Tag Archives: PMI

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.

How Long is a Preapproval Letter Good For?

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I recently had a newly preapproved client ask me that question.  It’s quite a timely one!  Before this market, I would say that a preapproval letter used to be good for about 90 days assuming that none of the information on provided on the loan application has changed.  Now-a-days, you have to factor in guideline changes and interest rates.   You’re really not approved by the sales price or loan amount, it’s based on the total mortgage payment and funds for closing (down payment, closing costs, prepaids/reserves, etc.) along with any other conditions (such as having a certain amount in your savings account after closing).

Assuming that the loan program you’re preapproved with does not have guideline changes and still exists, before you write an offer on a home, I recommend that you contact your mortgage originator to make sure you’re still approved based on that home’s property taxes and current interest rates.  In fact, it wouldn’t hurt to get an updated Good Faith Estimate with current rates and actual property taxes.  If you’re asking the seller to pay closing costs, let your mortgage originator know so they can verify the amount will be allowed per guidelines.  If you’re offering less than you’re preapproved for, your real estate agent may want to have a preapproval letter that is written specifically for the offer (especially if you’re asking the seller to pay closing costs).

Program changes? Boy, we’ve had a few.  There are also changes with private mortgage insurance and various lender guidelines too.  I recommend that people who are in the market right now as “preapproved” buyers, check in with their mortgage originator on a weekly basis (if you’re actively looking) and before you present that offer to make sure it meets current guidelines and that you are still qualified based on the present rate.

Don’t be surprised if your mortgage originator requires you to provide your most recent paystubs and copies of your asset accounts (where your down payment is coming from) before providing an updated preapproval letter.

Last note: Be careful when searching blogs for information on mortgage programs and guidelines.  If the posts are even a few months old, the information may very well be outdated (if it was correct in the first place).

Note: I have modified this post.  I had incorrect data (kind of ironic).

The Fate of Fannie and Freddie

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Fannie Mae and Freddie Mac opened trading at record lows due to rumors about a possible bail out.  I’m writing this waiting to hear an announcement from Treasury Secretary Paulsen….

If you are in a transaction at this time and your mortgage fits within the FHA loan limits ($567,500 for King, Pierce and Snohomish County), I recommend considering FHA as a back up plan.  In fact, I’ve realized yesterday that all of my loans in process are currently FHA.   ,

If you are considering buying or refinancing a home and are not yet in transaction, I highly recommend making sure that your Loan Originator is able to provide FHA financing.   I recommend asking your Loan Officer (in writing-using email):

  • Are they approved to provide FHA financing?
  • How long has their company provided FHA financing?
  • How long has the LO done FHA loans?
  • Verify on HUD’s website that the mortgage company is indeed approved with HUD.  This list will also show you how long a company has been approved by HUD.

What will the Fannie and Freddie look like after if the Gov steps in?

If you look at FHA, you know that HUD is very pro-homeownership.   We may see low down programs like Flex 97 stick around–it’s very similar to FHA with the minimum 3% down.

Mortgage rates will probably increase dramatically since we will no longer have a private sector.  It will all be government controlled.

I’m also wondering if the governement would utilize private mortgage insurance companies or if they will utilize something similar FHA’s mortgage insurance?

Stay tuned…this is not over.

Update 7:53 am:  Here is Treasury Secretary Paulsen’s statement (from Market Watch):

Here is Paulsen’s statement (from Market Watch):

“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission.

“We appreciate Congress’ important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies. OFHEO will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission.”

Update 2:51 p.m.  I just received this Press Release from OFHEO (Office of Federal Housing Enterprise Oversight):

Statement of OFHEO Director James B. Lockhart

“I congratulate and thank Chairman Dodd, Ranking Member Shelby and the Senate for passing a sound and comprehensive GSE regulatory reform bill.  This bill should help restore confidence in the housing markets by creating, on passage, a new, stronger regulator with all the necessary tools to oversee Fannie Mae, Freddie Mac and the Federal Home Loan Banks.  I am hopeful the House will act quickly and the bill will soon be enacted into law.

With this very turbulent market it is important to strengthen the regulator of Fannie Mae and Freddie Mac and combine it with the regulator of the Federal Home Loan Banks as soon as possible as all of the GSEs are being asked to do more and more to support the mortgage market.”

LPMI, PMI and 80/20 Mortgages…Oh My!

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Note:  I should have titled this post:  “LPMI, PMI and Piggy Back Mortgages…Oh My”.  I just realized my error thanks to Bill’s comment.   My bad…my apologies!  And there’s no way for me to 80/20 in the title. 

LPMI (Lender Paid Mortgage Insurance) is one of my favorite mortgage products to use for clients with less than [photopress:wiz.jpg,thumb,alignright]20% down.   Here are some of the benefits of an LPMI mortgage:

  • Loan amounts up to the conforming loan limit (currently $417,000 for a single family dwelling).
  • Mortgage interest tax deductible for adjusted gross incomes over $100k (unlike PMI).
  • Convenience of one mortgage payment vs. two mortgage payments on a property.
  • Often provides lower payments a lower total mortgage payment than the “piggy back

Exotic Loan Programs and Potential Foreclosures

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[photopress:Dollar_20Squeezed.jpg,thumb,alignright]Every “exotic” loan program has a potential appropriate user of that program. What we are seeing more and more today, is the industry using these perfectly good programs inappropriately, to “get the deal done”. Before I go into my take on the situation, let me point out two relevant sites worth reading. One is on “Non-traditional mortgage product risks and the other is HUD’s warning regarding Predatory Lending.

