Lately I’ve felt like Debbie Downer with the information I’ve been sharing here. On a positive note, it’s great that we
have blogs to get this information out to buyers, sellers and real estate professionals…especially since we, as Loan Originators, are given very little notice these days of significant changes. I gave you an example last week, here’s one from today.
Franklin American Mortgage Company issued a revised memo that I received today announcing a reduction in Expanded Approval (EA) loan to values to a maximum of 95% LTV with a minimum credit score of 660. An “expanded approval” is when a loan scenario doesn’t quite fit the pegs needed to receive an “approval” from the AUS (automated underwriting system). There are different levels of “Expanded Approval” and to tell you the truth, I did very few (maybe 1 or 2 ever) EA loans. There’s a price hit, and at the time either FHA, subprime or Alt-A would offer a better scenario for the borrower. If you had an EA approval with First Franklin at 100% LTV, you had until 4:00 CST today to lock the loan and it was also subject to MI availability (good luck). This part of the memo didn’t bother me personally since I didn’t really use this type of loan as much as the next section.
Here was my personal zinger: Franklin American is discontinuing Fannie Flex 100/Freddie 100. The maximum LTV/CLTV is reduced from 100% to 97% including Fannie 100, Freddie 100, My Community and Home Possible programs (you can still do a Flex 97).
I still have a few lenders that are offering Fannie Flex 100 “at the moment”. However, I’m expecting 100% LTV financing with Freddie and Fannie to go the way of the do-do.
What should you do?
If you’re a Listing Agent and have transactions pending with 100% financing, I would confirm with the lender they are still valid. If you have offers on your listings with 100% financing, contact the lender to confirm they can still offer this product. And consider a quick closing.
If you’re a Selling Agent with Buyers utilizing 100% financing, your buyers should consider a “Plan B” (like 3% down for Flex 97 or FHA). I recommend reverifying transactions in process and any preapprovals.
Buyers, if you’re planning on buying using 100% LTV financing, meet with your Mortgage Professional to develop a “Plan B”. It’s good to have options in this kind of market.
Watch for my next post…featuring eeorr.
Am I correct that this wouldn’t affect VA?
Oh, and what are you doing posting new threads on timely information when I have hypothetical questions waiting for an answer in another thread? 😉
I’m beat, too. It’s been a long day. I have a lot of nerve to post this and call it a night! 🙂
I get up pretty early in the morning…so “I’ll be back” (in my best Aronld voice).
Rhonda,
I just wanted to thank you from the bottom of my heart for all that you do to keep us up to the minute informed.
I really appreciated it.
Yes it is very useful. I’m execting an offer in on a listing, maybe even tonight. So this is very timely.
The only pending transaction I think would be affected would be the VA one, which is why I asked that question.
Expecting an offer . . .
Kary:
I’ll take a shot, and say that this will not immediately affect VA or FHA. They operate in somewhat different spheres, with their own set of rules.
These changes came from Fannie Mae and Freddie Mac.
I say not immediately, because it is clear that the crisis is not “contained” or confined to sub-prime, Alt A, or even Prime.
I was a bit alarmed when I received a notice this afternoon that a lender was applying a rather big “hit” (increase to price) to FHA loans that exceed the previous limit. FHA has been touted as “high ground” refuge for the tidal wave of changes we are all adapting to.
I second and third the plaudits due Rhonda for her posts. You wonder how she finds the time!
Glad she does.
Rhonda, your post on pulling the product may quickly become moot. Looks like as of March 31st, mortgage insurance at 100% will be a thing of the past at any credit score. They might as well pull the mycommunity and flex 100s as mi won’t insure anyway.
it looks as if the only options that I can see for zero down is VA (still good) and FHA with downpayment assistance (never fun).
I have heard that a few of the big boys (CW and Wells) may be able to offer the LPMI and TAMI for a little longer period until their MI contracts come up. I know that MGIC pretty much told us that they didn’t care about the contract, tough…
have you seen the same?
Roger. comment #7.
I saw the 2.5% hit to fee for the new FHA limits and had pretty much the same reaction..I stopped for a moment and thought about though and became slightly more reasonable.
If we agree that “normal” jumbo loans were a little more risky and commanded a .25-.5% difference in rate (in a normal market), why shouldn’t FHA do the same. They are moving towards more risk based pricing anyway.
I also stopped to think that…wow, I can buy a 560k house with 3% down for about .50% higher fha rate AND get smoking mortgage insurance on that??
Maybe I am just sick of the bad things and have chosen to look at this one in a positive light…
Michael:
Thanks for talking me down off the ledge!
