Tag Archives: loan

2013 Mortgage Loan Limits for King County

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rate changesThe 2013 mortgage loan limits for the  greater Seattle area are for the most part, the same as 2012.  The following loan limits apply for homes located in King, Snohomish or Pierce Counties.

Conforming:

1 Unit: $506,000

2 Unit: $647,750

3 Unit: $783,000

4 Unit: $973,100

FHA:

1 Unit: $567,500

2 Unit: $726,500

3 Unit: $878,150

4 Unit: $1,091,351

VA:  

$500,000.

NOTE: Technically speaking, VA loans do not have a “limit”. $500,000 is the highest loan amount for a “zero down” VA loan. If a qualified Veteran wishes to buy a home priced above $500,000, the down payment will be 25% of the difference between the sales price/appraised value (lowest of the two) and $500,000.  For example, a $600,000 sales price would have a down payment of $25,000 ($600,000 less $500,000 = $100,000 x 25% = $25,000).

You can find a complete list of loan limits by county for homes located in Washington state in the “footer” of my blog.

Everyone Does Not Qualify for a Loan Mod

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Loan modification fever is here. Families all over the U.S. are struggling to make their mortgage payments and many are expressing frustration that their lender won’t modify their loan.  Any of us could try to make a rational argument that a lender is better off modifying a mortgage loan instead of foreclosing but this is a simple answer to a complex problem.  This blog post will help homeowners understand who is not going to get a loan mod.  Hopefully homeowners will be able to then move forward toward other solutions.

Loan modifications are not for people in temporary financial distress. Temporary financial distress is when a homeowner missed a payment for one or two months because of a temporary hardship.  Lenders can and do help these folks with a forbearance and repayment plan where the missed payments are made up over time or tacked on to the end of the mortgage.  This is not a loan modification, it’s a repayment plan. If your financial distress is only TEMPORARY then asking for a full-on loan mod is wasting your time and everyone elses time.  New research out this week from CR shows us that 30% of all delinquent borrowers self-cure without receiving any kind of loan modification. This means lenders who can effectively triage out borrowers likely to self-cure are behaving rationally by setting aside pleas for loan mods.

Long term financial hardship means homeowners need long term financial solutions. A loan modification is only ONE of MANY long term solutions. In order for a homeowner to receive a loan mod, the homeowner must be able to document stable monthly income.  Lenders have to re-underwrite the file to make sure that the loan modification will not result in further loss to the lender.  This takes time. If a homeowner’s monthly income has dropped so low, to the point where they really can’t qualify to repay the modified loan, this loan modification will not be approved nor should it.  (Note: Lender guidelines on qualifications vary and change often, just like the retail side of lending.) This homeowner should consider other options which will be outlined below.  It should be beyond clear by now that lenders are not going to voluntarily start reducing principal balances unless forced by gunpoint.  The government can try to shame them into it but let’s face it: most corporations are shameless and nothing any of us say and do is going to change this.

Long term financial hardship cases do happen. Case in point. I received an email last night from a homeowner who is on permanent disability. Her husband just got laid off.  They are seeking a loan mod.  In no way can they afford the $4500/month payment on their interest only loan so they’d like the lender to lower the payment (lower the interest-only rate, extend the term).  They are $100,000 negative equity.  Sounds rough, doesn’t it?  However, they happen to have $250,00 in the bank.  This is not a case of financial hardship! A lender would be wasting time and money modifying this loan. These homeowners HAVE MONEY in the bank to continue to make their existing payment for many more months.  Besides, looking at the amount of money coming in the door each month, once their money runs out, chance of a re-default is sky high.  The only thing a loan mod does for these homeowners is it keeps them in their home for a little while longer. If the husband can become re-employed at his same rate of pay, maybe the chance of default drops a bit, but  no lender will modify this loan if there’s literally zero money coming in every month.  This lender is making a good business decision to put this file on ice while they continue to pay as agreed each month using their $250K.

I agree with CR: “If it became widely known that lenders routinely reduce the principal balance for delinquent borrowers with negative equity, this would be an incentive for a large number of additional homeowners to stop paying their mortgages.” It would be rational for negative equity homeowners to make the decision to trash their credit score in exchange for a shot at wiping out $50K, $100K+ negative equity if they wanted to keep their home.  We shouldn’t hold our breath for lenders to make principal balance reductions en masse.

