Twas the Night Before March 4: Mortgage Eve

Twas the night before

more information to follow

about the new refinances and cram downs

…almost too much  to swallow. 

Okay…I’ll stop with the rhyme simply because I can’t keep it going!   There are a lot of Mortgage Professionals and Homeowners waiting to hear if they will be helped tomorrow. 

According to the White House Blog, responsible upside down home owners with good credit may qualify to refinance with a loan to value up to 105% with a conventional 30 or 15 year amortized mortgage.  (I’m guessing most would and should opt for a 30 year amortized mortgage)…tomorrow:

  • When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009. 

I’ve heard nothing as of yet…    I have a lot of questions that I hope will be answered soon.

This from Kenneth Harney’s article on Sunday:

In a letter to private mortgage insurers Feb. 20, Fannie and Freddie’s top regulator confirmed that there would be no requirement for refinancers to buy new mortgage insurance, despite exceeding the 80 percent LTV threshold.

James B. Lockhart III, director of the Federal Housing Finance Agency, described the new refinancing opportunity as “akin to a loan modification” that creates “an avenue for the borrower to reap the benefit of lower mortgage rates in the market.” Lockhart spelled out several key restrictions on those refinancings:

• No “cash outs” will be permitted. This means the new loan balance can only total the previous balance, plus settlement costs, insurance, property taxes and association fees.

• Loans that already had mortgage insurance will likely continue to have coverage under the existing amounts and terms, thereby limiting Fannie and Freddie’s exposure to loss. But loans where borrowers originally made down payments of 20 percent or higher will not require new insurance for the refi, despite current LTVs over the 80 percent limit.

• The cutoff date for the entire program is June 10, 2010.

The “no cash out” factor is concerning.  Refinances where a second mortgage and/or HELOC is included (being paid off) that was not obtained when the home was purchased, is classified as “cash out”.  Even if the second mortgage was refinanced as a rate-term (only to reduce or fix the rate–the home owner never saw a dime of equity from their home in the form of cash).    It appears as those home owners with second mortgages will only be able to subordinate the second mortgage…and good luck with that!  

Banks have yet to adapt the higher conforming loan limitseven though it’s been announced by HUD and FHFA…I’m hoping we’ll see this tomorrow as well “in concert” with the unveiling of Obama’s mortgage plan.

Obama’s plan promises lower mortgage rates…butthese rates are fighting Fannie Mae and Freddie Mac’s LLPAs (huge price hits, such as the 0.75% hit to fee with condos over 75% loan to value).   Why not just get rid of some of these adds that are making rates unactracting…or atleast consolidate some of the brackets.  Is there really a difference between a home owner with a 739 and 740 middle credit score?

We’ll know tomorrow if there is a Mortgage Santa Claus and if he left any goodies under the tree.

2009 Loan Limits Confirmed by OFHEO

It’s official!  OFHEO has announced the return of the 2008 limits:

Loan limits for mortgages originated in 2009 are set under the provisions of the American Recovery and Reinvestment Act of 2009.  Under that legislation, loan limits for 2009-originated loans are set at the higher of the 2008 limits and those that were originally announced for 2009 under the terms of the Housing and Economic Recovery Act of 2008. 

I’m anticipating that lenders will immediately endorse these limits.  Here are the revised 2009 loan limits:

King, Snohomish and Pierce Counties

  • $567,500 – One Unit
  • $726,500 – Two Unit
  • $878,150 – Three Unit
  • $1,091,350 – Four Unit

Other counties, including Kitsap, Jefferson, San Juan, Clark and Skamania counties are also at higher limits than other Washington State counties which are not part of the “high cost areas”.   For all Fannie and Freddie loan limits, click here.

Still unknown is how this will be priced.   FHA should be following with their revised loan limits as well. 

Update 2/25/2009: FHA loan limits for Washington Counties thru 2009 are here.

Notes from WAMP’s Meeting on Home Valuation Code of Conduct

This morning I attended  Washington Association of Mortgage Professionals (WAMB) meeting in Bellevue to learn more about the Home Valuation Code of Conduct (HVCC) which will dramatically impact conventional appraisals.   It was a somber room of fellow mortgage brokers and correspondent lenders along with the panel of various representatives from the industry.  

In a nutshell, mortgage originators (if paid commission) will no longer have contact with appraisers for conventional mortgages.  Appraisals will be ordered via an appraisal management company–oddly similar to what Washington Mutual used before New York  Attorney General Cuomo investigated.   Although this is effective for loans delivered to Fannie/Freddie on May 1, 2009 or later, lenders will adopt the Code well in advance in order to be able to deliver compliant loans.