Yep, you are right. The 2.5 price represents about 0.5 to 0.75 increase to rate.
Do you think this may be a fair indication of what Fannie and Freddie are going to do to the “new” conventional pricing?
Ray:
Still, you seem to be pushing the blatant self-promotion limits. Is it me? I can be kind of old-fashioned and fussy sometimes.
I don’t have any relationships with any RE’s here, and only a few outside of here. If I lived or died by RE’s alone, I’d be long since pushin’ daisies. The RCG folks seem like smart, ethical folks, and I probably have indirectly helped advertise them, as I have promoted the site to clients and friends.
I know that lenders don’t want to see cash coming out of a purchase, and they definitely do not want to be financing more than a property is worth. It appears that the day of them financing exactly what a property’s worth may soon be over.
Lenders don’t really care what a RE gets paid. They care VERY much how much real skin the borrower has in the game.
It’s possible that it will work, just as loads of schemes to take advantage of lenders have worked for some in the past (credit score piggybacking, for instance), but they usually get snuffed out in the end.
I’m all for discount services, so long as they accomplish the intended goal (Vanguard Funds come to mind), and think that low costs are very important.
I’m all for finding the legal advantages for a borrower vs a lender, but there are limits to everything.
I’m not sure that your model will fly with lenders.
Let me ask around, and see what they think of it.
Michael Brown, I was recently contacted by an agent who was concerned about an offer she was receiving on one of her listings which was 100% financing. I armed her with some questions to ask.
I know Flagstar still has LPMI at 100%.
VA loans are a great option… especially since they do not have a loan limit.
Shucks, ARDELL 😉
I’m almost feel a responsibility or compelled to make sure everyone knows what’s going on whether they are a buyer, seller, agent, lender.
Ray, do you see my firm’s name at the end of my or anyone else’s posts?
Ray, I don’t remember your offer. I did not delete your comment… I had called it a night. However, had I been up–I would have.
I’m not going to discuss it further here. I don’t want to see this post (or any here) hijacked in order to promote your cause and/or business.
Ray, I think you have a point.
My wife has a mortgage broker/loan officer (whatever) that refers clients to us when they’re in a particular rush to buy, because she knows we’ll get on it and find them a place ASAP. Well what if a mortgage broker couldn’t do FHA/VA (or the person/property wouldn’t qualify), the client didn’t quite have 3%, and she didn’t want to lose the client by referring them out to someone who could do FHA/VA? She could bring up discount/rebate brokers. This is a change that will likely help the business of discount brokers.
The thing is, most non-first-time buyers don’t need 100%, but without first-time buyers it’s harder for people to become second-time buyers. Any decrease in the demand for real estate, which this effectively is, works its way through the rest of the market. So having an option to avoid that is good for everyone.
Did my post on RCG community standards just get deleted?
Was it intentional?
It’s early, but I’m sure I remember writing it only a few minutes ago and posting it.
Let’s get back on course, Fellas. Thanks.
Rhonda, do you think this pertains to what you mentioned in the other thread you started–that the secondary market just wasn’t accepting these things? I can’t see any other reason for it since the move doesn’t seem to be driven by Freddie or Fanny.
Roger,
Apologies. It was not intentional. Please don’t feed the Troll.
Ray: I think you have some points, but it is all in presentation. I read your post and thought WOW, I really would like to hook up this guy becasue not only can he do his BUT he WILL tell me how to do mine. You assume that most of us are closed minds and don’t see and quite frankly you came across as an a$$. You may have points but most people probably stopped reading once you accused us all of not educating our clients.
I have had several experiences with Redfin. They came down (as they always do) to the quality of person that was handling the transaction. one went smooth, the other went horribly because that person was uneducated.
I personally have no issues with discounted services and if the experience and service levels are the I don’t care whom someone uses.
The rebate that you provide, in almost all cases cannot be used towards downpayment. it sounded like you might a little unclear. It can be used for closing and other costs at almost all times.
Kary, I do think the biggest reason for the conforming jumbo’s is to get the jumbos bought from the secondary markets since this is retro active to July 2007.
I’m hoping (ya gotta keep some hope in this market) that once the secondary market is relieved, perhaps “true jumbos” will benefit and provide lower rates. Perhaps jumbos (non conforming) will wind up with lower rates than the conforming-jumbo (once you factor in all the adds to rate).
This is an additional risk for Fannie/Freddie to take on these loans and we’re all paying the price.
(Side note: I’m working on my rates post right now–while listening to Pres. Bush–which will be posted first at Mortgage Porter and later here at RCG–since we are likely to have price changes).
