Author Archives: Rhonda Porter

About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages. She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/EntityDetails.aspx/COMPANY/40445 NMLS ID 40445. Equal Housing Opportunity. You can follow Rhonda on @mortgageporter, Facebook and/or Google+

And the FED…does nothing.

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The markets anticipated the FOMC to leave the Fed Funds rate alone at 2% and that’s just what they did.   The markets are reacting accordingly by not swinging drastically either way.   The DOW is enjoying triple digit gains while oil has been under $120.   What does this mean to mortgage interest rates?

As you know, the FOMC does not directly control mortgage interest rates as mortgage interest rates are based on bonds–mortgage backed securities (MBS).  Traders will react to what the FOMC does and does not do and THIS will impact mortgage interest rates.

The FOMC press release states:

“Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports”.   I’m wondering how much of the growth in consumer spending is from the economic stimulus checks?

This statement is quickly followed with: “…labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters”.

Bonds react negatively to inflation, I’m anticipating that we will see mortgage rates continue to trend higher.   Here’s a bit from the FOMC regarding the “i-word”:  

“Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.”

You can read today’s FOMC statement here.

PS:  As the Prime Rate is tied to the Fed Funds Rate, your HELOC is unchanged for now.

More Fannie Changes for Investment Properties and Second Homes

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Effective tomorrow (August 1, 2008) borrowers who convert their existing residence to an investment property or second home will be treated to tougher standards if they’re using a Fannie Mae loan.    Here are the new requirements:

Converting existing residence to a “second home”.

  • Borrower must qualify for both payments (this is not new).
  • Unless the borrower has at least 30% equity in the existing property, they will need 6 months PITI for both properties in reserves. 

Converting existing residence to “investment property”

  • The borrower may only use rental income (75% credit) of their existing property if they have at least 30% equity in the property.   Otherwise, they must qualify with both full payments (no credit for rent).
  • Rental income must be documented with a fully executed lease agreement and a receipt showing the security deposit from the tenant has been deposited into the borrowers account.
  • If the borrower does not have 30% equity in the proposed investment property (former residence) then they will need 6 months PITI for reserves for both properties.

Either an appraisal, AVM or Broker Price Opinion is used to determine if there is 30% equity in the existing home that is being converted to a second home or investment property (this may be determined by underwriting).  

Last, be careful when reading guideline changes, such as this.  Underwriting guidelines and loan programs are changing constantly, post like this are quickly “dated material” and no longer applicable–do verify information you find on the internet with your Mortgage Professional to make sure the information is still valid.

The Housing Rescue Bill

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Today President Bush signed a housing “rescue” bill HR 3221.  I’m really still absorbing all of this (I think it’s taking me a bit longer after my trip to Inman Connect).   Here are a few quick pointers:

The FHA risked base mortgage insurance pricing (which I’m in favor of) that was to be effective last week is now postponed until September 30, 2009.   FHA can now save some borrowers in trouble with their mortgage if their existing lender will forgive the underlying debt to 85% 90% of the current value of the home.   Gee…risked based MIP might be handy in these cases.

Also with FHA, Seller paid down payment assistance programs are will be gone and the minimum down payment for an FHA insured loan will be 3.5% (which is a very small increase) beginning October 1, 2008.

Jumbo FHA and Jumbo Conforming loan limits will be reduced from the current 125% of median home value to 115% of the median home value beginning January 1, 2009.   As I mentioned, your days of a loan amount of $567,500 are numbered.   The new conforming/FHA jumbo limit may be closer to $520,000.  

First time homebuyers (someone who has not had interested in a property for the past 3 years) are eligible to receive a tax credit…however, it’s really an interest free loan to be paid back over 15 years or from the proceeds when the home is sold (which ever comes first).  This is available only for homes purchased on or after April 9, 2008 and before July 1, 2009.  Income restrictions do apply.   For more information, check out this website.   

