Category Archives: Industry Talk

It’s Official: FHA Upfront Mortgage Insurance to Increase in April

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Yesterday at The Mortgage Porter, I wrote about changes that HUD had confirmed via a press release for FHA insured loans.   Seasoned mortgage professionals know that the HUD lady hasn’t sang until a Mortgagee Letter is issued and this morning, HUD did just that with ML 2010-02.

Effective on FHA insured loans with case numbers assigned April 5, 2010 or later, the upfront mortgage insurance premium will increase.  Typically the FHA upfront mortgage insurance premium is financed, however it can be paid as a closing cost  (which is how the 2010 GFE discloses the premium). 

FHA insured mortgages for purchases and non-streamline refinances will increase from 1.75% of the base loan amount to 2.25% and streamlined FHA refinances (refinancing an FHA underlying mortgage) will increase from 1.5% to 2.25%.

According this Mortgagee Letter, HUD states that the “annual premiums will not change at this time“.   The annual premiums are what consumers pay in the monthly mortgage payment…and I do believe we will see risk based pricing utilizing credit scores impact FHA’s monthly (annual) mortgage insurance premiums in just a matter of time.

According to HUD’s Press Release yesterday, the following changes should take place with FHA insured loans in early summer:

  • Seller contributions towards allowable closing costs reduced from 6% to 3%.
  • Increasing the down payment requirements for lower credit scores (risk based underwriting).   The Press Release states that those with a 580 score would need a minimum of 10% down payment.   Lenders all ready have underwriting “overlays” which will not permit this scenario so this “toughening” of the guidelines is a bit lost…unless things are loosey goosey again this summer (I’ll eat two shoes).  

HUD’s press release also stated they will “implement a series of significant measures aimed at increasing lender enforcement”.

The upfront mortgage insurance premium increase will go into effect just 25 days before a home buyer needs to be “in contract” to qualify for the home buyer tax credit.

Home Buyer says dealing with the new Good Faith Estimate is “Close to Living Hell”

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We’ve heard plenty of rants from mortgage originators about the HUD’s Good Faith Estimate.   Because the new HUD required GFE is so new, most consumers and real estate agents have not had a chance to witness one first hand beyond  sample on a website.   Right now I’m dealing with a buyer where we began the preapproval process late 2009 and wouldn’t you know it, they bought a house this week.  Yesterday I prepared my first “official” HUD Good Faith Estimate since this is a bona fide transaction (we are using a detailed form for pre-GFE clients).    The comment I received from one of our readers is so timely, I had to share it as a post.

I am a home buyer caught in the transition between the old and new GFE and it has made the last three days something close to a living hell. We started the loan process the last week in December and will close the end of January. These new forms damaged the very good relationship I had with a good and reputable lender but reading some of the blogs has confirmed that the seeming crazy things my lender was telling me are in fact true.

-My first shock was how much higher the settlement charge total compared to the closing costs total. After three days of call and emails I see that my costs have risen a little due to increases from my lenders service providers but at least not the $1,500.00 that I originally thought.
-I still have not been able to determine my “Estimated Cash Required at Closing

A National Realtors® database is coming soon – RPR™

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RPR - logo-low res
There has been a lot of buzz about the formation of a national database that NAR (National Association of Realtors®) announced last November called the Realtors® Property Resource. NAR acquired the technology to create RPR including a database of licensed data and secured data aggregation services from LPS Real Estate Group in November of last year. Everyone has been asking if it’s going to make the MLS obsolete or if it intends to be a Zillow-killer. Well, yesterday a blog was launched to help explain and educate agents and the public about what it will feature, and how it will be used. RPRBlog has some great demo videos and FAQs that detail what’s under the hood and how NAR envisions it will be used.

The amount of data RPR™ intends to incorporate is massive and the tools they are developing to assist Realtors® in utilizing this information are amazing. If it lives up to the hype, it could be the single most important tool that has been developed for real estate agents since the development of MLS boards around the country. This will be a massive online real estate library and archive that will provide real estate professionals with data on every property in the United States.

RPR will include in-depth information on every parcel of real property including public record information, details of prior transactions, MLS information (when provided), zoning info, tax data, and a variety other relevant information that has never been correlated in one place before.