Michael, thanks for addressing this…please see ARDELL’s comment 21. I’d really like to keep this post on subject.
Roger.–We anticipate the new “Jumbo-Lite” pricing to be about .25% to rate, but still in the air. should be coming out today or monday.
Kary, #20. The withdrawal of the 100% stuff is not Fannie/Freddie driven. It seems to be completely driven by the Mortgage Insurance companies taking big losses and the threat of a downgrade by the ratings agencies. This is the pendulum swinging to the way too conservative side of things.
From RMIC (private mortgage insurance company)
March 13, 2008
Reduction of Maximum Allowed Financing
What’s New In This Release?
In order to ensure that RMIC remains among the most reliable and financially sound mortgage insurance providers in the industry, RMIC is reducing the maximum LTV/CLTV we will insure to 97%.
Elimination of Loans with LTV/CLTV Over 97%
Effective for commitments submitted on or after March 31, 2008, RMIC will no longer insure loans with loan-to-value ratios (LTV/CLTV) greater than 97%, regardless of the decision of any automated underwriting system (AUS). This nationwide change will supersede existing guidelines and program approvals, and applies to all loans including housing finance authority and affordable housing loans.
RMIC’s Declining Markets Policy is unaffected by this change. The maximum allowable LTV/CLTV for loans on declining market properties will be reduced by five percent from the LTV/CLTV otherwise allowed by RMIC’s underwriting guidelines.
• For example, if RMIC’s new underwriting guidelines for a specific loan would have allowed an LTV/CLTV of 97%, the maximum allowable LTV ratio for the same loan in a declining market would be 92%.
Updated Guidelines and Policies
RMIC’s Mortgage Insurance Guidelines are available in electronic format at http://www.rmic.com. All guidelines are updated after the implementation dates for the individual program changes.
Michael, my bet is the conforming jumbo will be inbetween current conforming and jumbo. I’m hearing this directly from wholesale lenders. Fannie/Freddie’s add is 0.25% (as I mentioned in my earlier post)…lenders will tack their add onto that.
I think I just locked my last 100% My Community loan with Flagstar. Radian is still insuring this program but my AE said to lock today. Who know what Monday will bring.
Cathy, I’m thinking instead of Monday being “green” for St Patty’s Day…it might be “Blue Monday” instead…we’ll have to see.
I have a couple Flex 100’s preapproval’s with Flagstar right now. I’m making sure all of them have a “plan b” in place.
Your Flagstar AE is one smart cookie! 😉
“Jumbo-Lite
Jillayne, that’s hysterical! 🙂
Lenders will continue to reign in lending. They are strapped for cash. The fractional reserve system is causing them to conserve. Bear Sterns was levered 32 x1, while they are not a lender this illustrates the problem. They will be gone shortly… and I have posted before that Citigroup would be under 20 and WAMU would be under 10. Huge leverage is now unwinding…. I have sporadically posted here and some probably raise their eyebrows at my comments. Having said that up to this point I have been spot on.This is going to get ugly if transparency of off balance assets does not happen immediately.This is not a issue of liquidity BUT solvency. The dead wood needs to fall and the Fed needs to back away. The good ol’ boys club is leading us down the wrong path.
Jillayne:
Careful, I think that is gonna stick! 🙂
Jillayne: Thanks for the funniest thing I’ve heard all day..
Now, here’s your assignment for the weekend. Read all 96 pages of the proposed HUD rules to RESPA…. have a good weekend.
It looks like the Fat Butt Mortgages are here…thanks Jillayne! 🙂
Here’s what I’m seeing from one lender:
Conforming Jumbo
Purchase: 2.00 hit to price
No cash-out refi LTV 75% LTV or less: 2.00 hit to price
No cash-out refi LTV 75.01 – 80% LTV: 2.5% hit to price
FHA Jumbo
2.25 hit to price…based on the rate I quoted today for FHA, this would put JUMBO FHA about 1full point higher in rate.
These hits are IN ADDITION TO all other adds…such as the LLPA I wrote about earlier.
With all these hits…it’s no wonder I feel beat up!
More lenders are rolling out their rates on Monday.
Don-
You are over the place! It’s like you took a headline from every publically available medium and just splashed it on here!
Please elaborate on the following:
1. Leverage: Why/how is Bear leveraged 32×1?
2. Citi and WaMu stock price: What’s this got to do with leverage, cash, etc,
3. Transparency of off-bal sheet: How is it going to get uglier? What’s the impact of reform, what type of changes are needed?