I have not worked in loan servicing for many years but when I did, there was a triage system of making sure cases that were going to cost the bank the most money were prioritized over cases that could wait longer.  We already know that loan servicing departments are far understaffed for the tsunami that’s hitting them full on.  If we want banks to beef up staffing and spend money hiring and training more loss mitigation underwriters, the expense for these costs is going to be priced into new mortgage loans made tomorrow and in the future.  Even so, this will take time.  Working in loan servicing is a very high stress job. Imagine what it’s like to work 8 to 5 every day with a 1 hour break from lunch and 2, 15-minute breaks…with the rest of your day spent being yelled at by Realtors asking for their short sales to be approved RIGHT NOW. High stress = high turnover. I could never do that job today because I’d yell back and surely get fired. 

Homeowners with bonafide cases of lender law violations or predatory lending can and should be prioritized in getting help modifying their loans.  These homeowners are better served by hiring competent legal counsel to represent their interests in negotiating fair and just mortgage terms.  But that’s not what’s happening today.

Today, it seems that the masses believe they deserve a loan mod based on whatever is going on in their lives.  Job loss, reduction in hours, on and on….I know I may sound heartless here but lenders need to make sure you are able to repay a modified loan and that you are eligible for a loan modification under their specific guidelines.  Not everyone will qualify.

Options beyond a loan modification:

Move out of the house
If you don’t want to sell the home, perhaps you will be able to rent out your home and cover or almost cover the mortgage payment. Then you can seek out other living arrangements that comport with your ability to pay. When your income adjusts upward again, you can move back in.

Take on a tenant
Maybe you can rent out your basement or spare room to a tenant.  I know several people who are doing this just so that they can make their own mortgage payment.  Check your local city or county rental guidelines.

Sell the home
If you have negative equity, interview at least three real estate agents who are COMPETENT in the practice of listing and selling short sales. Do NOT hire an agent who has no experience in short sales.  If you decide to hire a Realtor who’s your friend or relative and that person has no experience listing and selling short sales, you get what you deserve.

Hire an attorney
Some homeowners seek out a loan modification only to find out that the real problem was far beyond just the mortgage but instead was an abundance of consumer credit card debt.  Maybe an appointment with an attorney who represents debtors is in your future. An attorney can fully explain all the reasons for and reasons against letting the home go to foreclosure, as well as all the legal consequences.  News today suggests a foreclosed homeowner might even be able to rent back their home from the lender!

Whatever you do, do NOT pay ANYONE cash up front for services before the services are actually performed (with the exception of when you hire an attorney.)  If you part with cash to pay a loan mod company, you are setting yourself up to become re-victimized.  They will tell you anything you want to hear in order to get your money because they know you are desperate. If you have money, hire your own attorney who will represent you directly. If you do not have money, contact your state’s bar association for a referral to free legal aid. 

Also worth saying: Avoid any third party who claims to have a solution to all your problems and asks you to sign anything.  Especially if they say, “This is perfectly legal.”  Before signing anything hire your own local legal counsel. Foreclosure rescue scams continue to be on the rise nationwide. 

Not everyone will qualify for a loan mod and not everyone is going to get their loan mod processed in a timeframe that the majority would consider anywhere near “good customer service.”  Loan servicing doesn’t have to provide you with good customer service because you have no where else to go.  There is no automated underwriting slam dunk approval system for loan mods.  There’s no stated income program for loan mods. Real humans underwrite the file and this takes time.  It’s going to take many, many years to work all the bad loans out of the system. We are in for a long ride.  If you don’t qualify for a loan mod it might be time to move on to other solutions.

The Making Home Affordable Program

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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”.

Unhonored Rate Locks

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Did you know that a locked rate is a commitment for a loan to be delivered to a lender?   Mortgage companies and loan originators are often judged by how many loans they deliver or what their lock fall-out ratio is.   A normal expection used to be around 70-75% of locked loans to be delivered–now I’m hearing reports of 30-40% of locked loans actually being delivered to the lender.  