Zestimate on Steroids
Many homeowners and agents have used Zillow’s Zestimator to refine the AVM (automated value model) that Zillow uses to come up with and estimated market value. While this was a clever and advanced tool when it was introduced, it is far from perfect. Zillow still recommends getting a real estate professional to help fine-tune the results. RPR’s valuation method, called RVM (Realtors® valuation model) takes it much further. It draws on the Realtors® own market knowledge to take into consideration local market factors.

One data source that is being integrated into the database to help with home evaluations is the Realtor® and Remodeling magazine’s annual Cost vs. Value Report. This report has been compiled for a number of years by a variety of industry experts for a number of the main national real estate markets to see how different improvements affect value based on location and value of the  home. This shows, for example, how a deck in Miami overlooking the ocean will add more value than a deck in an inner-city location with no view. This helps dial in more accurate valuations.

Localized Marked Updates
Agents will log on to a localized homepage that is customizable with scrolling news bar to keep up to date on both national and local news. They will also see maps of all the changes in listings in their area, including price changes and foreclosure properties. All NAR agents will have access to the website, regardless of whether the local MLS participates or not. I’ve not heard from the NWMLS and there is no information on their website that says if they will be among the MLS organizations participating nationally. Obviously most Realtors® would love to have these tools and be a part of this. But NWMLS is broker owned so they may have a different perspective.

The estimated launch of the site is 2nd quarter of 2010, so I am sure we will be hearing much more about this.

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Home Buyers: Please Be Aware of the Owners Policy on the GFE

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HUD had dramatically revised the Good Faith Estimate to a uniform document with summary of fees.  If you compare a GFE issued prior to 2010, one big difference is that buyers will not see a charge for the owners title policy–why? Because they generally do not pay for the owners title policy–the seller does!  Please don’t ask me why this is on the new GFE and why, if it’s not charged in our market LO’s must disclose it…I don’t have an answer…and don’t have the answer for why mortgage originators are held to the 10% tolerance when quoting this fee when it has nothing to do with mortgage origination.

The fee for an owners title insurance policy is much more than that of a buyer’s policy. Typically the Seller pays for the owners policy and the buyer pays for the lenders policy which has a reduced rate (simultaneous issue). There are also various coverages available with an owners policy and the coverage that is required should be specified in the purchase and sales agreement.

Here’s an example of title fees for the owners (seller) and lenders (buyer) policies based on a $500,000 sales price (FYI LO’s: the owners policy is based on the sales price not the loan amount) and a loan amount of $400,000. Examples below do not include sales tax.

FEES BELOW NOT SHOWN ON GFE PRE-2010

Homeowners Policy (1998 ALTA): $1,192
2006 Standard Owners Policy: $1,053
Extended Coverage Owners Policy: $1,937 (not commonly requested)

 ALWAYS SHOWN ON GFE (because the buyer pays for it)

Lenders Policy (simultaneous issue): $647

So with a purchase price of $500,000 and a loan amount of $400,000; I would disclose $647 plus tax for my estimated title insurance fee for the borrower on my GFE–both now and before 2010.  Now I need to add over $1000 to this scenario on my good faith estimate even though the buyer isn’t paying for it…my closing costs on a purchase appear $1000 higher!  

And to add insult to injury, the title owners policy is included in HUD’s 10% tolerance bucket of charges.

The Talon Group offers this tip to mortgage originators quoting an owners title insurance rate (when you don’t know what the specified coverage will be on the purchase and sales agreement):

Lenders should quote the 1998 ALTA Homeowner’s Policy rather than the less costly Standard Owner’s Policy in block 5 of the GFE. The local Purchase and Sale Agreement defaults to the Homeowner’s Policy because of it’s superior title coverage. There is as much as a 12.5% difference in price between the two policies.

The lender’s policy (and escrow/settlement charges) are included in Block 4 of the Good Faith Estimate and the owners policy is included on Block 5.

According to HUD’s RESPA FAQ’s last updated December 30, 2009:

Q&A #3 page 27:

If the borrower requests an enhanced owner’s title insurance policy or an endorsement to an owner’s title insurance policy after the loan originator issues the GFE, the loan originator may choose to treat such a request by the borrower as a changed circumstance.  The loan originator may then choose to provide a revised GFE to the borrower to disclose the increased charges.  If the increased charges do not exceed tolerances, the loan originator may opt not to issue a revised GFE.

I take this as saying that if the borrower decides they want more expensive coverage after I have issued a GFE and I do not re-disclose the cost difference and it exceeds the 10% tolerance, I just paid for the difference…even though it’s a seller cost!