Last but not least (and I’m sure I’m missing stuff) Fannie and Freddie have a new regulator: The Federal Finance Housing Agency aka FHFA.   This from James B. Lockhart:

“Today President Bush signed the ‘Housing and Economic Recovery Act of 2008.’ I thank President Bush and Secretary Paulson for their leadership in making government sponsored enterprise (GSE) regulatory reform a reality.

The Act creates a world-class, empowered regulator, the Federal Housing Finance Agency (FHFA), with all the authorities necessary to oversee vital components of our country’s secondary mortgage markets — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — at a very challenging time.  As Director of the new agency I look forward to working with the combined Federal Housing Finance Board (FHFB), Office of Federal Housing Enterprise (OFHEO) and Housing and Urban Development (HUD) GSE Mission teams and with other regulators to ensure the safety and soundness of the 14 housing related GSEs and the stability of the nation’s housing finance system.

For more than two years as Director of OFHEO I have worked to help create FHFA so that this new GSE regulator has far greater authorities than its predecessors.  As Director of FHFA, I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing and operate safely and soundly.”

Too much to write about in detail for one post…just wanted to throw you some bits.

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.”

IndyMac Leaves the Mortgage Arena

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This announcement from IndyMac came via a press release today:

“…effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets.”

IndyMac is planning on retaining the FHA portion of their reverse mortgage division, Financial Freedom.

This also means more people will be displaced from the mortgage industry.

“Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months…”

The press release mentions a couple locations where employees will be retained…no word or mention of the Bellevue office.

IndyMac had a lot of unique products and were no stranger to the subprime and alt-a markets.   They had their own automated underwriting system, eMits, that provided “risk based” decisions and pricing.    They are reported as being the seventh largest savings and loan in the nation with both retail and wholesale operations.

Free Credit Monitoring…available for a limited time

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Due to a settlement from a class action lawsuit where they were accussed of reselling personal and financial consumers information for marketing purposes, Transunion is offering free credit monitoring.   Selling the information is a violation of Fair Credit Reporting Act.   You only have until September 24, 2008 to apply for your benefit of either free credit monitoring or possibly a cash payment.

You are eligible if you have had credit from January 1, 1987  until May 28, 2008.   This includes mortgage loans, credit cards, auto loans, student loans…if you’ve had credit over the past 21 years, this is worth checking out!

Here are your choices:

  1. Sign up for six months of credit monitoring services. If you select this option, you can also register to possibly receive cash benefits in the event of a cash distribution or file an individual lawsuit against the Defendants.
  2. Sign up for nine months of enhanced credit monitoring services. If you select this option, you will not receive any further benefits, including a cash payment, and you will not be able to file an individual lawsuit against the Defendants.
  3. Register to possibly receive a cash payment. If you select this option, you can also sign up for six months of credit monitoring; however if you receive a cash payment, you cannot file an individual lawsuit against the Defendants.

Of course you can always chose to do nothing!

You can call TransUnion’s settlement number at  (866) 416-3470  or visit the website: www.listclassaction.com to file your claim.

It’s about time these Trigger Leads came to an end!

Upcoming Changes with FHA Mortgages

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Update October 27, 2008: many of the changes mentioned below have all ready changed!  Please visit Rain City Guide’s Mortgage Info page for the most current information.

I was just reading Brian Montgomery’s speech from yesterday which reminded me of what’s on the horizon with FHA insured mortgages.   He points out that the increased loan limits are temporary–you only have until the end of this year to take advantage of the increased loan limits and then *poof* this coach turns back into a pumpkin!  Instead of doing 3% down with a loan amount up to $567,500, if you’re buying in King County, the maximum loan amount for a single family dwelling will be $362,790.   This is really a window of opportunity that is closing (this window includes conforming jumbo, too).   I suspect that Congress will pass an extension to the loan limits…and IF they do, they may reduce the loan limit to somewhere between what is offered now to what the real loan limit is…this is a big IF.   For now, we just know that FHA-Jumbo (and conforming jumbo) are here until December 31, 2008.