Lisa Goldsmith from Amtrust Bank discussed how they’re going to comply with HVCC beginning around April.  Amtrust will treat mortgage brokers and correspondent lenders the same.  

  • When the loan is registered with Amtrust, they will provide an AVM (an unreliable estimation of value IMO).  This is the only chance the mortgage originator has to decide whether or not they should proceed with the appraisal order.
  • The order is placed with an Appraisal Management Company (AMC).
  • A copy of the appraisal is sent to both the borrower and the mortgage originator.

The mortgage broker will have no idea who the appraiser is until the appraisal is delivered.  Correspondent lenders may be able to order appraisals as long as they meet the HVCC (and I’m sure they’re a huge risk of buy-backs if correspondents opt for this route).   In fact, mortgage originators (if paid commission) may not communicate with the appraiser.  

A big issue is portability of the appraisal.   If for some reason, a broker starts with a lender, like Amtrust, and then decides during the process they want to switch to another lender, Amtrust holds the appraisal.  The consumer has all ready shelled out $400-$500 to one lender.  It will be up to Amtrust to release the appraisal (if this is even acceptable) or another appraisal may need to be issued if the loan is switched.  The power is not with the consumer and it’s not with the mortgage broker.

Quality is a huge concern as well.  One mortgage originator stated that he currently has an issue with an appraisal that was provided via an AMC for a waterfront single family residence.  What he received was an appraisal with 6 comparable properties–4 of them were condos!    Second appraisals can be requested when it’s a question of quality–they cannot be done for “value shopping”.

It gets better…Fannie Mae amended guidelines earlier this year allowing appraisal management companies to be owned by lenders!   

“The lender’s ownership of or affiliation with an appraisal management company is no longer restricted.  However, any appraisal management company that provides the lender with an appraisal must adopt written policies and procedures implementing the revised Code.”

From Appraisal Press:

“In it’s current form, the HVCC discriminates against appraisers by (a) effectively requiring lenders to engage appraisers through appraisal management companies, which retain 40-50% of the fees paid by lenders, reduce competition as a result of industry consolidation, and deteriorate appraisal quality by forcing veteran appraisers from the workforce, and (b) creating an artificial preference for automated valuation models, which will result in fewer appraisals, reduced market transparency and the danger of increased in-house lender abuses.  The HVCC will deprive consumers of their right to obtain independent, quality appraisals.

So let me get this straight… banks and lenders can own or have ownership interest in appraisal management companies.  The AMCs (possibly owned by banks/lenders) can select which appraisers make their list AND they will reduce the appraisers incomes in an all ready challenging market.   Who regulates the AMCs?  

NAMB’s fighting HVCC and I don’t always support all of NAMBs views…I have to agree with them here.   Once again, instead of dealing with the offenders, industries are in the process of being punished wiped out.

2008 Loan Limits to Return Soon

Part of the The American Recovery and Reinvestment Act of 2009 includes bringing back the higher 2008 loan limits to certain areas.   Locally this means we may see high balance loan limits increase from $506,000 for single family dwellings in King, Snohomish and Pierce counties back to $567,500.   Fannie Mae, Freddie Mac and FHA will move forward and lenders will immediately follow.

Stay tuned.

Underwriting Update for Financing of Investment Property with Fannie Mae

Last Friday, when Fannie adjusted the allowance for the amount of financed properties owned from 4 to 10, other underwriting requirements on investment and second home borrowers were updated as well.  (Freddie Mac still has the 4 financed property limit).

Reserve requirements vary depending on the number of financed properties owned (including primary residence):

1-4 financed properties 0wned:

  • 2 months of reserves on the subject property if it’s a second home.
  • 6 months reserves on subj. property if it’s an investment property plus 2 months reserves on each other second home or investment property.

5-10 financed properties owned:

  • 2 months of reserves on the subject property if it’s a second home.
  • 6 months of reserves on the subject property if it’s an investment property plus 6 months reserves on each other financed second home or investment property.

Note:  Freddie Mac’s guidelines are *currently* 6 months PITI.

Other underwriting changes for investment properties include:

  • 70% LTV for purchase of 1-unit and 70% for 2-4 units.
  • 720 minimum low-mid credit score. 
  • No history bankruptcy or foreclosure in the past 7 years.
  • Rental income must be documented with two years tax returns.
  • Borrowers required to sign form 4506 (which you can expect on ALL loans these days–including owner occupied).

