Dodd-Frank Act Eliminates HVCC (Home Value Code of Conduct)
Last June
we wrote about the Home Value Code of Conduct, a joint initiative between
Freddie Mac, the Federal Housing Finance Agency (FHFA), and the State Attorney
General of New York, which was enacted to protect the independence of
appraisers and offer additional protection for consumers, mortgage investors
and the housing market. Two of the primary changes in the regulations, which
went into effect May 1, 2009, were:
- Mortgage
lenders were required to use third parties, Appraisal Management Companies (AMCs)
for any appraisal needs, and
- Lenders
were prohibited from having any conversations with the appraiser during the
appraisal process.
While the
goal of HVCC was to protect all of the invested parties in the transaction, the
regulations caused delays in the process through the addition of the AMC
middleman, independent appraisers were forced to align with an AMC, and it
drove up appraisal costs with the addition of the AMC, who now had to earn
revenue for the work they were doing in assigning and managing the appraisal
request from the mortgage lender.
Now, due
to the recent signing of the Dodd-Frank Act, the HVCC will officially be
eliminated within the next 90 days and replaced by a new set of appraisal
independence standards that will be finalized within the next 60 days.
Highlights of the forthcoming changes include:
- Fannie Mae
or Freddie Mac will be able to accept any appraisal report completed by a
selected appraiser or paid by a mortgage lender
- Lenders
will be required to pay agents at market rates
- Loan
originators will be subject to state and/or Federal laws that prohibit them
from making payments, threats or promises to influence the report
There
aren’t many in the real estate, mortgage or appraisal industry who will be sad
to see the HVCC eliminated, except perhaps for the AMCs, but we will all have
to wait until at least September to see the final guidelines and restrictions –
stay tuned.
Posted on 08/9/2010 in Mortgage | Comments (0)
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The Consumer Financial Protection Bureau and Consumer Mortgage Protection
We have
all been witness to the financial crisis of the past 18 months. Tightening
credit limits, tougher standards for mortgages and consumer loans, job losses –
we all know at least one person who has been directly impacted. Just about a
year ago, in an effort to create a government regulatory agency to protect
consumers from unfair or ‘shady’ lending practices, President Obama introduced
a law to Congress to establish what was then referred to as a Consumer
Financial Protection Agency. After a year of discussion and debate, the house
and senate have finally passed the legislation, which now looks to become a
reality once signed by the President.
One of the
primary objectives of the new agency, or Bureau (CFPB), is to more strictly
regulate mortgage-lending practices, providing consumers with more transparency
around the transaction, especially in terms of the revenues earned between the
lender and the mortgage broker. One of the key proposed changes would be that
commissions paid from a lender to a broker would no longer be able to be based
on the interest rate of the loan. Historically known as the yield spread
premium, consumer advocacy groups and lawmakers alike associate the practice
with consumers being steered into higher rate loans, providing the brokers with
increased revenues earned from the transaction. It seems so obviously wrong,
doesn’t it? Interestingly enough, the National Association of Mortgage Brokers
opposes the terms of the proposed reform, countering that it would limit the
ability for consumers to secure any time of low-cost financing. In fact, the
new reform would prevent any commission percentages tied to the terms of the
loan, aside from the principal amount.
Additional
key elements of the bill impacting the mortgage industry and consumers include:
- A requirement for lenders to ensure that the borrower
has the ability to repay the loan through a federal standard
- Accountability and financial penalties to lenders and
mortgage brokers for unfair lending practices
- Additional disclosure provisions to the consumers regarding
the maximum amount they could have to pay on all variable rate mortgages
- Counseling assistance for consumers through a newly
established Office of Housing Counseling within HUD
Critics
continue to find flaws or holes within the proposed Bureau, but if nothing is
obvious from the real estate market and financial practices of the past few
years, lending institutions cannot be left to their own accord for
self-regulation. The creation of the Bureau and the regulations associated with
it represent the largest reform to mortgage rules in the U.S. since the 1930s
and, in my opinion, it’s about time.
Posted on 07/16/2010 in Mortgage | Comments (0)
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Mortgage Rates: An Interesting Historical Perspective…
Last week 30-year fixed rate mortgages remained at near
record low levels, with Bankrate.com reporting an average rate of 4.88 percent,
down from 4.95 the week prior and down from a 2009 same week rate of 5.29
percent. While the consumer market watches rates closely and mortgage experts
and economists alike make weekly predictions on where the rates may go in the
short term, I am moved to look back at where we’ve come from over the past 45
years. As I began my research I came across an interesting report, the Federal
Housing Finance Agency Report, “Terms on Conventional Single-Family Mortgages,
Annual National Averages, All Homes.” As I read through the report, I began to
think, have things really been that bad?
In 1963, according to the Report, the contract
interest rate stood at 5.9 percent. Of course, in 1963 the average purchase
price was $20,600 and the loan to price ratio stood at 71.7 percent.