With a purchase transaction, if the borrower accepts the title insurance company as selected by the real estate agent or seller (assuming the company is not on my “list of providers”), then there is no tolerance as HUD views this as the borrower selecting the service provider (same is true with escrow companies).    Regardless, even quoting from my preferred provider, the fees on my good faith estimate look $1000 higher based on this scenario. 

At least until consumers and mortgage originators are accustomed to using the new GFE (and unless HUD makes additional changes) this is going to take some getting used to!

For the record, this post all of my posts are my interpretation and my opinions–this is not a substitute for your legal staff or your compliance department!

“New on Market”? Maybe not.

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The new listing numbers started out in 2010 with 3 digits vs 8 digits of the last decade and beyond. It would be awesome if we could track how many new homes are coming on market by these numbers. Unfortunately I am seeing many “new” listings on market for hundreds of days.

There is a rule against, and fine for, “trading up” your mls # from a 2009 or even 2008 listing number to a fresh 2010 one. But I am seeing many that “expired” vs. cancelled on 12/31/09 and then re-listed (often with the same agent) since 1/1/2010.

These listings are also coming up with the “n” symbol as being “new” on market. They are also showing as “on Redfin 1 day” so be sure to look at CUMULATIVE DAYS ON MARKET before determining whether or not it is really a “new” listing. You can do this on Redfin by clicking the property detail. Cumulative Days on Market seems to be “one click away” as in “on Redfin 1 day” but Cumulative days on market 455 days.

Maybe some day there will be only one mls # allowed per home address…on a 12 month rolling basis. But for now, there really are not over 3,000 “new” listings since 1/1/10, even though over 3,500 have been “newly listed” since 1/1/2010 as of today.

It’s possible that the mls will take away their “new” number, and give them back their old one. It would be great if they did, so we can track how many really new listings there are coming on market this year. So far I have not seen a way to search by “cumulative days on market”. I’ll have to ask Matt Goyer over at Redfin if they have an internal system that will do that. But if they did, I would think they would not be showing those “on Redfin 1 day” houses that have been on market for over a year.

Getting Hired in 2010

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Many small business owners in Washington State receive numerous resume’s over the last couple years and our office is no different.    With the economic issues surrounding us and the slow slog of the real estate market trying to find some equilibrium without “intervention,” scores of real estate related jobs have been shed over the last three  years.

Many former workers that have been laid off from mortgage, title and escrow related fields submit resume’s as a matter of protocol due to unemployment benefit requirements.   Employers understand this but once in a while a gem comes across you as it did us earlier this week.

Here is why the individual caught my attention.

I didn’t receive a resume via fax.  I didn’t receive a resume in the mail, again and again.  I didn’t receive the resume by e-mail.   The individual stared at us face to face by taking the time out of their day and shook my hand and introduced herself  to us in person.   Call me old fashioned, but the impression you leave by being professionally presented and having an authentic conversation, unscripted and raw, going in knowing you will be rejected 9 out of 10 times and still having the COURAGE  to look up a company and personally drive to the office not knowing how you will be received, will always receive high consideration of getting an interview at our office.

All the best to those who are looking for work in 2010.    Keep your chin up and remember this:  as Warren Buffett said in his interview this past November at Columbia University in New York, “betting against America and it’s economic engine is a bet I would never wager.”

Twitter on a Real Estate Blog?

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Over the slow Christmas weekend, we added a new feature to RCG and it generated so many interesting conversations on Twitter, that I thought I’d bring the conversation to a blog post.

The new feature is the Twitter widget on the sidebar. Here’s a snapshot:

Picture 5

The current implementation shows all the tweets from this Twitter list: @tyr/rain-city-guide, which takes all “original” tweets from current contributors plus “replies” to others on the list.

The type of feedback I *though* I would get from the other contributors was: “awesome! More Seattle people reading my tweets!” but instead, the reactions were somewhat more tame… with initial reactions being along the lines of Ardell’s reaction: “I have lots of fun on twitter and say things inappropriate for RCG.”