4. Liquidity versus insolvency: Are you sure? How are these different?
5. Dead woods need to fall: Which dead wood? Investors, speculators, home owners, who?
Sorry if I missed some of your other posts, but I’ve been trying to keep up with these blogs and I don’t see how your ranting adds any value.
Hardly a rant. The fact is we are in a credit contraction.Yes bear is levered 32 to 1 or abouts. Google this and or read the financials. Number 2: is simple, stock prices dont plummet on good news. Number 4: I meant solvency Number 5: Banks that have leveraged themselves its called moral hazard another google for you.
Don-
Please tell me you can add more to this then simply Google! We’re in a credit contraction? Really? No freakin way!!!
Why do you say this it will help me answer your question. Thanks – I need to understand if you understand credit contraction thanks again – not a trick question just need to understand your question better
I left some out sorry, lol – why do you say we are not in a credit contraction? this will help me answer your question thanks
Don-
My point is people come in here talking about all the crap they’ve googled/read and don’t explain why and how things work. So what if Bear is 31X leveraged? Why are they getting bailed out? What triggered it, etc.?
Like I said, I may have missed some of your other postings, so I apologize if you’ve explained it before. Maybe I’m just tired of hearing all the same old news. I guess I’d just like to hear more reasons and arguments instead of rehashing of headline news.
Do I understand what credit contradiction is? Hmm let me see…how about this…If you can tell me what the typical first loss position % in a standard Structured Subprime Card ABS deal is then I’m willing to give you my definition of Credit Contraction. Deal?
Rhonda:
It has been another rough week. You can have the weekend off!
Can you tell me who rolled out pricing hits on the Fat Butts? I wanna research some more.
Roger, thanks! It is my birthday on Sunday. 🙂
Flagstar has FHA…Chase has both…I hear Wells and Countrwide and Flagstar come out with Fat Butts on Monday.
That’s all this old tired head knows.
would say about 40%
How do the RE professionals here think this is going to affect market prices?
Alan, eliminating 100% financing would reduce demand, so that factor alone would result in lower prices. But that’s only one factor. Other factors may offset that.
Also, this would mainly affect lower priced properties, but eventually work it’s way up a bit, as it affects the ability to trade up.
So basically, it’s not good, but that doesn’t mean prices will drop as a result. They’ll just be lower than they otherwise would have been.
BTW, it also means having served in the military will now be more beneficial than what it’s been in the recent past.
Thanks a lot, Cathy.
I read the press release on the proposed RESPA reform. We’ve been trying to reform respa for decades.
The real question is this: How does HUD plan on enforcing ANY reform?
If they would just enforce the existing laws they wouldn’t need to reform anything.
Kary, re. #47: this is especially true now that VA loans do not have a “limit”. It varies from lenders…I’ve seen $650k and up to 1mil.
Kary said, “So basically, it’s not good, but that doesn’t mean prices will drop as a result. They’ll just be lower than they otherwise would have been.”
Correct me if I’m wrong but isn’t “prices lower than they otherwise would have been” pretty much what a price drop is? Or did you mean something different?
Kary said:
Kary, what other factors do you see/know that would offset the reduced demand or would offset the lower prices?
Don-
Are you serious!? Which structure had that enhancement? To give you an example, BofA, a prime issuer only had ~5%
Rhonda-
Happy Birthday! 🙂
Yang, the elimination of stated income loans will have a bigger impact on housing prices overall than the 100% financing IMO.
They’re going to nose dive 🙂
Rhonda,
My question to Kary is what other factors that he sees may offset the lower price resulting from th elimination of 100% financing. He seems to suggest that other factors might be at work here to keep prices from dropping. If that’s the case, I really want to know.
Sandy and Yang,
There are so many factors that affect real estate prices that it’s impossible to predict where they will go. What caused prices to skyrocket last year March to July? Was it people moving here from other areas? Was it people pulling money out of the stock market? Was it the interest rates? Was it a mini-baby boom? Press reports? All that and more?
So all I’m saying is that the prices will be lower than what they would have been. That could be either a larger decrease or a smaller increase.
BTW, I agree with Rhonda as to the stated income, but that will be more the middle/higher end of the market, while this will be more the lower end.
As a follow up, back during the dot-com bust, properties in Seattle sold for less than what they would have but for that meltdown. That’s because a lot of people in Seattle worked for such companies, and they went from having a lot of option related income, to some even becoming insolvent as a result of exercising their options on margins. Did that mean prices fell in Seattle? No. But a lot of people (including myself) thought they would.
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Rhonda:
Yes indeed, Happy Birthday!