None of the programs being used today are new. What IS new, is the fact that they are being used by the wrong people for the wrong reasons, with the assistance of the real estate professional and the lendng reps. The Feds in their statement, acknowledge that these products have been around for a very long time, and have been used appropriately until recently. On the HUD site, the main point that ties into the “exotic loan” problem, is when lenders are “Making loans without ample consideration to the borrower’s ability to repay”.

Client A has $100,000 in a 30 year bond he purchased 28 years ago with an interest rate of 14%. He has $1,200,000 in various retirement investments. He has $50,000 in a savings account for emergencies. He is 57 years old and is buying a view condo for $750,000 that he plans to live in forever. He earns $200,000 a year and plans to work for at least 8 more years, possibly longer. He decides to buy the condo with zero down and an interest only loan.

That example may sound ludicrous, but 12 years ago they were the ONLY guys I saw using interest only loans. Their investments were earning well over the interest rate on the mortgage. They weren’t going to take money from an investment earning 12% to put down on a property where the mortgage was only costing 7%. Until recently, interest only loans were an investment decision, not a means to qualify for the home purchase.

Basically what the Feds are saying is that the exotic loans are, and have always been, very good programs used sparingly in the past by very savvy and knowledeable people. These lower payments were not meant to be used as a means to qualify for more house than you can afford. They were meant to be used by people who more than qualified at a higher payment, but chose the interest only option for reasons other than to qualify for the home purchase.

The key phrase in the Fed paper is “consideration of a borrower’s repayment capacity”. The key phrase in the HUD warning is “ample consideration to the borrower’s ability to repay”.

Zero down loans replaced VA and FHA for the most part. High rates on the second mortgages replaced PMI. Ten years ago a person might put 5% down and take out a 95% first mortgage and a lower rate, but they had to pay “Private Mortgage Inurance” on the top 15% of the LTV. The PMI amount was not tax deductible. The payment on the second at the higher rate was lower than the loan plus PMI payment and fully tax deductible. A conventional loan with a high rate second may “look” bad, but actually the numbers usually work better than a regular loan with PMI (the old fashioned way) or a 3% down FHA with an up front plus monthly MIP (Mortgage Insurance Premium).

Bottom line is that ALL of the “exotic” loan programs have valid and good uses. Let’s include “stated income”. Stated Income loans have long been used appropriately by people who more than qualified for the loan. Stated Income was often used by someone who had income they didn’t or couldn’t report on their tax return. There was no question but that they could afford the monthly payment, problem was they couldn’t PROVE it, or were not willing to prove it. Maybe it was some limo driver earning $23,000 a year and getting $1,000 in tips he wasn’t reporting. Maybe it was someone with a cash business that was showing $65,000 a year on his tax return and stuffing the rest in his mattress. Maybe it was a prostitute or a mob member…whatever. It was someone who could make the payment, it was just somebody who didn’t want to prove that they were able to make the payment, and so used a “stated income” loan. Stated Income loans are not supposed to be used as a means to “pretend” that you make more than you DO earn.

Zero down loans are NOT for investors! Yes I will yell that one from the tallest building. I heard that lenders “start to question” a guy who has SEVEN zero down loans in a short period of time. DUH! Why’d you let him get to seven, when he shouldn’t have had ONE! Zero down loans are only for people buying a home to LIVE in it.

So, bottom line. When you start seeing foreclosures, don’t assume the market is headed south. Understand that lenders are not following the Fed and HUD guidelines to give “ample consideration to the borrower’s ability to repay” before approving the loan. Maybe the guy who bought at $450,000 only qualified at $400,000 and was stretched beyond his limit. Maybe the guy who bought 6 homes zero down, stacked costs and stated income in 18 months time, got caught in the web he weaved when first he to practiced to deceive, the underlying lender with full knowledge of the real estate agent and the loan broker. Maybe all the guys who took the $6,000 seminar on how to buy lots of property with no money and no job, are all going down…but that doesn’t mean they are going to take the whole market down with them.

I went to a closing with someone else’s client as a “favor”. I got to the table and asked them if they knew that the payment including taxes and insurance was 60% of their gross income! The lender said, “the lender isn’t impounding taxes and insurance”. The buyer said, “We thought the payment was going to be $300 less than that AND included the taxes and insurance. They asked me if they could sell the house in six months if it was impossible to make the payment. I said not with the costs stacked into the price and the prepayment penalty stacked on top of that. I stood up from the table and said, no one is signing today. How many foreclosures will come about because no one stood up and said, “No one is signing today”.

If someone readily qualifies for the payment at say 33% of their gross income (not 60%!) and has a reasonable “back end” when you add their other debt payments to say 40% (not 73%) and isn’t using stated income, no impounds, interest only and subprime loans to get around the high back end, all is fine.

The “Exotic” programs have their place in the lending industry. We just have to stop agents and lenders from using these programs inappropiately as loopholes to “Get the Deal Done”. If the buyer doesn’t like any of the homes he can afford, send him home. Don’t send him to a lender who can figure out how he can qualify to buy a more expensive house, that he will like better, but can’t really afford.