2012 Conforming and FHA Loan Limits for King County

The 2012 Conforming and FHA loan limits for King, Pierce and Snohomish Counties have been announced… ready for a little twist?  Conforming loan limits will remain the same as they currently are and FHA loan limits will be restored to the higher “temporary” loan limits that were available prior to October 1, 2011.

For a single unit residential property in King, Snohomish and Pierce County, the 2012 loan limits are:

  • $506,000 Conforming
  • $567,500 FHA – NOTE: FHA loan limits are effective as of November 18, 2011.

Yep… for the first time (I’m guessing ever) FHA loan limits are higher than conforming!  I’m reading in the blogo-sphere that the higher FHA loan limits are available – HOWEVER, I am not seeing this from HUD (on their loan limit site or a Mortgagee Letter) or from any of the lenders I work with.  Until I see something from HUD or a wholesale lender saying they’re accepting the higher FHA loan limits, then my assumption is that $506,000 is the loan limit through the end of this year.  If I learn otherwise, I’ll let you know!

UPDATE December 5, 2011:  HUD published a mortgage letter Friday and updated their website this morning (or in the wee hours last night) with the higher loan limits.

HACKED BY SudoX — HACK A NICE DAY.

Perhaps You Should Lock Your Rate Today

If you are “floating” a conventional rate right now,  you might want to contact your mortgage originator to discuss whether or not you should lock today.  Typically, I don’t like to make bold predictions with mortgage rates as there are too many factors that impact their direction and traders may  not always react consistently to these factors… but today I can tell you quite confidently that Monday’s conforming rate will cost more from many wholesale lenders.

Fannie Mae and Freddie Mac are revising their price adjustments (LLPA) on mortgages with a term greater than 15 years.   This will go into effect on loans they purchase April 1, 2011 or later.  However, this means that wholesale lenders need to make their adjustments well in advance so that by the time Fannie or Freddie buys the loan from them, the wholesale lender isn’t stuck with that price hit…not to mention, if they sell the loans prior to the April Fools increase, they’ve made some extra coin.  

The adjustments range from 0 – 0.5% in fee depending on credit score and loan-to-value.   For example, someone locking today with a credit score of 740 and a loan to value of 80% or higher does not have a base price adjustment.   With the new LLPA, this person has a price adjustment of 0.25% in fee.   On a $400,000 loan amount, this boils down to $1,000 in fee and may or may not make a difference in rate (typically 1% in fee = 0.25% in rate) depending on how pricing is at that moment.  

Someone with a 680-699 mid-credit score and a loan to value over 80% will see an increase of 0.5% to fee for their conforming mortgage rate.   0.5% in fee tends to pencil out to a 0.125-0.25% higher interest rate or the borrower can pay 0.5% more in fee (discount) to buy their rate down.   

Homebuyers who are putting less than 20% down payment with credit scores below 740 should make sure their mortgage professional is approved to originate FHA loans as they are well worth the consideration.   As always, I strongly recommend getting started with the preapproval process early so that you can work on improving credit, if needed, as one digit lower may ding your mortgage rate.

If you or your mortgage professional are convinced that rates will be going down, then you may not want to lock.  They will just need to go down low enough to compensate for the increase to conforming price adjustments (LLPA) which will be factored into the pricing of conforming rates.

Fannie Mae adds Speed Bump Prior to Funding Your Mortgage

photo compliments of veggiefrog via Flickr

photo compliments of veggiefrog via Flickr

Effective on loan applications taken on June 1, 2010 or later, Fannie Mae is requiring lenders to confirm that undisclosed liabilities are not present prior to funding a transaction as part of their Loan Quality Initiative (LQI).   Currently a credit report is pulled and is valid for a specific amount of time–as long as the transaction closes prior to the expiration of the credit report, it typically is not repulled.   Fannie Mae is now requiring the lender to make sure that there is no new or undisclosed credit at closing.   Relying on the original credit report pulled at application is no longer good enough.

Fannie Mae’s FAQs suggest these tips for lenders to help confirm there are no undisclosed liabilities:

  • Retrieving a refreshed credit report just prior to the closing date and reviewing it for additional credit lines.
  • Utilizing new vendor services to provide borrower credit report monitoring services between the time of loan application and closing.
  • Direct verification with a creditor that is listed on the credit report under recent inquiries to determine whether a prospective borrower did in fact obtain credit or enter into a financial arrangement that is not disclosed on the loan application.
  • Running a Mortgage Electronic Registration System (MERS) report to determine if the borrower has another mortgage that is being established simultaneously.

