Category Archives: Mortgage/Lending

My “Talking” Good Faith Estimate

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Ardell asked me to share with you how I present Good Faith Estimates to my clients when I’m not meeting with them face to face…and believe or not, most of my clients I never have the pleasure of meeting.   We do most of our conversation via email or over the phone.    When possible, I like to include a presentation where I review the good faith estimate for the client section by section.  

Here’s an example from a transaction a few months ago where my clients were buying utilizing an FHA mortgage with minimum down payment.

The program I use is called Jing and you have up to 5 minutes to record your presentation (I was pushing my time with this presentation…you might be able to tell that I’m trying to wrap it up at the end).   The uses for this program are endless.

This does take some extra time to prepare an estimate…but I think it’s worth it!

FHFA Gives the Green Light for 125% LTVs on HARP Refi’s

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The Federal Housing Finance Agency just issued a press release that Fannie Mae and Freddie Mac are authorized to expand the Home Affordable Refinance Program to 125% loan to value.  The existing limit is 105%. 

From FHFA Director James Lockhart:

“The higher LTV refinancings will allow more homeowners to strengthen their finances by taking advantage of lower mortgage rates. The Enterprises are also incenting these borrowers to combine a lower mortgage rate with a faster amortization schedule, which will enable them to get ‘above water’ on their mortgages more quickly. This program could assist many homeowners who otherwise would have difficulty refinancing due to declining house prices”.
 
As I’m writing this post, I’m receiving an annoucement from Fannie Mae:

“This expansion will help lenders serve more borrowers with a demonstrated track record of paying their mortgages, but who have been unable to refinance due to significant property value declines.”

Part of this program is to encourage home owners to opt for mortgage terms amortized for less than 30 years to help them get back to being “above water”.

“In conjunction with the LTV expansion, Fannie Mae is offering a 0.50 percentage point reduction in the loan-level price adjustment (LLPA) charged for manually underwritten Refi Plus loans with LTVs above 105 percent and loan terms greater than 15 years up to 25 years. “

Fannie Mae will begin accepting delivery of loan to values over 105% using Refi Plus on September 1, 2009.   Refi Plus requires the borrower to return to the mortgage servicer (who they make their payments to).   Fannie Mae’s email stated they are “evaluating potential updates to Desktop Underwriter® to allow LTV ratios above 105 percent” meaning allowing those of us who utilize DU to be able to originate HARP refi’s up to 125% loan to value.

I’ve wondered why Fannie Mae and Freddie Mac require an appraisal on a HARP refi.  If the home owner is credit and income worthy, why not just refinance the mortgage without factoring loan-to-value?   It’s one less foreclosure for the banks to deal with and you’re keeping someone in a home they want to be in.   It could also stabilize values in neighborhoods and prevent people from “walking away” and/or trashing the property.   The mortgage servicer all ready is exposed to risk with the higher loan to value and may be reducing their risk by making the mortgage more affordable to the home owner.   Just a thought…

Calculating Income of Employed W2 Borrowers for Mortgage Qualifying

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Jillayne wrote a post about the upcoming national licensing exam that mortgage originators will have to take and pass (unless they work for a depository institution) due to the SAFE Act.   She provided examples of questions that may be on the exam.  One of them is how to calculate income–which is receiving quite a few comments on her post.

If an applicant works 40 hours every week and is paid $13.52 per hour, what is the applicant’s
monthly income?
(A) $2,163.20
(B) $2,343.47
(C) $2,379.52
(D) $2,487.68

The correct way to calculate this is 13.52 x 40 hours x 52 weeks divided by 12 months = (B) $2,343.47.   The mortgage originator should also review the last two years W2’s to make sure the income is steady or increasing.   If it’s decreasing, this will need to be explained and the income may be averaged or a lower income may be used.   For example, if the borrower recently had their hours cut due to the economy, the new lower figure will most likely be used.   What’s most important is steady hours for the hourly employee…a recent jump in hours may not be considered either.