This is dangerous for mortgage brokers and correspondent lenders.  Why?  Wholesale lenders are cutting back and “cherry picking” which companies they’ll work with.   A significant factor is lock-fall out.  If odds are, a locked  loan is not going to be delivered, why should they work with that mortgage company?    

Sometimes the wholesale lender may be ordering the mortgage company to be “cut off” of future business and sometimes it may be the wholesale lender having their Account Executives that they need to reduce their client base to a certain amount of accounts (as a way to reduce the commission they’re paying the AE’s). 

There can be many reasons for a locked loan not to be delivered, such as:

  • the loan could not be approved because of the property (appraisal issues) or the borrower.
  • private mortgage insurance issues.
  • the borrower decides not to proceed with the transaction.

Here’s how one wholesale lender rates fallout:

  • 0-24.99% = Full approval.
  • 25-34.99% = Monitor
  • 35-49.99% = Watch
  • 50-74.99% = Probation
  • 75% or more = Inactivated.   Good by wholesale relationship with that lender.

Wholesale lenders don’t care if it’s due to the borrower not proceeding with the refi or if it was their underwriting that “killed the deal”…it often counts towards that dreaded lock fallout ratio.

A disturbing trend I heard from a local title insurance company is “double applications”.  Where a borrower is proceeding with a refinance transaction with two different lenders.   If both loan originators have the loan locked, someone is going to lose!   Not to mention, the expense to the title and escrow companies who are working on a transaction a consumer is not going to honor.   The only way this is caught, is if the title or escrow company happen to be the same one that the two loan originators the consumer is using.   Regardless of if both loans are locked or not, it’s unscrupulous behavior.    

Borrowers–please do not have two loan applications going on at the same time with two different loan originators.   When you do decide to lock in a rate with a mortgage professional, understand it IS a commitment.

2008 Loan Limits to Return Soon

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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.

President Obama’s Foreclosure Rescue Plan: Loan Modification Analysis

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Underwater homeowners looking for a bailout from President Obama’s Foreclosure Rescue speech might be wise to think very carefully about all the possible consequences of grabbing the new loan modification offer. The White House press release on the full plan is located here. President Obama’s plan offers homeowners in trouble a helping hand, at the expense of all the other taxpayers who didn’t speculate, but let’s put aside our outrage for now. Instead, let’s look at whether or not the loan modification program is a good decision.

Clearly everyone is in a unique situation but there are some commonalities within the group we’ll call People Seeking Loan Modifications. I am openly stereotyping for the purpose of making this blog article general instead of case study specific. People Seeking Loan Modifications (PSLM) are typically folks who had a certain level of income when they purchased the home, and today that income has been dramatically reduced. Some may be facing a rate increase or a payment recast if negative amortization has pushed the principal balance to, say 115% or 125% LTV. Most purchased at 100% LTV, some decided on interest only loans, or interest only for a set period of time, in order to achieve a lower payment, speculating that future appreciation would bail them out at the next refi. They have two big problems: Negative equity AND an unaffordable payment.  PSLM typically have other consumer debt as well as mortgage debt. When income drops off a cliff, PSLM use credit cards to pay for routine expenses. By only offering a modest rate reduction, I predict that the re-default rate on these new loan modifications will be easily over 50% and I’m being optimistic. A rate reduction only solves half the problem. Their monthly housing expense has been reduced but their other expenses have not gone away. (If When the banks are nationalized it will be a lot easier to offer rate reductions on credit cards and perhaps that will be in the next bailout proposal.) There IS a solution for the typical loan mod seeking homeowner; President Obama wants principal balance cram downs in bankruptcy. Now the homeowner has to make a sacrifice: Trash my credit record for 10 years with a BK in exchange for getting a financial matrix reboot.

The key to whether or not a loan modification under the new program will work rests with the homeowner: What is the homeowner’s income today v. when he/she obtained the mortgage loan? Many of these folks have been laid off, some were living on extended overtime as a regular part of their monthly income, others were commissioned salesmen with flatline commissions during 2008, some had to take mandatory salary reductions, and still others have had NO disruptions in income but were qualified at the teaser rate of an Option ARM. What if the homeowner has no job at all? Does the homeowner get a zero percent interest rate loan? I’m thinking no, so how do we underwrite this loan and make a determination if this loan mod will fail? PSLM are high risk borrowers and re-defaults will likely occur. But the theory goes that if we can slow the foreclosures to the pace of a river instead of a flood, then doing so *might* help stabilize neighborhood home values and prevent even more foreclosures.

