Freddie Mac has come out with a new program designed to help more borrowers obtain financing with lower down payments. Since the real estate crash of 2008 Fannie Mae and Freddie Mac have increased their down payment rules. It now looks like it’s starting to soften a bit. Under this new program the borrower only has to contribute 1% down payment which can come from their own funds or a gift. Below are some of the parameters of the program:
- Minimum 700 credit score.
- Maximum debt-to-income ratio of 43%.
- 3% seller concessions for closing cost and pre-paids.
- Program available with or without monthly mortgage insurance.
- Borrower can not make more than 100% of area median income (roughly $77,000 in Albemarle County).
This should help open up the first time buyer market. While FHA has been consistent with the 3.5% down program and Rural Development is available in rural areas with 0% down payment, it is now nice to get Freddie back in the ball game!
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
Every 6 months I give my prediction on what will happen with 30 year fixed mortgage rates for the next 6 months. Before I give my prediction and discuss the reasons, lets see how I did with my prediction 6 months ago (feel free to go back through my blog over the last 2 years and look at all my predictions). 6 months ago Freddie Mac’s weekly survey had rates at 3.84% with .7 points. I predicted rates would rise .25% to .375%. The weekly average this week had rates at 3.92% with .6 points. Not quite a .25% increase but not a bad prediction. I basically predicted rates would rise slightly and they did. So, what is my prediction for the next 6 months? RATES WILL RISE TO 4.25% BY JUNE.
Why the increase? There are many, many factors that go into what direction mortgage rates will go including the global economy, gas prices, inflation, unforeseen global events, politics, etc. But to predict rates just listen and watch the FED. The FED increased the FED funds rate in December and has indicated that they will continue to raise rates gradually. This is the strongest indication of what will happen with rates. The FED has been itching to raise rates for the last year and finally felt that economic indicators warranted an increase in December. With the FED eager to raise rates they really do not need robust economic figures to accomplish their goal. Any slight plus news and rates will rise. Any negative news will probably be reasoned away. In my opinion, it will take some horrible economic numbers for rates to fall over the next 6 months. I don’t foresee that happening. I think we are currently at the bottom with rates hovering slightly under 4%. I believe the days of 30 year fixed rates in the 3’s is about ready to say goodbye for a long, long time!
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?
What is TRID?TILA-RESPA Integrated Disclosures. The “Know Before You Owe” rule as it is called, is considered the single most significant regulatory event in the residential mortgage business in thirty years. It was scheduled to go into effect August 1st but has been delayed until October 1st. Over the last 5 or 6 years the mortgage industry has been riddled with new rules and regulations. Some have been helpful and some have just delayed the process and helped no one. Although most people in the mortgage industry are plain tired of all the changes I have to say that I applaud this new regulation (at least that’s what I say now). I’ve been in the mortgage industry 28 years and have closed thousands and thousands of loans. The one thing that has always irritated me is how last minute everything is. Regardless of whether it’s the lender’s fault, the attorney’s fault, the realtor’s fault, or the borrower’s fault, the last minute closings happen way to often. Under TRID, hopefully this will come to an end. The main point of TRID is that the borrower should have a closing statement in their hands 3 days before closing. They should know the loan amount, payment, and cash-to-close 3 days before closing. No last minute surprises. When you are possibly making the single biggest purchase of your life don’t you think it’s fair to know the details at least 3 days before you pull the trigger? I think so.
There will surely be a learning curve for TRID. Anytime new regulations are implemented it takes time to get all the bugs out. But this one is worth it. The borrowers should be fully aware of what the terms and conditions of the loan will be. They should not be forced into making a decision they are uncomfortable with just because the moving truck is waiting outside the house. The Consumer Financial Protection Bureau (CFPB) has made the right move with TRID.
It’s once again time for my 6 month rate prediction. I’ve been doing a rate prediction blog for the past year and a half and I’ve been pretty spot on. Currently the 30 year fixed Freddie Mac average rate is 3.84% with .7 points. So what will the rate be at the end of this year? I’m going to predict a slight increase of .25% to .375%. Why the increase?
Several factors lead me to believe rates will rise. The biggest being that the FED is just dying to raise them. For the past year and a half they have wanted to increase the FED Funds rate but the economy has just not supported an increase. While the unemployment rate has dropped the number of people who have stopped looking for jobs has risen. Plus wages have not increased either. I believe all of these things will improve slightly and the FED will react immediately. All we need is one stellar employment report and rates will rise quickly.
We have now had a 5 year stretch with 30 year rates under 5% and a 13 year stretch with rates under 7%. That’s incredible. When I entered the business 28 years ago rates were 10.5%. So lets be thankful and enjoy it while it’s still low!
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.
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.
On the first Friday of every month the job numbers come out at 8:30am. I always turn on CNBC an hour or so before they come out to get a feel of what the experts think and to see how the numbers might impact rates. My wife is not a fan of the first Friday of every month because she likes the Today Show and a struggle for the remote takes place. It’s really the only time in the mornings where we fight for the remote (I let her have the remote in the mornings in order to get a few brownie points to watch sports at night instead of the food network or animal channel). In any event, you get it’s an important day for me. Basically the jobs report will determine what happens to rates for the next 30 days. A stronger than expected number will lead to higher rates and a weaker than expected number will lead to lower rates. Obviously, there are other factors at play but the jobs report is the biggest factor.
What do the experts think the number will be? “I think in general the labor market moderated a little bit in February after some really strong months. I think the weather was a little bit of a damper and it’s time for a breather,” said Amherst Pierpont’s chief economist, Stephen Stanley. He expects to see 220,000 nonfarm payrolls and a slightly lower unemployment rate at 5.6 percent. “A lot of this February data is going to have a weather effect. It was bad enough to have some impact. I do think we’ll snap back in March or April,” he said.
So 220,000 is the barometer. What rates will do for the next 30 days has a lot to with how close the numbers are to 220,000. Anything close to that will not cause much of a move. A much higher number, like maybe over 300,000, will likely cause rates to rise. A weaker number than expected, maybe below 140,000, would likely cause rates to fall.
My prediction is the number will be right around 220,000 and we won’t see much of a move. I’m on a little hot streak with my predictions lately. My prediction for UVA basketball at the beginning of the year was an ACC Championship and a 27-3 record (currently UVA is 28-1 and once again ACC Champs). Not a bad prediction. Let’s see if I’m better at interest rate or basketball predictions!