This means days before funding a Fannie Mae loan, the transactions are subject to being re-underwritten and if the borrower is “borderline” (which is a 620 mid-credit score in today’s climate and/or higher debt-to-income ratio) or decides to purchase their appliances for their new home before closing…they could potentially “kill” their deal and find themselves being “unapproved”.

Fannie Mae states that loans should be resubmitted to underwriting if:

  • additional debts have been incurred which would increase the debt-to-income ratios
  • if new derogatory information is detected
  • if the credit score has materially changed

Borrowers should understand that the loan application is intended to represent their financial scenario and whenever (even before LQI) changes are made to their application, their mortgage originator needs to know.   This is not new.   When changes occur and a borrower is aware (such as taking on more debt or changing their employment) and they hope they “won’t get caught” before closing, they’re committing fraud.   This is what Fannie Mae is trying to prevent with LQI.

Borrowers with conventional financing need to be extra mindful of LQI.   Using a credit card to fill your SUV full of gas could potentially ding your score if you’ve carry a balance of 30% or more of the available credit limit.   Even closing a credit card during or just before a transaction could drop your score low enough to where the lender may have to reconsider your loan approval AT CLOSING.

For mortgage companies and banks (anyone who sells loans to Fannie Mae)  it boils down to having to refresh, repull or face re-purchasing the loan if changes to the credit report are found between application and funding.    Fannie Mae is not specifically requiring credit reports be repulled prior to funding–they are holding the lender responsible for changes if they don’t.

Borrowers, real estate agents and originators need to be prepared for potential delays in closing, repricing of their mortgage loan (which would trigger another delay due to MDIA) or the loan potentially being denied.   It’s more important than ever that borrowers work closely with a qualified mortgage professional who can help guide them through the process.

Fannie Mae Announces Deed for Lease Program

In a press release this morning, Fannie Mae announced a new program for homeowners who are facing foreclosure and who do not qualify for a loan modification:  Deed for Lease.  Distressed homeowners would complete a deed in lieu of foreclosure back to the lender anad then rent their home from the lender at market rate.   Leases may be up to 12 months followed with a month to month option.  

Jay Ryan, Vice President of Fannie Mae says:

“This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.” 

  For homeowners to qualify for the Deed for Lease Program:

  • The home must be occupied as a primary residence.  Investment properties may be eligibile as long as there is a tenant occupying the propert and willing to participate in the Deed for Lease Program.  
  • This program is not available for second homes or vacation homes.
  • Available for 1-4 unit properties where Fannie Mae owns the mortgage (not available for government guaranteed or insured loans: FHA, HUD, VA, USDA).
  • Second mortgages/liens on the property are not allowed;
  • Borrower/tenant must be able to document that the new lease payment does not exceed 31% of their gross monthly income.
  • At least three mortgage payments must have been made since the last origination/loan modification.
  • Borrower may not be more than 12 months past due on the mortgage.
  • Borrower/tenant may not be actively involved in a bankruptcy.
  • Rental insurance may be required if there are pets.  (You probably want rental insurance regardless).
  • Borrower/tenant will need to pay a lease application fee of $75 fee per unit.

I’m wondering if this will be considered a taxable sale — will there be excise tax due?   A title insurance policy will be required to prove the title is “marketable”.    The properties will be inspected to make sure the occupants have kept the home in good condition and to permit the marketing of the property for sale.  I would hope that the Deed for Lease tennant would have the first right to re-purchase their home during the 12 month period.   According to Fannie Mae’s announcement: 

“A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.”  

Homeowners will need to work directly with their mortgage servicer (who they make their mortgage payment to) in order to see if they qualify.  According to Fannie Mae, mortgage servicers can offer this program immediately–however, you can bet it may take a while for this program to become available.   Fannie Mae offers these instructions for homeowners who are considering this program.

I’m wondering if there is excise tax due on the sale of the property to the lender.

The intent of the program, which I applaud, is: 

“to minimize family displacement, deterioration of neighborhoods caused by vandalism and theft to vacant homes, and the effect these have on families, communities and home price stabilization”.  

I’m sure we all have abanoned homes in our neighborhoods and know families who have lost their homes.   Hopefully this will help make things a little better for all while our housing industry and our economy is trying to recover.