Next month, FHA will start their risk based pricing for mortgage insurance.    This from Ken Harney’s recent article:

On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5%. Borrowers with down payments of less than 5% and poor credit scores — FICOs ranging from 500 to 559 — will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually.

The difference in savings is not super significant for borrowers.   Using a loan amount of $360,000 and a rate of 6.5%, here’s how it pencils out for the credit scores above 680, 680-560 and 560 and below (who may have a tough time finding a lender regardless of FHA being willing to insure them.   Lenders have their own underwriting “over-lays”).

  • 680 plus with 10% down = upfront mi of 1.25% = $4,500.  $4500 plus $360,000 = $364,500.  Principal and interest = $2,303.89.  Monthly mortgage insurance @ 0.5% of the base loan amount = $1,800 divided by 12 months = $150.  $2,303.89 plus $150 = $2,453.90 (not including taxes and insurance) for the “preferred” FHA borrower.
  • Credit scores above 560 with less than 10% down (this is the current model) = upfront mi of 1.5% = $5,400.  $5400 plus $360k = $365,400.  Principal and interest = $2,309.58.  Mortgage insurance is the same rate as above, so the payment (not including taxes and insurance) is $2,459.58.   A difference of just over $5 based on this loan amount.
  • Credit score below 560 is going to have a different interest rate.  In fact, many lenders will not do FHA loans under 580.   Assuming a 559 credit score finds a lender, the upfront mi increases to 2.25% of the loan amount: $8,100 based on our example.   The rate would be significantly higher in addition to the increased mortgage insurance costs.

So, the moral of the story is that if you have credit scores 680 or better and 10% down, don’t wait until next month to take advantage of the improved mi pricing.  It’s not going to pencil out to the consumer as much as it will to FHA.   You’ll potentially lose any gain by the rising mortgage interest rates (which have gone up again today).

Watch out for Down Payment Assitance Programs which are on the endangered species list.   Even President Bush is on the bandwagon to do way with DAPS.  Quite frankly, I’ve never been a huge fan as I’ve witnessed sales prices being jacked up to absorb the cost the seller has to contribute to participate and structure the transaction…who does this impact?  The buyer.   The practice of increasing a sales price over the list price, like the do-do bird, probably wouldn’t fly in today’s market anyhow.   Home buyers utilizing FHA should count on investing 3% into the transaction (which can be a gift) and the seller can contribute up to 6%.   I do believe the down payment assistance programs days are numbered.   

I do hope that more people take advantage of the FHA Jumbo loans while they’re available for the remainder of this year.   As I’ve mentioned, they’re a great resource for people with less than 20% down and with Fannie Mae’s DU 7.0, I’m sure we’re going to be seeing more and more FHA financing.   Keep in mind that various lenders may have their own guidelines (3% vs 5% down w/FHA Jumbos, for example) in addition to those of FHA.

Get Preapproved before Memorial Day Weekend: More Changes with Fannie Mae

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Fannie Mae will be releasing a new guidelines for their AUS over the Memorial Day weekend of May 31, 2008: Version 7.0.    Loans submitted prior to Memorial Day with an approval via Fannie Mae’s Version 5.7 will be honored.   Fannie Mae is saying that there will be more Expanded Approvals (higher rates) than what we have experienced.   I’m not saying that’s good or bad…just that if you’re considering a mortgage, getting approved before the Memorial Day weekend could be to your advantage.  Here are just some of the changes:

Loan to values greater than 85%.  Private mortgage insurance is no longer considered a “mitigating” factor for higher loan to values.   The more equity in the property, the more Fannie Mae smiles upon you (this is a not a change, the pmi factor is).

“Authorized Users” on credit cards will no longer be considered.   It was not uncommon for parents to add their child to their credit accounts as an “authorized user”.   This may have been done so that the child could have credit available in the event of an emergency (picture a college student away from home).   Once people figured out that the timely payments made by the parent (or credit payer) was benefiting the “authorized user”, it didn’t take long for some people to actually sell their credit history on that account by allowing strangers to become “authorized users”.   