It’s important that the borrower has a minimum of a two year history in their line of work in order to be able to use the income (secondary education may be able to count towards the two year requirement).   If someone started a second job one year ago as a waitress for supplemental income, it might not meet the criteria to be factored towards income unless the borrower had a second job in the same industry over the past two years.

Overtime and bonus income needs to be received for the past two years to be factored for qualifying as well.   Again, this boils down to stability and trends with income are heavily considered.    

Commission incomes (W2) requires a two year history as well and the income is averaged.  If a borrower’s commission income is more than 25% of their annual income, they’re treated more like a self-employed borrower.  They’ll need to provide their last two years complete tax returns and non-reimbursed business expenses that are claimed on the tax return will be deducted from the gross income (they’re treated more like a self-employed borrower).  A situation that I’ve seen is where a borrower was paid a salary and then received a promotion where they had greater earning potential.   The employer reduced their base and added a commission structure.   Because the commission was a new feature to the income, only new lower base income was used for qualifying.

It all pretty much boils down to showing stability over the past 24 months and recent trends when calculating income.   Also be prepared to complete a Form 4506–even if you’re paid salary–as a measure to prevent fraud.   Lenders may also require a Verification of Employment with your employer to confirm the information provided regarding employment, income is accurate and that employment is likely to continue prior to funding your new mortgage.

There are many other types of income–for purposes of keeping this post short, sweet and simple, I’ve stuck to income that’s reported via a W2 and a “full doc” loan.  

Hopefully you’re working with a Mortgage Professional who reviews your income documentation upfront and calculates it correctly…and I hope you’re quickly providing the information that is being requested so that you’re properly qualified in the beginning of the process.   Nobody likes to get involved with a transaction to find out that the underwriter is not going to use the income that was used on the application because it was figured incorrectly.

Questions?  Ask!  🙂

No Big Rate Surprise with the FOMC

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The FOMC wrapped up their two day meeting leaving the Funds Rate unchanged.   The target rate is remaining at 0-0.25%.  Now that this decision has been formally announced, everyone will be reviewing the Fed’s statement for clues on when they will begin to raise the Fed Funds Rate.

From today’s FOMC Statement:

…the Committee expects that inflation will remain subdued for some time.

As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The First Time Home Buyer Tax Credit Advance May NOT Be Used Towards the 3.5% Down Payment…UNLESS…

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Update 6/10/2009 11:20 am:  Please read the comments 1-21 (especially Aubrey Cohen’s comments).   Apparently according to a HUD representative, the tax credit can be used for down payment if it’s received through State Housing Finance Agencies.   (I called the FHA help line twice this morning and both FHA representatives say this is not the case).  The representative from HUD apologizes for the confusion and will make sure the Homeownership Centers understand… I apologize for the confusion too!

I feel like shouting “THE TAX CREDIT ADVANCE IS NOT DOWN PAYMENT ASSISTANCE!” up and down the streets of Seattle.  Home buyers utilizing FHA loans still need to come up with a minimum of 3.5% for their downpayment (see the update above).   Per HUD’s Mortgagee Letter 2009-15 dated May 29, 2009:

“The proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity tha tis reimbursed, directly or indirectly…may not be used to meet the 3.5% minimum down payment, but may be used as additional downpayment, buying down the interest rate, or other closing costs.”

Jane and John are buying a home using FHA for financing with a sales price of $300,000.   FHA requires they invest a minimum of 3.5% of the sales price into the transaction.   Jane and John need to have $10,500 of their own funds (which can be gifted or loaned from a family member) invested into this transaction.   Assuming they qualify for the First Time Home Buyer Tax Credit and the IRS figures out how to resolve the issues of how to pay the FTHB Tax Credit Advances, they could use the $8000 towards closing costs, prepaids and any extra funds (after paying closing costs and prepaids AND after they invest $10,500) could go towards downpayment.  (Unless…see the update above).

This is not a zero down program and this is not like the ol’ DPAs (Nehemiah, etc.).   This is (if the details are ever worked out in time) an advance or loan against your tax credit.