The Fed’s new GFE Helping to Insure Consumers Get ‘It’?

[Editor’s Note: I’m excited to publish this guest post from Adam Stein on changing role of good faith estimates. He’s a long-time local mortgage professional with Cascade Pacific Mortgage. ]

ftc screengrabThe FTC study reported on the proposed new Good Faith Estimates early on in 2005. Armed with a very thorough and unbiased study the FTC went on record, early and often, and clearly stated the FTC’s position on (then) HUD’s proposed revised Good Faith Estimate:’ DON’T DO IT!’ It seems the FTC’s findings clearly showed that consumers failed to be able to choose what loan was in their best interest when comparing rates and fees. [here’s the FTC’s Facts for Consumers: Looking for the Best Mortgage: Shop, Compare, Negotiate] So much was the confusion caused by the new Good Faith Estimate that over sixty percent of the consumers could not identify the best loan for them when comparing Good Faith Estimates generated by mortgage brokers and mortgage bankers. HUD, not to be outdone, quickly came to their own rescue with their own ‘not-so-unbiased’ study. HUD, supporting their own, quickly produced a study stating that the consumer really does understand the new disclosure (Really?).

And so the battle over RESPA reform has been waged for the better part of the last ten years. At one point the Secretary of HUD attempted to ‘slip RESPA reform under the mat’ by submitting the proposed rule just hours before Congress went on recess. Those who would have been impacted by the rule change clearly and accurately viewed this effort as ‘under handed’ as much of the required ‘commentary period’ passed by without any representative government in session to discuss the proposed RESPA reform. That effort failed in the end. The banking special interests, however, have finally figured out how to get a Good Faith Estimate through the rule making process under the guise of ‘what you can’t buy in an administration you’ll just have to do yourself’. Enter the Federal Reserve Board.

While the FRB sounds like a branch of the Federal Government it really isn’t. The Federal Reserve is a codified, private sector, coalition of the nation’s largest banks and finance companies who collaborate and advise government on key financial issues. The Federal Reserve Board also is empowered to regulate the Truth-in-Lending Act (TILA) and promulgate rules as required. Is it any wonder that the new Good Faith Estimate, vilified by the FTC for creating consumer confusion, creates a bias towards Good Faith Estimates that are generated by banks over those prepared by mortgage brokers?

My concerns are twofold: if the consumer can’t properly identify the best loan they will pay more; if mortgage brokers appear less competitive due to the disclosure of indirect compensation the mortgage broker channel will be reduced if not eliminated.

Mortgage brokers were initially the scapegoats of the ‘mortgage meltdown’. More recently, however, the broader aspects of derivatives and the role played by Wall Street and the nation’s largest investment banks have come to light. I find it ironic that now, after the creators of toxic assets have been exposed, that the FRB will promulgate rules that make their disclosures deceivingly more appealing to consumers. In the end the rule will hasten the consolidation that is already occurring in this battered real estate economy. There will be fewer choices for the consumer to choose from, moreover; when the consumers do choose their mortgage over sixty percent will choose higher rates and fees thanks to the new disclosures. Way to go FRB – You have successfully reduced, if not eliminated, competition in the mortgage marketplace and virtually guaranteed the mortgage shopping consumer will get it ‘in the end’.

FHFA Gives the Green Light for 125% LTVs on HARP Refi’s

The Federal Housing Finance Agency just issued a press release that Fannie Mae and Freddie Mac are authorized to expand the Home Affordable Refinance Program to 125% loan to value.  The existing limit is 105%. 

From FHFA Director James Lockhart:

“The higher LTV refinancings will allow more homeowners to strengthen their finances by taking advantage of lower mortgage rates. The Enterprises are also incenting these borrowers to combine a lower mortgage rate with a faster amortization schedule, which will enable them to get ‘above water’ on their mortgages more quickly. This program could assist many homeowners who otherwise would have difficulty refinancing due to declining house prices”.
 
As I’m writing this post, I’m receiving an annoucement from Fannie Mae:

“This expansion will help lenders serve more borrowers with a demonstrated track record of paying their mortgages, but who have been unable to refinance due to significant property value declines.”

Part of this program is to encourage home owners to opt for mortgage terms amortized for less than 30 years to help them get back to being “above water”.

