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.
On just about every purchase we do at Mahone Mortgage there is personal property in the contract. Normally it’s just a refrigerator or stove and it’s no big deal. But lately we’ve seen tractors, boats, tools, TV’s, stereos, furniture, etc. When those types items are in the contract 2 things can happen. The underwriter might want photos of the items but more important, the underwriter might want a value for those items. And a value of $0 will not fly. The underwriter could ask the appraiser to put a value on the items or the underwriter might go to ebay to get a value. You never know. After a value has been obtained the sales price is reduced. Depending on the down payment the borrower is making, this could affect the loan.
So what is the best thing to do with personal property? My advice, put all personal property of a separate addendum. Even if it’s a stove or refrigerator I would suggest getting into that habit. It is just one less headache you can avoid down the road.
Leave the yachts off please!!
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.
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.
Five or six years ago if you had a pulse you could get a mortgage. Basically no questions asked. But over the last 2 or 3 years you could have an 800 credit score, put down 50%, have $1 million in reserves, a debt-to-income ratio of 5%, and the bank would make you source a $500 deposit. Why the change? Well, some of it was the banks had been burned and foreclosures were high. It was too easy to get a mortgage pre-2008 and many people obtained mortgages who shouldn’t have. Also, rates were low, refinances were high, and the banks were making a ton of money. They could be tough and get away with it. Why lend to someone with a 620 credit score when you could lend to someone with a 750 credit score? Now, all that’s about to change.
In mid 2013 rates started to rise, refinances slowed, and mortgage applications in the 4th quarter of 2013 dropped 43%. Currently, refinances are all but gone. Over the last 6 months banks and mortgage companies have let thousands of employees go. At the same time, regulations have increased and the cost of originating a mortgage has become more and more expensive. Plain and simple; the banks and mortgage companies need more business. Just taking the 750 credit score customers will no longer work. Just this week Wells Fargo announced they are dropping their minimum credit scores on FHA loans to 600. Also, JPMorgan announced they are lowering their LTV standards for both jumbo and conventional loans. The banks have no choice. They need more mortgage business and the only way to do that is make it easier to obtain a mortgage.
You will never see the lending standards as easy as they were pre-2008 and that’s a good thing. But doing a complete 180 is not the answer either. It’s basically a supply and demand equation. The supply is down and the demand has to increase. The best way to do that is make it easier. It will not happen overnight but the signs are appearing. Time for the banks and mortgage companies to get back in the real world.
One of the first things I do when I take a purchase transaction is check the real estate contract and go directly to the personal property section. I’m looking to see what personal property is listed. Here is what Fannie Mae says about personal property: “Personal property/principal
residence — A one-unit property that is the borrower’s principal residence may not include personal property or other items (such as appliances, furniture, or equipment) that might be considered as additional security.” Definitely open to interpretation. Some lenders will pick apart this section and require a value to be placed on the personal property. This can ultimately reduce the sales price and affect the purchaser’s loan amount. So, I’ll leave it up to you as to whether you include it in the sales contract.
Another item we run into is when the seller is giving a credit to the borrower at closing. Most of the time this occurs because of repair issues from the inspection. Below are the do’s and don’ts when this occurs from the mortgage standpoint:
1) The seller is only allowed to pay closing cost and pre-paid items. The seller can not credit money to the borrower at closing or it will reduce the sales price.
2) It’s best to do an addendum with just the following language, “seller is crediting x amount at closing towards purchaser’s closing cost and pre-paids.” Also, if the repairs are listed in the contract the underwriter will want them fixed prior to closing.
3) Any time you do an addendum please send it to the attorney as well as the lender. A lot of times the attorney will have the addendum and the lender will not know anything about it until they see the HUD. This could delay closing so please notify the lender and run it by them to make sure it will not be a problem.
Starting 11/16 Fannie Mae will be making some changes to their automated underwriting system. Highlights below:
- Credit documents are now good for 120 days on existing and new construction. Existing was 90 days.
- Two months bank statements are now required instead of one month for asset verification. DU refi plus loans are still one month.
- Fannie Mae will no longer accept any loans over 95% loan-to-value. If you have an approval before the 16th you can still go to 97%.
- Fannie Mae is revising the requirement related to the mortgage eligibility date of the existing mortgage loan for DU Refi Plus loans. Currently, to be eligible for DU Refi Plus, the original loan had to have been acquired by Fannie Mae on or before May 31, 2009. The May 31, 2009 eligibility date will now be based on the note date of the original loan. Using the note date is more transparent to borrowers because borrowers know when they closed on their prior mortgage loan. (Borrowers typically do not know when their loan was sold to Fannie Mae.)