Kovacevich joked that he didn’t know there was such a thing. And I agree. In theory that’s a great idea. But realistically, it’s impossible. It’s almost like if you need a mortgage you can’t get one but if you do not need a mortgage Fannie and Freddie have no problem loaning you money. I’m being facetious but you get the idea. I don’t want to go into specifics and bore you about how our business has changed but lets just say that the Dodd-Frank bill is over the top. You need rules and regulations but when they become so over bearing that the housing industry suffers, then it’s time to come to a middle ground.

Buy-Backs

What is a buy-back? Basically, it’s when Fannie and Freddie make the bank buy back the loan that Fannie and Freddie bought from the bank when the mortgage was originated. It used to be for good reasons, mainly fraud or negligence. Now it’s for anything and everything. That’s the main reason consumers are so annoyed when they get a mortgage. The documentation and paperwork that the borrowers have to sign and supply is beyond ridiculous. The banks are scared that Fannie or Freddie will make them buy the loan back so the bank over documents the file and underwrites the file super super conservatively.

Kovacevich says that for the economy to get going again that housing needs to get going. He states for that to happen the Dodd-Frank bill and Fannie and Freddie’s buy back policies have to change. Standing ovation for Mr. Kovacevich.

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