Debt to income ratios tighter.  “In general, the updates to the maximum allowable total expense ration in DU (Desktop Underwriter aka Fannie Mae) Version 7.0 will be more conservative…”  

Loan Type/Level of Risk.   With Version 7.0, Fannie Mae is associating levels of risk with varios products (from lowest to highest):

  • Fully amortized fixed rate mortgages
  • Fully amortized 5, 7 and 10 year ARMs
  • 6 month, 1 and 3 year ARMs and Fixed Rate Interest Only Mortgages
  • Interest Only ARMs and balloon mortgages

Version 5.7 viewed fully amortized fixed rate, fixed period (3-10 year) ARMs as having the least amount of risk with balloon and interest only mortgages having moderate additional risk.   Negative amortized mortgages were considered the riskiest…now they’re off the charts.

Condos are now considered a higher risk than single family detached.  Version 7.0 views one-unit properties that are not “attached condominiums” as less risk than attached condominiums and two-unit properties.  Three- and four-unit properties have a higher level of risk associated than condo and duplex properties. 

Bankruptcy, mortgage delinquencies and foreclosures.   A bankruptcy needs to be fully discharged and 24 months since the date filed.

If a borrowers credit report shows a mortgage that was reported 60 or more days delinquent in the last 6 months, they will receive a “refer”.  

If the borrower has had a foreclosure reported within the last 5 years, they will also receive a “refer”.    If the date of the foreclosure cannot be determined, if the foreclosure was filed within the last five years and has not been satisfied, the loan will be declined.

Self-employed borrowers will no longer be considered “an additional layer of risk”!   Hey…I have to end this on a positive note!  🙂

Expanded Approval is being pumped up.   Fannie Mae is anticipating more EA approvals.  An EA approval means that the borrower’s scenario is “less than perfect” or some prefer to say “A Minus”.  There are different levels of EA approvals (such as EA-1, EA-2, etc.).   Expanded approval also come with higher rates than a typical conventional mortgage as it’s risk based pricing. 

As Jillayne stated, guidelines will continue to tighten for a while with Fannie/Freddie and the private mortgage companies.  This is again, another reason for people, professionals and consumers alike, to learn all they can about FHA which may be an option to consider over an Expanded Approval and tougher underwriting standards with conventional mortgages. 

Sellers and Agents: Don't Rule Out FHA Buyers

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I was just working on a finance flyer for a listing agent…something I haven’t done in years!   Anyhow, the home is priced at $442,000 and she requested a 30 year and 5/1 ARM both with 20% down for scenarios…I added FHA at 3% down.  The property is in King County and would qualify under the FHA Jumbo program.   Until the end of the year (I suspect the “economic stimulus” loan limits will be extended beyond) Sellers have an opportunity to expose their homes to buyers beyond the normal “jumbo” or conforming market.  

Here’s a comparison:

30 Year Fixed with 20% down at 5.75% (APR 5.902%).   Principal and interest payment = $2,064.  Cash needed to close = $88,400 plus closing costs of approx. $6,000 (the rate is priced with 1 origintation/discount point) plus prepaids.    This rate requires a mid credit score of 720 or higher. 

5/1 ARM-LIBOR with 20% down at 5.25% (APR 6.810%).  Principal and interest payment = $1,953.   Cash needed to close = $88,400 plus closing cost of approx. $2,350 (the rate is priced with zero discount/origination points) plus prepaids.   This rate also requires a mid credit score of 720 or better.

FHA-JUMBO 30 Year Fixed with 3% down at 6.25% (APR 7.030%).   Principal, interest and mortgage insurance = $2,850.64.   Amount needed to close factoring down payment and closing costs is $20,350 plus prepaids.   FHA is not credit score sensitive (yet) and buyers who are truly FHA approved have done so via a “fully documented” loan.   They’re pretty darn serious!

