FHA Announces Additional Policy Changes: How Will They Impact Relocating Employees?
On December 2nd 2009, the Secretary of Health & Urban Development announced that the FHA’s cash reserves have fallen well below the Federally-mandated level of 2%, to a staggering .53%. As a result, the Federal Housing Administration (FHA) has announced a new set of policy changes which are designed to strengthen the FHA’s capital reserves and manage its risk while continuing to support the nation’s housing market recovery. These changes include:
More Money Down: Due to the staggering economy, over the past several years FHA loan programs have become more popular with home buyers because of their low down-payment requirements. As the popularity grew, lending institutions realized that their inventory has become more risky. In order to address this challenge and mitigate the risks associated with these loans, the FHA will now require as much as 5% down payment for new home purchases.
Higher Fees: Associated fees for FHA loans have always been higher due to their risky nature. With recent record foreclosure rates in the U.S., the FHA is arguing that in order to balance the risk of taking on these loans, they will need to increase their fees, which are already at their legal limit. These fees are predominantly associated with Private Mortgage Insurance (PMI), which the agency uses to reimburse lenders in the event that the loan defaults.
Increased Credit Scores: Historically the FHA has required borrowers to have a minimum credit score of 500. As of now, which is subject to change, the agency will require a minimum score of 580. However, it is important to note that most of the lenders that have been funding FHA loans will not approve borrowers with an overall credit score of less than 620. Thus, the majority of borrowers will not be impacted by this change.
Lower Debt-to-Income Ratios: In the past the FHA has been lenient on borrowers with higher debt to income ratios (DTI) making exceptions for people in extenuating circumstances or with longer credit histories. The FHA will now only allow a maximum DTI of 45%; if a borrower’s debt is more than 45% of their total income, the FHA will not approve their loan.
In summary, the Federal Housing Administration is tightening their belt. Those relocating employees who qualified for FHA lending even six months ago may no longer qualify. And more changes could occur, so please stay tuned.
Posted on 02/9/2010 in Mortgage | Comments (0)
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Should they stay or should they go?: the Fed and the MBS Purchase Program
In late 2008 the Federal Reserve set a goal of purchasing up to $1.25 trillion of agency mortgage backed securities (MBS), $300 billion of treasuries, and $200 billion of agency debt to help lower borrowing costs for homeowners, stimulate the economy, and mitigate the rapidly declining real estate market. While this program, combined with other stimulus efforts such as the home purchase tax credit and HAMP (Home Affordable Modification Program), helped stabilize the real estate market driving down mortgage rates to under 5% in late 2009, analysts and consumers alike now fear that the Fed will cease their purchases, leading to material increases in interest rates across the board. A withdrawal, combined with a high unemployment rate, which stood at 9.7% nationally in December, and rising delinquencies and mortgage foreclosures will likely lead to an increase in interest rates and stall the recovery efforts of the housing market and, thus, the economy.
Given the pending challenges that still lie ahead for the U.S. economy, the big question is, “Will the Fed stay in the game and either remain committed to the purchase program or work through a gradual exit, or will they remain committed to stopping the program in March?” What do you think? Are conditions improving enough to warrant the Fed’s exit?
Posted on 01/19/2010 in Mortgage | Comments (0)
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New RESPA Reform Coming January 1st
In November 2008, the Department of Housing and Urban Development (HUD) announced the final results of its efforts to overhaul and reform the Real Estate Settlement Procedures Act (RESPA). RESPA is about closing costs and settlement procedures and is a consumer protection statute, enforced by HUD, designed to help homebuyers be better shoppers during the home purchase and refinance processes. RESPA requires that consumers receive specific disclosures at various times throughout the mortgage process and outlaws potential kickbacks that increase the cost of settlement services.
The major changes in the reform include a new RESPA Reform Good Faith Estimate (GFE) which requires a more detailed disclosure of key loan terms and closing costs and a newly revised HUD-1, which requires lenders to provide borrowers with information to make it easier to compare closing costs. The new GFE is three pages in length, providing much more information about the proposed loan than the previous one page GFE.
While we’re confident that this reform will benefit the consumer, there is one potentially challenging relocation implication. While the revised HUD-1 form is now three pages in lieu of two and provides a side-by-side comparison to help buyers compare terms disclosed on the GFE with those shown on the HUD-1, Line 801 now represents a combined charge inclusive of the origination fee along with all other non-lender pass-through fees (processing, underwriting, commitment etc.). The implication for relocation is that if your employee’s lender does not break out the fees through a separate attachment there may be questions as to which items are reimbursable versus which are not according to the corporation’s specific relocation policy.
The catalyst of this reform was to assist borrowers with additional standardization and to prevent any future housing crises. The new RESPA regulations are scheduled to take effect on January 1, 2010.
Posted on 12/14/2009 in Mortgage | Comments (1)
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How to Prepare Your Transferees for the Mortgage Process?