However, the contributors were kind to me and seem more than willing to play this out a bit, but now it’s time for feedback from the rest of the community… Here are some of the options I see for including Twitter on RCG going forward:

1. “Do Nothing” option. i.e. keep “as is”

2. Show all replies from contributors. If I add each author individually to the backend of the plugin (instead of use a Twitter list), it should include all their replies so the feed would include more people and not look like “RCG contributors talking to each other.” (However, if you check out my twitter feed, you’ll see that I talk with people from all over the country, so it will add a lot more noise to the list. Ditto for Ardell)

3. Remove the Twitter feed from RCG. (Kevin Tomlinson voted for this option when he said: “@ARDELLd mixing mediums ain’t the way to go. imo“

4. Include larger Seattle community. I could use a much more general list (i.e. more than just RCG contributors).  I’ve created a bunch of “Seattle” lists associated with the Rain City Guide Twitter account. We could modify one of these lists and include the updates from anyone on one of these lists, the benefit being the feed wouldn’t just show RCG contributors talking to each other, but the negative being there’s likely to be a lot more “noise” in the updates as more people are contributing to the feed.   As someone in the RCG community (yes, that’s you if you’re reading this!), would you be interested in being on the list???

Do you have a better option?

I’d love to hear your thoughts on the best way to bring Twitter into a real estate blog!

A Rebuttal to the RESPA Reform Poem

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Over at Mortgage Porter, I posted a poem that one of my coworkers penned for humor about the new Good Faith Estimate.   One of my readers, who wishes to remain anonymous, has submitted a rebuttal which I think is very worthy of sharing here.  

Twas the week before Christmas
When a poem made its rounds
About a change in RESPA
That was about to hit the town

HUD said it was good
It would limit the greed
Protect all consumers
And a nation in need

A nation that was harmed
By the very same practice
They seek to preserve
Though we all pay though our taxes

Nation, wake up! We must awake from our slumber!
The path we were on will take us all under
If we do not learn, and learn today
It can all be gone
Like it almost was Columbus Day

Do you not remember? Can you not see?
What securitization, corruption has done to thee?
The stock market tanked
Foreclosures still run rampant
And they said, even so, you cannot make this happen

Assemble the lobbyists, consumer groups and more
Awake your Congressman, Senator
Or contributions no more
“Kill this thing, kill this thing,

It’s a Wrap…the New vs Old Good Faith Estimate

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NOTE:  This is just my interpretation of the new GFE and I am only a mortgage originator and blogger. This post is just based on my opinion.   Please check with your compliance department at your mortgage company to learn about the GFE requirements.

This the last post in my series of four on comparing HUD’s new Good Faith Estimate to our existing GFE, which is retired on December 31, 2009.   I actually feel like I’m losing an old friend that I’ve relied on for years to help educate consumers.    HUD’s new GFE does not disclose the total monthly mortgage payment (PITI), seller closing costs credits or funds needed for closing.

This is a snapshot of the bottom portion of my current Good Faith Estimate which shows the total payment (upper left corner), closing costs summary and funds needed for closing.

Transactionsummary

HUD obviously feels this type of detail must be overwhelming to the average consumer.  But why total payment, seller closing costs credits and funds needed for closing are missing leaves me scratching my head.

Below is HUD’s summary of closing cost with the new Good Faith Estimate.

summarycharges

As compared to our “old” GFE (below) which clearly outlines the sales price, closing costs and prepaids, the seller credit of $7,500, credit to the buyer for their earnest money deposit of $1,500 and the financed upfront FHA mortgage insurance.   The buyer can also see the funds that are estimated to be due at closing on the purchase of their home.  

FundsNeeded

This is for the same transaction that I’ve been using throughout this series. 

Here is the closest thing you can find resembing a mortgage payment on the new GFE:

newpimi 

This figure above does not include property taxes or home owners insurance which will be included in the borrowers monthly mortgage payment.

Here’s a close up of the mortgage payment on my old GFE:

oldPITI

This actually shows the total mortgage payment and will factor in the monthly home owners association dues (even though it is not a part of the actual mortgage payment).

It’s a pity that PITI has been removed from the new GFE.

For more information about the new Good Faith Estimate, you can start reading HUD’s newly revised 49 page: Shopping for your Home Loan. The GFE review starts on page 11.

Hey home buyers and/or borrowers: which good faith estiamte do you preferred? HUD’s “new and improved” three page document with lump sum totals including closing costs you don’t pay for? Or the existing (for a few more days) GFE that resembles your estimated HUD that you’ll see at closing with details on the specfic closing costs, total monthly mortgage payment and funds due at closing?

New vs Old Good Faith Estimate Continued…

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NOTE:  This is just my interpretation of the new GFE and I am only a mortgage originator and blogger. This post is just based on my opinion.   Please check with your compliance department at your mortgage company to learn about the GFE requirements.