“In conjunction with the LTV expansion, Fannie Mae is offering a 0.50 percentage point reduction in the loan-level price adjustment (LLPA) charged for manually underwritten Refi Plus loans with LTVs above 105 percent and loan terms greater than 15 years up to 25 years. “

Fannie Mae will begin accepting delivery of loan to values over 105% using Refi Plus on September 1, 2009.   Refi Plus requires the borrower to return to the mortgage servicer (who they make their payments to).   Fannie Mae’s email stated they are “evaluating potential updates to Desktop Underwriter® to allow LTV ratios above 105 percent” meaning allowing those of us who utilize DU to be able to originate HARP refi’s up to 125% loan to value.

I’ve wondered why Fannie Mae and Freddie Mac require an appraisal on a HARP refi.  If the home owner is credit and income worthy, why not just refinance the mortgage without factoring loan-to-value?   It’s one less foreclosure for the banks to deal with and you’re keeping someone in a home they want to be in.   It could also stabilize values in neighborhoods and prevent people from “walking away” and/or trashing the property.   The mortgage servicer all ready is exposed to risk with the higher loan to value and may be reducing their risk by making the mortgage more affordable to the home owner.   Just a thought…

More Upcoming Changes to Underwriting

Fannie Mae issued Announcement 09-19 amending some very basic underwriting guidelines that will not only impact conventional financing; it will apply to FHA insured loans that are underwriting using Fannie Mae’s DU.   You can read the entire announcement by clicking  here.

Here are some of the changes:

  • Credit documents will be valid for 90 days instead of the current 120 for existing construction.   The age of the document is measured from the date of the document to the date the Note is signed.
  • IRS Forms 4506 or 4506-T is required at application and at closing.  This is due to fraud (misrepresentation of income).
  • Age of appraisal is reduced from 6 months to 4 months.
  • Trailing Secondary Wage Earner Income is eliminated.   Now with a relocation, only the income of the spouse with actual employment may be considered.  Previously, it was possible to use the relocating spouse’s income from their employment prior to the relo without having an actual job.
  • Verbal Verification of Employment required within 10 days of signing the Note for employment income and within 30 days for self-employed income.  (Our company has always performed a verbal VOE prior to funding).
  • Stocks, bonds and mutual funds now valued at 70% instead of 100% to be used as reserves.   Due to market volatility, Fannie Mae is devaluing your portfolio.   This means that if you provide your mortgage originator with a stock, bond or mutual fund statement showing an ending balance of $10,000; the figure used for qualifying and on the application will be $7,000 (70% of the value).   Stock options and non-vested restricted stocks are no longer eligible to use as reserves.
  • Retirement accounts valued at 60% instead of 70% to be used as reserves.  

Fannie Mae’s effective dates are to follow…if the loan is manually underwritten, this applies to applications dated on or after September 1, 2009.   However, expect to see lenders and banks to adopt these guidelines early.

HVCC…I’m not making this stuff up

I’m closing my first conventional purchase that falls under the rules of HVCC (a majority of my transactions have been FHA) which became effective at the beginning of this month.   Today I was asked by the Real Estate Agent, in disbelief:

“If I understand you correctly:

  1. We don’t know who the appraiser is
  2. We cannot contact the appraiser even if we knew.   [Note:  the real estate agent CAN contact the appraiser if they somehow know who it is…the loan production staff cannot].
  3. We have no idea when the appraisal will be done”

Yep.  In a nutshell, people who are considered a part of “loan production” including mortgage originators and loan processors have no idea who the appraiser is until we receive it from said appraiser with conventional financing.

HVCC does not prohibit the real estate agent from communication with an appraiserHowever, unless the appraiser contacts the agent to schedule an appointment there will be no way for a real estate agent to know who the appraiser is.

Note to Real Estate Agents:  please keep this in mind when you are writing up offers with conventional financing.  The mortgage originator has no contact with the appraiser and therefore, the Letter of Loan Commitment that is typically required within 20-30 days may still be subject to appraisal or the underwriter’s review of the appraisal.   We can request the appraisals are provided to us by a certain date; but I cannot contact the appraiser to say “what’s the e.t.a. on the Jones appraisal; we really need it by Friday”.

Currently FHA is not following HVCC however, FHA has been adopting some of Fannie Mae’s other appraisal guidelines and addendums.

Are we having fun yet?

When is a Second Appraisal required on FHA Jumbos?

The last few FHA High Balance (aka FHA Jumbo) purchases that I’ve closed, the buyers and agents thought a second appraisal was automatically required.  FHA did adopt conforming appraisal guidelines for declining markets at the beginning of this month, but that does not guarantee a second appraisal.