When you compare 20% down conforming to the 3% minimum down required for FHA; it’s the difference of having approx. $100k for your down payment and closing costs to having a quarter of that.   Some folks have the income (they still have to qualify with FHA) but they’re shy on that kind of savings.   Maybe it’s their first house or perhaps their savings is tied into their retirement or children’s college fund.   These are buyers you don’t want to rule out.

FHA Jumbos allow buyers to have a loan amount of $567,500 in King, Pierce and Snohomish Counties with as little as 3% down payment (some lenders require 5% down).    With second mortgage’s evaporating and fewer “piggy back” options available, buyers who have less than 20% down where their loan amount will be over $417,000 will be considering FHA as an option.    For example, sales price of $625,000 with 10% down (loan amount $562,500) would be an excellent FHA JUMBO candidate…only offering cash or conforming products will pretty much limit your buyers to those with 20% down.   FHA buyers do not have to be minimum down…they can be less than 20% down or have a credit score or perhaps one of the borrowers has a mid score of 679.

I’ve written before about why Sellers should consider FHA…however with the temporary expanded loan amounts…now it’s even more compelling.   

Financing an Investment Property

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EDITORS NOTE:  Rates on this post are from 2008!  Mortgage rates for investment properties are much lower now! Contact your local licensed mortgage originator for a current rate quote.

Obtaining a mortgage for a non-owner occupied propery is much different than buying one you will reside in.  For starters, qualifying is tougher and mortgage interest rates are higher as it’s a riskier transaction for the lender.   Here are some quick tips to help get you started if you’re considering buying an investment property.

Plan on using at least 20% for your down payment plus closing costs.   With a 25 or 30% down payment, you will receive a slightly better interest rate.   Just to give you an idea, here is a sample of some current rates based on a single family dwelling with a sales price of $450,000 for a 30 year fixed mortgage and a minimum 720 credit score:

Owner Occupied with minimum 20% down:  5.75% priced with 1% origination/discount point (APR 5.904%)

Non-Owner Occupied (NOO) with 20% down: 6.375% with 1% point (APR 6.537%)

NOO with 25% down: 6.250% with 1% point (APR 6.413%)

NOO with 30% down: 6.125% with 1% point (APR 6.289%)

Of course, you can always pay more in points to have a lower rate.   This is just to provide you with an apples to apples comparison.

There are two camps for qualifying for an investment property:  those who are proven at managing rentals and those who are buying a rental for the first time or who have less than 2 years history.  If you have less than a 2 year history, then it’s likely that you will not be able to use rent credit from the proposed purchase.  Lenders allow 75%  of the rent to be used for qualifying purposes.   Proving you’re a financially successful landlord to the underwriter will take your last two year’s complete tax returns including the Schedule E’s.   If you can qualify for the full PITI payment on the investment property along with your current PITI payment on your residence, then the underwriter may only require a regular appraisal.  Otherwise, count on the appraisal costing almost twice as much as a typical appraisal for conventional financing.   Fannie and Freddie also require a minimum of 6 months reserves (cash assets after closing) for NOO borrowers.

Odds and Ends

  • FHA can be a great way for first time buyers to get into the investor market when they’re buying a 2-4 unit home.  The buyer must occupy in one of the units and the mortgage will be treated as an “owner occupied” transaction.   You will have upfront and monthly mortgage insurance and can buy with as little as 3% down payment.
  • Second homes are sometimes treated as investment properties.  This is really up to the underwriter.  Typically if the home is located within 50 miles of the borrowers residence or if it does not make sense as a second or vacation home, the underwriter may determine that it’s an investment which means tougher underwriting and the NOO rate.
  • Fannie Mae programs exist that help family members buy properties that don’t meet the second home requirements without treating it as an investment purchase (Family Opportunity Mortgage).

As always, I highly recommend that you meet with your local Mortgage Professional as soon as possible if you’re even just considering obtain a mortgage for any reason (investment property, residencial purchase or refi, vacation home, etc.).