Haaa… I feel a little better now.  🙂  One of the benefits of blogging… venting!

More Upcoming Changes to Underwriting

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Fannie Mae issued Announcement 09-19 amending some very basic underwriting guidelines that will not only impact conventional financing; it will apply to FHA insured loans that are underwriting using Fannie Mae’s DU.   You can read the entire announcement by clicking  here.

Here are some of the changes:

  • Credit documents will be valid for 90 days instead of the current 120 for existing construction.   The age of the document is measured from the date of the document to the date the Note is signed.
  • IRS Forms 4506 or 4506-T is required at application and at closing.  This is due to fraud (misrepresentation of income).
  • Age of appraisal is reduced from 6 months to 4 months.
  • Trailing Secondary Wage Earner Income is eliminated.   Now with a relocation, only the income of the spouse with actual employment may be considered.  Previously, it was possible to use the relocating spouse’s income from their employment prior to the relo without having an actual job.
  • Verbal Verification of Employment required within 10 days of signing the Note for employment income and within 30 days for self-employed income.  (Our company has always performed a verbal VOE prior to funding).
  • Stocks, bonds and mutual funds now valued at 70% instead of 100% to be used as reserves.   Due to market volatility, Fannie Mae is devaluing your portfolio.   This means that if you provide your mortgage originator with a stock, bond or mutual fund statement showing an ending balance of $10,000; the figure used for qualifying and on the application will be $7,000 (70% of the value).   Stock options and non-vested restricted stocks are no longer eligible to use as reserves.
  • Retirement accounts valued at 60% instead of 70% to be used as reserves.  

Fannie Mae’s effective dates are to follow…if the loan is manually underwritten, this applies to applications dated on or after September 1, 2009.   However, expect to see lenders and banks to adopt these guidelines early.

A Small Window of Opportunity for Washington State Unlicensed Loan Originators (Correspondent Lenders aka CLAs)

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June 1, 2009 Update:  I just got off the phone with someone in the licensing department at DFI.   They hope to have more information available soon for mortgage originator licensing.  Some details are still being worked out.   From what I could gather from my conversation this morning, the main advantage for licensing now vs. later is that you will have more time to complete the clock hours, take the exams and to be able to spread out the costs for said classes and exams.  I sincerely apologize for misinterpreting DFI’s site on the requirements for LO licensing…I wish I could line out my title of this post!

In April, SHB 1621was signed by Governor Gregoire requiring loan originators employed by correspondent lenders/consumer loan companies to obtain a Washington Loan Originator License  by July 1, 2010.   The State passed SB6471  last summer which had “unintended consequences” causing some loan originators who were regulated by the Mortgage Brokers Practices Act (and therefore licensed) to become defined under the Consumer Loan Act–allowing those LO’s to be “unlicensed”.    With the passage of the SAFE Act, the State is stepping up to National laws which include CLA loan originators.

So my fellow mortgage professionals who are employed at correspondent lenders, here is an opportunity for you:  if you submit your application to become licensed by July 30, 2009; you’ll reduce your education requirements by 12 hours and pass one less exam. 

Here are the requirements to apply for a Washington Loan Originator Licenese from DFI.

All applicants (regardless of when you decide to sumbit your license) must complete Form  MU4 via the Nationwide Mortgage Licensing System and Registry (NMLSR) and submit one fingerprint card, pay $155 licensing fee and…

LO Applications Submitted by July 30, 2009 (in addition the above):

  • Pass the PearsonVue Loan Originator test
  • Complete 8 hours of approved continuing education by December 31, 2009.

Or you can wait until after July 30, 2009 to submit your LO Application and in addition to the above requirements:

  • Pass the State and National exams.
  • Complete 20 hours of approved continuing education by December 31, 2009.

Do you really like to procrastinate?  Opt to delay this process until January 1, 2010 and you still get to pass both exams and complete the 2o hours of CE prior to submitting your license prior to the July 1, 2010 deadline.   (DFI ask that you submit license no later than April 1, 2010 to allow processing time).