Previously, I reviewed page 1 of the 3 page good faith estimate which will be required for all residential mortgages effective with applications as of January 1, 2010.   We’re moving on to page 2 of the new good faith estimate and comparing it to the old Good Faith Estimate that I (and many) have used.

The current good faith estimate, which is to be retired at the end of this year, provides a line itemization of closing costs.  
ECC

Section 800 of the dear old good faith estimate for the most part contains what the new good faith estimate is now on page 2 of the HUD’s Good Faith Estimate.

What used to be line itemed in Section 800 of the old GFE is now for the most part, lumped together under “Your Adjusted Originated Charges” less third party fees. When you look at the current (soon to be retired GFE); I’m basing this on lines 801, plus lines 811 – 814 even if the seller is paying the fees…by the way, there is no place on the new Good Faith Estimate that shows the seller credit…but if you don’t disclose the funds for closing, I guess HUD feels that point is moot!

Block one of the Good Faith Estimate cannot change–once a GFE is issued, unless it qualifies for a “changed circumstance” or the GFE “expires”, the Mortgage Originator is bound.   A “changed circumstance” is not as easy as it sounds…and warrants a post of it’s own.   They must be documented on only the fee impacted by the changed circumstance is allowed to be modified.  Mortgage originators should be prepared for banks/lenders to balk at your explanation of the changed circumstance–expect to have to “eat the cost” difference if the bank doesn’t “buy it”.

Quick reminder, this post is just to compare a specific FHA scenario based on a current and the new GFE–so if a LO has discount points or YSP, this would look different and it will take a follow up post to review it.

The next section on the new GFE is “Your Charges for All Other Settlement Services“.

YourChargesforAllOtherSettlementServices

Block 3 of this section are items the lender selects and that the borrower cannot. Since this scenario is an FHA loan, it includes the FHA upfront mortgage insurance. This section is subject to the 10% tolerance in aggregate “bucket”. On my old GFE, comparing estimate to estimate, these specific fees would be found on lines 803, 809 and 902.

Block 4 is for the lenders title insurance policy and the escrow fee/settlement services. They’re now lumped together. It doesn’t matter if it’s the same company or not. If the borrower selects a provider from the list provided by the lender, it’s subject to the 10% tolerance. If the borrower deviates from the list, there is no limit to how much the fees can adjust. If the lender does not provide a list, there is zero tolerance from the good faith estimate to the HUD-1 Settlement Statement. I suspect that some big banks will use this to try to capture title or escrow business. On my old GFE, these fees were shown on lines 1101 and 1108.

Block 5 is a doozie. HUD does a great job contradicting themselves with whether or not the owners title insurance policy fee needs to be disclcosed here. In Washington State, this is typically a fee charged to the seller. Yet it really appears as though HUD wants this cost disclosed to the buyer EVEN IF THEY’RE NOT PAYING IT. This fee is not on the old GFE.

Block 7 are the recording fees and is shown in section 1200 of my GFE. Even recording fees that the seller typically pays may be disclosed here. This is shown in section 1200 of my old GFE.

Block 8 is for “excise tax” and it’s my understanding that the only county in our area where the buyer actually pays a portion of excise tax is San Juan County. If I’m wrong–please correct me!

Old/existing Good Faith Estimate below shows the items the lender requires to be paid in advance (prorated interest, 1 years home owners insurance for a purchase and the upfront FHA mortgage insurance) and the left and what is required to start the reserve account.  NOTE:  this is my personal GFE (generated from Encompass).

Reserves_Prepaids

Block 9 discloses what is charged to start your escrow reserve account (line 1001 and 1004 on my old GFE).

Block 10 is the prorated interest based on the day the loan is closing (line 901 of my old GFE).

Block 11 is the estimated (in this case) annual home owners insurance premium which is disclosed on line 903 of my old GFE.

If you add the “adjusted origination charges”  (Box A)  to the “your charges for all other settlement services” (Box B), you come up with a “total estimated settlement charges” (which also includes the owners title insurance policy which is not paid for by the buyer in these parts).    Again, this does not factor in any seller credit–the only credit factored into the new GFE is in the form of YSP (yield spread premium).

summarycharges

I’m going to miss you, Old Good Faith Estimate!   The two things home buyers ask most from the lender (after what’s your rate) is “how much is my payment going to be” and “how much money do we need for the down payment and closing costs”.   HUD’s new GFE answers neither.