Throughout the 60s and 70s, interest rates
continued to rise as the average home purchase price nearly quadrupled reaching
$73,400 in 1980. The early 80s saw interest rates hit their 45-year peak with a
contract interest rate of 14.73 percent in 1982. During this period and
throughout the 80s loan to price ratios remained in the low 70 percent.
It wasn’t until the early 90s when we witnessed a
significant shift with loan to home ratios at just under (79.9) 80 percent in
1994 and 1995. While we all know what has occurred in the millennium thus far,
it’s interesting to note that, according to this report, things aren’t as bad
as they seem. While the average purchase price dipped from $307,100 in 2006 to
$300,500 in 2007, interest rates also dropped from 6.54 percent to 6.45 percent
during that same period. And, in 2009, we ended the year with a 46-year record
low contract interest rate of 5.05 percent and an average purchase price over
just over $307,000.
Like most Americans I read the paper every day,
albeit online, and follow the trends, so where do we really stand. My final
question, “How bad is it really?”
Posted on 06/15/2010 in Mortgage | Comments (0)
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Mortgage Rates: Where will they go?
As 30-year mortgage rates hit a six-week low last
week, speculations continue about where the rates will go this year. Will they
rise or not? Can the economy sustain an increase, or will it send housing into
a further decline?
Home mortgage rates for a 30-year fixed loan were
at 5 percent on May 8th, still higher than the 4.84 percent we
experienced at this time last year, but down since the beginning of 2010.
In February, according to the S&P/Case Shiller
index, home prices nationally rose a modest percentage, which was the first
time we have seen an increase since 2006. Coupled with a quickly rising
consumer spending index and median prices for existing homes rising in much of
the U.S., it seems as though we’re on the way to a recovery, albeit a slow one.
With the tax credit expiring on April 30th, the coming months will
certainly confirm whether the key real estate indicators during the first
quarter of this year were a masked effect from the housing credit, or if we’re
really on our way to recovery.
The U.S. government has continually noted that current
economic conditions, ‘warrant exceptionally low levels of the federal funds
rate for an extended period,’ but the question continues regarding the timing
of when this message will change and the Fed will adjust the rate, driving up
mortgage rates.
Although signs seem to be positive for the first
quarter of this year, there is still a lot of uncertainty around unemployment,
housing and foreclosures. The national unemployment rate still sits at over 9.7
percent, near a 26-year high, and economists are not predicting significant
improvement until the end of 2011. As foreclosures and delinquencies seem to be
leveling off, there are still millions of foreclosed properties either on the
market or in ‘shadow-inventory’.
While the government would certainly like to focus
on reducing the central bank’s balance sheet, it’s unlikely that we will
witness any significant increase in rates this year. More likely, the economy
will continue its slow recovery and we will all have to sit and wait for 2011.
Posted on 05/13/2010 in Mortgage | Comments (0)
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FHA Changes: Up-Front Mortgage Insurance Premium (UFMIP)
Posted on 04/15/2010 in Mortgage | Comments (4)
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Transferee Mortgages: The Importance of Asset Documentation
Over the past few years, federal lending requirements have changed dramatically. Long gone are the days of merely stating assets to a potential lender. In today’s marketplace, when
applying for a loan it is important for transferees to understand what will be expected of them and what they need to do to ensure that their loan process is as smooth as possible. Working to secure a home loan in today’s economy, regardless of whether it’s a local or national lender, transferees will need the following documentation*:
- Two (2) months of the most recent bank statements (all pages – even if they are blank) as well as any documentation proving the source(s) of any large deposit(s) into the account(s)
- Two (2) years of W-2s (in most cases tax returns are not required)
- Thirty (30) days of their most recent pay-stub(s) with year-to-date earnings listed
- All of their most recent financial statements (all pages, even if they are blank) inclusive of 401K statements, Money Market Account Statements etc.
- Loan information on any real estate that is being retained including mortgage statement, tax and insurance bills (if they are not held in escrow)
- Copy of the HUD on their home sale (if applicable)
Additionally, as a transferee, it is vital to keep track of all monies and assets that are being moved amongst various accounts. Lenders are not simply looking to verify that you have sufficient assets. Instead, they are looking to verify that all of the money is from an acceptable source. Transferees are regularly paying for relocation expenses and later being reimbursed by their company, because of this constant variability of assets, it is that much more important to track and make copies of all reimbursements and transactions between themselves and the company.
A good rule of thumb is to make and keep copies of any and all asset statements, including a paper trail of all deposits going into the accounts. Given the global economic transition over the past few years, it is important to understand that these new requirements are the new standards industry wide and are not the exception, but rather the rule.
* Subject to change.
Posted on 03/16/2010 in Mortgage | Comments (1)
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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 (1)
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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 (1)
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