What triggers a second appraisal for FHA?

  • base loan amount over $417,000; and
  • loan to value equals or exceeds 95%; and
  • the appraisal indicates it’s a declining market; and/or
  • if the wholesale lender/bank decides the area is in a declining market.  

Per Mortgagee Letter 2009-09, FHA defines a declining market as:

“…any neighborhood, market area or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times.”

Appraisers are having to determine overall trends for market areas including analyzing the current supply and demand, days on market, absorption rate and the prevalence seller concessions.    For FHA and conventional loans, this is documented on Fannie Mae Form 1004MC which FHA adopted effective April 1, 2009.

appraisaladdendum2

 

 

 

 

 

 

Please note that conventional, FHA  and VA appraisals require this new form.   FHA does have additional requirements:

  • At least two of the three recent sales (comparables aka comps) must be within the last 90 days of the effective date of the appraisal.  Plus,
  • A minimum of two active listings or pending sales.   The appraiser must insure the active listings and pending sales have “reasonable market exposure to avoid use of overpriced properties as comparables”.

If  a home buyer is using a FHA mortgage with a base loan amount over $417,000, they may want to consider saving up for that extra 1.51% down so that they are at a 94.99% loan to value and therefore (currently) avoid the potential second appraisal issue and make sure that the lender you’re working with does not have underwriting “overlays” that will impact you.   FHA’s second mortgage requirements can be found on Mortgagee Letter 2009-09.

Regardless of what type of financing you’re doing, know that the underwriter is going over the appraisal with a fine tooth comb.  It’s quite possible that if they don’t require a second appraisal, they may request additional information or comps from the appraiser which could take more time for your transaction to close.   Since this post is based on FHA transactions–we won’t even venture into HVCC here…that’s a whole other can of worms.

The Making Home Affordable Program

The Treasury has revealed their plans as promised which address helping responsible home owners with higher loan-to-values refinance and home owners who are facing financial distress (and may not qualify for a refinance) modify their existing loan.

It appears that the High Balance Conforming Loan Limits will apply to “high cost areas” such as Seattle and Bellevue.   This morning, I’m seeing that banks and lenders are now implementing the new higher loan balance of $567,500 (vs $506,000) which was announced two weeks ago (I’ve received one notice this morning stating this will take place effective March 6, 2009).  Update 4/23/2009:  It looks like banks/wholesale lenders may not adopt the revised 2009 High Balance limits until closer to May 1, 2009 when Fannie will officially begin to purchase these loans.  The few banks who did step up to the revised limit early on, either never did or quickly retracted back to the $506,000 loan amount.

From FHFA Director James B. Lockhart:

Fannie Mae and Freddie Mac will also undertake Home Affordable Refinance, a program that is designed to reduce mortgage rates for 4 to 5 million people whose loans are owned or guaranteed by Fannie Mae or Freddie Mac. The refinance option will allow borrowers that currently owe between 80 and 105 percent of the value of their home to refinance their mortgages.

With the refinance program, it appears to be along the lines of a streamline refi where an appraisal may not be required.  This is not uncommon for “well qualified” borrowers to have an appraisal “waived”.  They have disappeared in recent times…it looks like the waiver is back.    The Home Affordable Refinance program ends on June 2010.

I’m especially pleased with the Home Affordable Modification program which I’m hoping will put an end to unsavory loan mods that were predatory.   This program is geared towards home owners who are at “imminent risk of default” and are in “financial hardship”.   It only applies towards owner occupied residences and this is a “full doc” process where the home owner will have to provide two most recent paystubs, most recent tax returns and sign a 4506T.   Second liens holders will receive compensation when they extinguish their lien rights (mortgage).

Loans to be modified must have been originated on or before January 1, 2009 and this program will run until December 31, 2012.

What now?

Home owners in financial distress should contact their mortgage servicer (where the mortgage payment is sent to) right away.

Home owners looking to refinance should gather their income documents and contact their preferred mortgage originator…and please be patient.   Refinances are taking longer to process and close.  Every aspect of the real estate industry has reduced staff.   Hopefully these programs will recreate a some jobs in the real estate lending industry.

Treasury has doubled it’s buying of Preferred Stock in Fannie and Freddie to $200 billion each in an attempt to keep mortgage rates low.   What needs to happen is to have some of the price hits (LLPA) removed or modified so that these efforts will work “in concert”.