When you are working with employees who are planning on purchasing a home as part of their relocation, the first thing they should do is apply for a mortgage pre-approval. By completing their mortgage application prior to choosing a home, they will be able to obtain a pre-approval letter that lets them know how much home they can afford and how much they can spend. Even if your employee has qualified for a mortgage previously, the lending guidelines have changed so significantly, they will definitely want to know upfront what they are able to qualify for in today’s market. Receiving a pre-approval letter also shows prospective sellers and real estate agents that the employee is a serious buyer.
We also recommend that the employee immediately begin gathering the following information before they start packing their belongings and, if applicable, putting their personal effects in storage:
1) Two months most recent bank statements. All pages are necessary even if they are blank. The transferee will also need proof of any and all large deposits made during that time period.
2) Most recent financial statements (all pages) inclusive of 401k, IRA, money market, etc.
3) Two years W-2’s from all employers. In most cases tax returns are not needed.
4) 30 days of most recent paystubs.
5) Fully executed offer letter for new employment or job transfer.
6) Loan information on any real estate that is being retained (current mortgage statement, tax bill and insurance premium if not included in mortgage payment).
In today’s credit market it is critical that all employees engaged in a relocation that are planning to purchase a home at the destination be as prepared as possible and that process begins with the gathering of all critical documentation and the mortgage pre-approval.
Posted on 11/9/2009 in Mortgage | Comments (0)
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Fannie Makes Additional Changes…Impact for Relocating Employees?
Fannie Mae is scheduled to make several additional changes to borrower eligibility, underwriting requirements and available products in hopes to further support the sustainability of the housing market.
Two of the biggest changes will occur in the areas of credit score and debt-to-income (DTI) ratios. Fannie Mae is raising the minimum qualifying credit score to 620 from a minimum of 580. This will affect loans that are submitted to an automated underwriting engine as well as with all manually underwritten loans. This minimum credit score requirement will apply to all mortgages that are delivered to Fannie Mae including conventional loans and loans insured or guaranteed by a federal government agency such as FHA or VA.
In an effort to support sustainable homeownership for borrowers, the maximum DTI or allowable total expense ratio will be reduced to 45%. This is a substantial decrease because up until recently, DTI ratios were allowed to go almost as high as 60%. On certain loan files with strong compensating factors, there will be the potential flexibility to go as high as 50%.
It is highly recommended that relocating employees contact their mortgage lender and get pre-approved as soon as possible once they know a relocation is in their future. This will provide them a clearer understanding of what they can truly afford or what they may need to do in order to purchase their new home.
Posted on 10/7/2009 in Mortgage | Comments (0)
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Federal Reserve Board Imposes New Requirements to Regulation Z (Truth-in-Lending)
The Federal Reserve Board (FRB) recently implemented significant changes to Regulation Z (Reg Z), which are intended to improve the disclosures consumers receive in connection with mortgage financing.
Lenders will be subject to these new disclosure requirements for all loan applications filed on or after July 30, 2009. These new rules are complex and may cause considerable challenges in regards to compliance.
Here are a few of the major highlights:
Lenders have always been required to supply the borrower with a Good Faith Estimate (GFE) and Truth-In-Lending (TIL) within 3 business days of when the consumer applies for a home loan. This is considered early disclosure. There is now a newly instituted 7-day waiting period from the time the consumer receives the early disclosures until the time he/she can close on the transaction. This waiting period applies to all purchases as well as refinances.
It is now mandatory to re-disclose these same documents if the Annual Percentage Rate (APR) increases or decreases by more than .125%. The APR includes not only the interest rate of the loan but certain other costs related to the settlement. Once the corrected disclosures have been sent, the borrower must wait an additional 3 business days before the loan can close.
It is now extremely important to have as-close-to-accurate figures as early as possible in order to avoid the possibility of delaying closing.
Changes to loan amount, loan terms, closing date and interest rate can also affect the APR. It is essential that the borrowers or their agents make the lender aware of these changes as soon as possible in case re-disclosing is necessary.
Posted on 09/14/2009 in Mortgage | Comments (0)
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Fannie Mae Reverses Long Standing Policy Impacting Transferees
The government sponsored enterprise, Fannie Mae, has recently issued tougher underwriting guidelines that will most definitely affect borrowers involved in corporate relocation. “Trailing spouse income” will no longer be permitted for mortgage applicants looking to purchase a new home. A trailing spouse is defined as one who joins his or her spouse or partner in a job-related move, but who has yet to obtain employment in the new location.
Traditionally, lenders have been willing to count at least a portion of the income from the trailing spouse’s previous job toward qualifying income needed to finance the new home. Under the new guidelines, no consideration to this income will be given. If the sole income of the relocating employee is not sufficient enough to qualify for a mortgage, the couple will have to wait until the trailing spouse has secured employment in the new location.
This may force couples to buy less of a home than intended or force them to rent for an extended period of time. It may also deter them from accepting the job position or at the very least, prolong the relocation process. It inflates the current challenges associated with relocation, as it relates to homeowners and the sale/purchase of residences within the United States.
