Mortgage

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 (1)

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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.

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 (6)

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FHA Mortgages: Who is Eligible? What are the Benefits?

In addition to great interest rates, FHA insured loans also have flexible down payment guidelines. In a time where the nation’s average home prices are in decline, it is becoming more common to see buyers putting less than 20% down on a new home purchase. The minimum down payment on most purchase transactions is typically 3.5%. While Fannie Mae and Freddie Mac continue to offer loans with minimal down payments, you will find that there is not one private mortgage insurance (PMI) company that will provide insurance on these loans under the same terms as a loan insured by the FHA. It is dependent on the property and the borrower; but PMI companies are typically requiring 5-10% down. In addition to larger down payments, PMI companies are tightening debt to income ratios, reserve requirements, and credit score levels as well.

Posted on 04/13/2009 in Mortgage | Comments (0)

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Foreclosures and Short Sales: What You Need to Know!

Over the past two years, foreclosures have risen to record levels in the United States. According to RealtyTrac, foreclosures rose an astounding 81% in 2008, with over 860,000 homes repossessed by lenders, this after a 75% increase in 2007. In total over the past two years, over 1.2 million homes have been foreclosed on in the U.S. The rise in foreclosures has also led to a significant rise in the number of short sales.

What is a foreclosure? A foreclosure is when a bank takes possession of a home from a defaulting borrower. Even though these homes are usually sold below market value, you are buying the home “as is”. The positive side to buying a foreclosure is that you are dealing directly with the bank and can expect a much quicker response time for negotiations than you would with a short sale.

A short sale is when a home owner who is currently in default or could soon be in default tries to sell their home prior to the home going into foreclosure. The sales price is not sufficient to erase the current lien and, in a perfect world, the bank will accept the deficiency and release the lien in order to offer the new owner a clear title. Once an offer is made, the negotiations are made with the seller first, and then the bank that holds the mortgage reviews the terms of the contract. It may take upwards of 60 days to hear an initial response from the bank and they do not have to agree to accept the offer. One of the significant challenges with a short sale is the length of time it can take from start to finish and uncertainty as to whether or not the deal will go through at all.  For a transferee who is in temporary housing, this can be quite costly and pose a real problem for both the transferee and the Company. If time and money are of the essence, a short sale is probably not for you. If you have nothing but time and lots of patience, you can get a lot of value for your money.

Foreclosures and short sales are attractive to buyers because the property is typically available at a significant discount, well below market value. But, with both foreclosures and short sales there are risks and associated ramifications. Do your research and ensure that these options are right for you. 

Posted on 03/9/2009 in Mortgage | Comments (0)

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Buying before Selling: Is it a Viable Option for Transferees?

In light of the current economic environment, an increasing number of transferees are experiencing a major loss of equity in their current residence. Not wanting to take a loss on sale (or in the case of negative equity; not capable of taking the loss), an increasing number of these transferees are wanting to convert their current home into an investment property in hopes of using the rental income to qualify for a new primary residence at their destination. While this may have been a great option in the past, it has now become a next to impossible option due to recent changes in underwriting guidelines by all three of the government sponsored enterprises (GSE’s: Fannie Mae, Freddie Mac, and Ginnie Mae).

Several months ago, each GSE announced that they were revising their guidelines for converting principal residences into investment properties. The most dramatic of these changes is that unless a borrower has 30 percent equity in the home being converted, the rental income may not be used to offset the mortgage payment. In addition, if the transferee does not have the 30 percent equity, they will need to have a minimum of 6 months of reserves for both properties; this is after they make their required down payment on the new home.

Due to the increasing complexity of residential lending, it is now more important than ever for transferees to consult with mortgage professionals that are experts in relocation. It is also important to encourage transferees to begin the pre-approval process as soon as possible so that they have the time to improve on their situation before they are ready to buy.

Posted on 02/11/2009 in Mortgage | Comments (0)

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Why Home Buyers Should Not Wait for a 4.5% Interest Rate

There is a lot of buzz going on about the treasury stepping in and temporarily setting home financing interest rates at 4.5% in efforts to revitalize the depressed housing market. However, if home buyers decide to delay their purchase of a new home for hopes of a government program, they will most likely be disappointed.

We believe that this program will never happen. On November 25, the Federal Reserve announced that it would purchase $500 billion in mortgage backed securities (MBS) from Fannie Mae, Freddie Mac, and Ginnie Mae. The immediate effect of this announcement increased demand for mortgage backed securities, and, as a result, mortgage rates tumbled. In fact, at the time of this post, qualifying borrowers could get 5.000% on a 30-year fixed mortgage under certain circumstances. If the government were to up the ante on their purchase of MBS from the GSE’s, we could possibly see the market naturally move towards a 4.5% interest rate; thus avoiding the bureaucracy of developing a new program created by politicians.

Another benefit of the government influencing the market to move towards a 4.5% interest rate is that this would allow the reduced rate to apply to refinances as well. If homeowners were able to lower their monthly payments by refinancing their mortgages, it will lead to an increase in consumer confidence and consumer spending. Both of which are essential for our economy to grow.

If homeowners wait for this government program, they may find that home prices have risen and lending guidelines have tightened (including down payment requirements). Instead, borrowers should capitalize on purchasing a home now when they know prices are low, rates are low, and lending requirements are still relatively loose.  And if my hypothesis is correct, they can always refinance down the road if rates do end up improving.

Posted on 12/18/2008 in Mortgage | Comments (2)

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