The Tim at SB reminds us to consider that when speculation occurs, foreclosures are a natural part of the solution and may not always be a negative, especially when a homeowner is far better off renting a similar home for far less than the (even modified!) mortgage payment. Home values fall and people who can afford to purchase do so. This begs the question: Do modified mortgage payments really help homeowners? The answer is, it depends on the homeowner.

In order to project future performance, it is important to visit past efforts in helping homeowners face foreclosure.  Past performance: FHA Secure: Projected to help 80,000 Actually helped 266. Hope for Homeowners: Projected to help 400,000 actually helped 312. Projections for President Obama’s loan modification program are that it may help 3 to 4 million homeowners. I project it will help far less. Perhaps we’ll break a thousand this time. This new plan appears to be a bailout for the banks, disguised as a bailout for homeowners. Same siren as FHA secure and H4H, she’s just wearing a different dress.

Will this piece of the Foreclosure Rescue package from the President help stabilize falling values? No. Instead, it will just flatten out the cliff diving and extend the pain that much longer.  From CR:

“For homeowners there are two key paragraphs: first the lender is responsible for bringing the mortgage payment (sounds like P&I) down to 38% of the borrowers monthly gross income. Then the lender and the government will share the burden of bringing the payment down to 31% of the monthly income. Also the homeowner will receive a $1,000 principal reduction each year for five years if they make their payments on time. This is not so good. The Obama administration doesn’t understand that there were two types of speculators during the housing bubble: flippers (they are excluded), and buyers who used excessive leverage hoping for further price appreciation. Back in April 2005 I wrote: “Housing: Speculation is the Key [S]omething akin to speculation is more widespread – homeowners using substantial leverage with escalating financing such as ARMs or interest only loans.” This plan rewards those homebuyers who speculated with excessive leverage. I think this is a mistake.

Another problem with Part 2 is that this lowers the interest rate for borrowers far underwater, but other than the $1,000 per year principal reduction and normal amortization, there is no reduction in the principal. This probably leaves the homeowner far underwater (owing more than their home is worth). When these homeowners eventually try to sell, they will probably still face foreclosure – prolonging the housing slump. These are really not homeowners, they are debtowners / renters.

PMI Mortgage Insurance Company drop kicks Mortgage Brokers

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Today I had several Mortgage Professionals contact me regarding PMI Private Mortgage Insurance Company cutting off mortgage brokers via email and comments here.    I thought it must be a rumor…but it’s not, effective February 20, 2009 PMI Mortgage Insurance Company will no longer underwrite or insure loans for mortgage brokers.   However if you’re a lender, PMI is ‘Right alongside you…we’re in it for the long run”.  

From an email I received today from a Loan Originator:

It’s believed that PMI is the first of the nation’s seven MI firms to totally exclude loan brokers from their coverage menus. In recent months other MIs – including Genworth and MGIC – have tightened guidelines on broker-sourced loans, particularly condominiums and high LTV notes. A PMI spokesman confirmed the new policy change to National Mortgage News adding that, “This does not apply to correspondents.

Short Sale Listings: Leaving Out Key Details Is Like Telling A Lie..

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[Editors note: It’s always exciting to introduce a new author to RCG… and today I’m especially excited to introduce Courtney Cooper of Cooper Jacobs as the newest RCG contributor!  Far from a newbie, she’s been running an entertaining blog on ActiveRain for over a year now (and racked up tens of thousands of points in the process!), so I’m pretty sure she’ll have no problem making her impact on the RCG community.   Welcome Courtney!   ~Dustin]

Hello RCG!

Thanks Dustin and ARDELL for the encouragement! I am a huge fan of RCG and look forward to what lies ahead!

Pushing openness with short sale listings…

A lot has been written on Rain City Guide and elsewhere about short sales in the Seattle area, but 2008 had me working with far more buyers than sellers and one sentence kept popping up: “that house is a short sale

What should a loan modification look like?