Deb Bortner of DFI will be speaking about the SAFE Act and Washington State Loan Originator Licensing at two upcoming events:

  • June 4, 2009 from 4:00 – 8:00pm at The Venue on South Union in Tacoma.   $50 includes dinner and wine from The Three Chicks.  
  • June 19, 2009 from 12:30 – 5:00pm at Safeco Field – Ellis Pavilion in Seattle.  $50 includes a ticket to the Mariner’s Game and lunch.

Both events include presentations on social media for mortgage professionals.  I’ll be one of the speakers at Safeco Field along with David Gibbons from Zillow.   🙂    If you’re interested, you can get more info or register for either event with the Washington Association of Mortgage Professionals (membership to WAMP is not required).

As someone who’s gone through licensing, I can tell you it’s (an important) chore.  Classes will fill up as the deadlines approach and I had the pleasure of being fingerprinted three times before I had a print that was acceptable.   If you fail your exam three times (I wonder how often this happens); you’ll have to wait six months before you can try your luck at the exam again which means no loan originating for you until you have successfully passed your exams.

If you are originating mortgages in Washington State, I would not delay getting your Loan Originator License.

HVCC…I’m not making this stuff up

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I’m closing my first conventional purchase that falls under the rules of HVCC (a majority of my transactions have been FHA) which became effective at the beginning of this month.   Today I was asked by the Real Estate Agent, in disbelief:

“If I understand you correctly:

  1. We don’t know who the appraiser is
  2. We cannot contact the appraiser even if we knew.   [Note:  the real estate agent CAN contact the appraiser if they somehow know who it is…the loan production staff cannot].
  3. We have no idea when the appraisal will be done”

Yep.  In a nutshell, people who are considered a part of “loan production” including mortgage originators and loan processors have no idea who the appraiser is until we receive it from said appraiser with conventional financing.

HVCC does not prohibit the real estate agent from communication with an appraiser.  However, unless the appraiser contacts the agent to schedule an appointment there will be no way for a real estate agent to know who the appraiser is.

Note to Real Estate Agents:  please keep this in mind when you are writing up offers with conventional financing.  The mortgage originator has no contact with the appraiser and therefore, the Letter of Loan Commitment that is typically required within 20-30 days may still be subject to appraisal or the underwriter’s review of the appraisal.   We can request the appraisals are provided to us by a certain date; but I cannot contact the appraiser to say “what’s the e.t.a. on the Jones appraisal; we really need it by Friday”.

Currently FHA is not following HVCC however, FHA has been adopting some of Fannie Mae’s other appraisal guidelines and addendums.

Are we having fun yet?

New Form to Prevent Mortgage Fraud

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This morning I received an email from one of the major banks we work with recommending the use of a “FBI fraudOccupancy Cert”.   They are recommending the use of this form on any loans we sell to their bank, including owner occupied, investment or second homes.    The form, which must be acknowledged by the borrower, states:

“Mortgage Fraud is investigated by the Federal Bureau of Investigation and is punishable by up to 30  years in federal prison or $1,000,000 fine, or both.  It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”

The borrower must then select the occupancy for the specific property that is being financed:

  • Primary Residence – Occupied by Borrower(s) within sixty (60) days of closing as stated in the Security Instrument I/we excuted.
  • Second Home – To be occupied by the Borrower(s) as a second home (vacation, etc) while maintaining principal residence elsewhere.
  • Investment Property – Not occupied by Borrower.   Purchased as an investment to be held or rented.

Directly above the signature line, the form states:

“I/we acknowledge it is illegal for a person(s) to make a false statement regarding occupancy of property being financed in a loan and credit application and that we are subject to prosecution under Section 1001, 1010 and 1014 under Title 18 of the United States Code”

This document seems to make it crystal clear what occupancy is and the potential risk of trying to finance an investment property as owner occupied or as a second home.   Can something so direct make a difference and curb mortgage fraud?