Don’t forget that there is a significant price hit of 0.75% to fee from Fannie and Freddie with investment properties on top of the credit score/loan to value adds (LLPA).    Seller contribution is limited to 2% of the sales price with investment property.

Fannie Mae Increases the Allowance for Financed Properties Owned

It is really challenging to keep up with our constant changing guidelines.   Just this morning I was commenting over at the Seattle PI Real Estate Blog about the conventional guidelines permitting only four financed properties at a time for a borrower (more than four financed properties–no conventional mortgage for you!).    Moments ago, I received this updating Fannie’s guidelines (Announcement 09-02):

Multiple Mortgages to the Same Borrower
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.

Just a reminder that any mortgage guidelines that you find on the internet may no longer apply!

I better hop on over to the PI and correct my comment from this morning.  🙂

Fannie and Freddie to track loan performance of originator and the appraiser.

It was announced today that beginning Jan. 1, 2010 Freddie Mac and Fannie Mae will be required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. The purpose of the requirement is to prevent fraud and predatory lending, to ensure mortgages owned and guaranteed by those Enterprises are originated by individuals who have complied with applicable licensing and education requirements under the S.A.F.E. Mortgage Licensing Act. In addition, they will use the data collected to identify, measure, monitor and control risks associated with originators’ and appraisers’ performance, negligence and fraud. Hat tip John Long and Gordy. 

Here is the PDF from the Federal Housing Finance Agency, Fannie and Freddie’s new regulator.

“This represents a major industry change. Requiring identifiers allows the Enterprises to identify loan originators and appraisers at the loan-level, and to monitor performance and trends of their loans,

It's Official: New Conventional Guidelines for Ordering Appraisals

Fannie and Freddie have finally announced (I’m sure to no one’s surprise) the acceptance of OFHEO’s Home Valuation Code of Conduct which bans communication between a loan originator/mortgage broker and the appraiser for conventional 1-4 single-unit family homes.   Appraisals must be ordered through a third party clearing-house of sorts.   I picture this being similar to ordering a VA appraisal, which is not a pleasant process.  

Here’s an example from the Home Valuation Code of Conduct of what will no longer be allowed:

  • requesting that an appraiser provide an estimated…valuation in an appraisal report prior to the completion of the appraisal report or requesting that an appraiser provide estimated values any any time….
  • providing to an appraiser an…estimated…value for a subject property or a proposed or target amount to be loaned to the borrower, except for a copy of purchase and sale agreement.
  • ordering…a second appraisal…in connection with a mortgage financing transaction unless there is reasonable basis to believe the initial appraisal was flawed….

Lack of competition is generally bad for the consumer.  And I see this slowing the process down and possible increasing costs…where is the incentive to be effecient or competitive?  Who will pay the third party clearing house?

This is technincally effective on May 1, 2009; however, lenders are all ready implementing the new code.   This is still very new and we’ll have to see in the weeks ahead how this all works out.

Government Intervention in Foreclosure

This is Part Four of a series of articles on foreclosures.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.
Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral.  Reduced or free legal aid may be available in some states. Ask for a referral from your state Bar Association or through a LOCAL HUD-Approved Housing Counseling Agency.

In this article we will address current government intervention as well as discuss possible future intervention programs. For other preventative measures, check out the other parts of this series:

Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding

Current government intervention in the foreclosure process has taken many forms. Some states such as California, Florida, New York, New Jersey, Massachusetts, Philadelphia, and Illinois have discussed, proposed, or passed legislation in favor of a foreclosure moratorium.  In order to avoid state mandates, some companies placed a temporary halt on foreclosures over the holidays. These companies include Indymac, Countrywide, WAMU, and loans held in the Fannie/Freddie portfolios.  Recall that during the real estate bubble run-up, government backed loans fell out of favor. Many subprime loans are held by lender/servicers in pools of mortgage backed securities. The foreclosure moratorium didn’t reach those homeowners.

State moratoriums give homeowners more time to possibly refinance into a Hope for Homeowners loan or complete a short sale and the moratorium also gives banks more time to get caught up on all the backlog of foreclosure paperwork

Financial Economics Analyst Edward Vincent Murphy, in his Sept 12, 2008 report “Economic Analysis of a Mortgage Foreclosure Moratorium,