Posted on 08/5/2009 in Mortgage | Comments (0)
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Maintaining U.S. Credit While on Global Assignment
An employee’s credit profile and their ability to obtain future financing is one of the last things on their mind when they are being deployed for an international assignment. For U.S. expatriates, regardless of how long their international assignment is, if they plan on purchasing a home upon their return, they must remember to preserve their U.S. credit history. Credit history is built up over a long period of time. Unfortunately, it can take only a short time to destroy that history, requiring employees to start from the beginning upon their return to the U.S.
When advising your employees about maintaining their credit history in the U.S. we recommend that they should keep four (4) U.S. based credit cards open and active during their time on assignment. It is important that they use these cards once a quarter or every six (6) months for at least a minor purchase. They may then clear the balance in the next billing cycle. This maintains activity on their account and demonstrates that they are making timely payments. Otherwise, their accounts will become inactive, which will result in an adverse affect on their credit.
While it seems like a fairly simple process, it is often forgotten or ignored. Numerous employees return to the U.S. from a global assignment to face the need to re-establish credit, impacting their ability to purchase a home, vehicle etc. And, by following a few simple steps, this challenge can be easily eliminated.
Posted on 07/22/2009 in Mortgage | Comments (0)
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Home Valuation Code of Conduct: Delayed Timing, Higher Prices...
As of May 1st , 2009 the Home Valuation Code of Conduct (HVCC) went into effect for all loans that are to be purchased by Fannie Mae or Freddie Mac. The HVCC rule was implemented to protect the independence of appraisers evaluating properties. Mortgage lenders can no longer order appraisals directly, but instead must use third-party "Appraisal Management Companies" (AMCs) to assign the orders to appraisers in their networks. And as an additional stipulation, lenders are also now prohibited from having any contact with the appraisers throughout the appraisal process. Any and all communication between the lender and the appraiser must be funneled through the AMC. How does the HVCC implementation affect relocating borrowers looking to purchase a new home?
First, it’s increasing the turnaround times for appraisals due to the increase in the number of hands touching the appraisal order. Instead of a lender directly contacting an appraiser to order an appraisal, and subsequently following up on that appraisal, the lender now has to work through the AMCs, adding an additional layer of communication, or many, to the process. Within the AMC, there are a variety of individuals who work to process the appraisal order, so instead of a direct communication, you now have different people for assigning, checking on and delivering the final appraisal report. This new process eliminates the lender’s ability to hold appraisers directly accountable for the delivery of the report, which has resulted in a more lax approach in completing the reports in a timely fashion. For individuals engaged in relocation, they need to be cognizant of the extended timeframe and understand that it may impact the timing of the close of their loan. Lenders no longer have the ability to confidently commit to a quick closing and there is an increased likelihood that mortgage commitment dates and potential closing dates may be pushed back from their originally scheduled dates.
Second, it’s driving up appraisal prices. With the Appraisal Management Companies adding built-in fees for their management service (and potentially even more built-in fees to ensure that the appraisal is HVCC compliant) we have witnessed a continued increase in appraisal prices over the past 6 weeks. And, if the AMCs have difficulty finding an appraiser within their network to complete the appraisal, they will not hesitate to charge additional fees to locate an appraiser outside of their network.
Finally, appraisals must now be delivered by the lender to the borrowers at least three (3) days prior to closing. Prior to the HVCC going into effect many lenders did not send a copy of the appraisals to the borrowers unless requested to do so. Now, every lender is required to send a copy of the appraisal to the borrower for their review, unless this right is waived by the borrower.
Even though the HVCC has only been in effect a little over a month, we are already experiencing noticeable differences in the appraisal process including extended appraisal turnaround times, increased appraisal prices and the new requirement of timely appraisal delivery from the lender to the borrower. Stay tuned to see what may come next...
Posted on 06/16/2009 in Mortgage | Comments (1)
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The Financial Stability Plan: How Will the Home Affordable Refinance Plan Help?
Recently, the Obama Administration introduced a comprehensive Financial Stability Plan, designed to stimulate the economy and turn around the financial crisis in the U.S. One of the critical components is Making Home Affordable, a plan to stabilize the housing market.
A subcomponent of the Making Home Affordable plan is the Home Affordable Refinance Program which is designed to provide homeowners with loans owned or guaranteed by Fannie Mae an opportunity to refinance into more affordable monthly payments.
Fannie Mae has loosened the rules for homeowners who are seeking to lower their monthly payments or move to a more stable mortgage product, such as refinancing an adjustable-rate mortgage into a fixed rate mortgage. The less stringent criteria include lower acceptable credit scores and reduced income documentation. And, in certain scenarios, Fannie Mae is waiving the requirement for an appraisal.
More importantly, the maximum loan-to-value-ratio for refinance mortgages under this program will be increased to 105 percent and mortgage insurance requirements will be significantly relaxed to assist borrowers who have experienced home price declines.
This is one element of a comprehensive plan and one which is very much needed in today’s economic environment. With more than 10% of Americans facing foreclosure, this is a critical program for our Country.
Posted on 05/11/2009 in Mortgage | Comments (3)
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