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I just wrote this long comment on Jillayne’s post, and decided it needed to be a post of its own.  This loan mod returns the risk premium that was not effective at controlling risk.  It didn’t work…give it back. It also makes the lender partly responsible for approving short term income on a long term basis.  It does not involve ANY loss to the lender below the face amount of the notes, and gives them some interest, and saves the homestead.  I think it includes all aspects of consideration for a loan mod, but finding staff competent to come up with loan mods in a short period of time, is not realistic.

What we do know is that the higher risk premium rates, did not cover the risk.

Let’s take an example and see how it plays out, and propose a loan mod.

Family qualified for their current home based on $80,000 a year. $60,000 was salary and $20,000 was two years of consistent bonus or overtime. That was considered conservative lending guidelines “two years of proven history on bonus or overtime

The First in a Series of Fannie and Freddie Bailouts

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The rumors floated on Friday regarding Fannie and Freddie turned out to be true.  This first bailout proposal, released a few hours ago, has three parts.  I say “first” because there is no way that this is going to be enough to save what’s headed our way nor will this be the only time the government will need to “bailout” F&F.

The U.S. Treasury plans to seek approval for a temporary increase in the line of credit granted to Fannie Mae and Freddie Mac. They will also seek authority to buy equity in either company, and the Federal Reserve voted to allow the New York Fed to loan F&F money, if needed, giving F&F access to the Federal Reserve’s discount window.

The Wall Street Journal says the U.S. Treasury and The Federal Reserve are doing this mainly to boost confidence in F&F, not necessarily because any of this is needed, which to me seems to be a flat out lie.

The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power. The Treasury envisions the Fed working with the mortgage giants’ regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury’s broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.

I’m not sure if we’re suppose to be happy or scared at the thought of Ben Bernanke accumulating more power.  Maybe what’s really going on is some preemptive planning due to known or unknown possibilities that tomorrow’s auction of Freddie Mac debt doesn’t go well.

The Sunday move was designed in part to head off fears about Monday’s auction of Freddie Mac notes. While small, the planned sale had assumed an outsized importance as a test of investor confidence. Freddie should be able to find buyers for its three- and six-month notes, market analysts said. But there is a chance that some financial institutions and investors may demand higher-then-usual yields.

Similar Freddie and Fannie notes that are currently outstanding yield around 2.5%. If weak demand for Freddie’s auction leads to sharply higher yields on the new notes, that could trigger a selloff across a wide range of debt issued by the companies, some analysts said. But most said such a scenario is unlikely.

I’ve been glued to the web, the radio, and my phone since Friday evening reading, listening, and talking about this with friends and colleagues. If the federal government choses to provide (the implied) government backing for bondholders, then the United States increases our national debt by 5 trillion dollars which would have a profoundly negative impact on the value of the dollar and potentially bankrupting the U. S. economy. If the federal government chooses to do nothing and F&F are forced to mark their portfolio closer to market value and sell off assets to accumulate capital, then the true value of what’s in the bag becomes known. The secret will be out and now nobody will be interested in buying our Residential Mortgage Backed Securities, the market will know the true value of the loans currently being held by banks all over the U.S., mortgage lending slows way down, interest rates go way up, and the housing market goes cliff diving.

It seems to me that with this first bailout proposal (I am preparing for more bailouts as should you) everything is just going to be delayed as long as possible, taking us down further into a deeper recession step-by-step.

This bailout proposal is not enough. We have only just begun to see foreclosures rise. We still have the rest of 2008 to get through, when another round of pay option ARMS originated in 2006 begins to adjust, and through 2009 when the ARMs originated in 2007 adjust. Defaults and foreclosures are far from over.

There was a guy who predicted the demise of Fannie and Freddie back in 2006.  His proposal is that we nationalize Fannie and Freddie, quit pretending that they’re a private company, and restructure the debt, thereby forcing the bondholders to take a haircut.

Sniglet asks an interesting question (comment 123): “So what happens to the shareholders? Do any of these plans ensure that there is no dilution of equity if any form of bail-out were to occur? If the GSE shareholders aren’t protected then we could see a complete abandonment of the financial system by investors. Who will want to buy shares in financial firms if the government isn’t going to ensure their investments remain safe?”

From everything I’ve read over the weekend, the government likely will not protect shareholder equity.  Whether or not they should is up for debate.