Category Archives: Mortgage/Lending

When is a Second Appraisal required on FHA Jumbos?

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The last few FHA High Balance (aka FHA Jumbo) purchases that I’ve closed, the buyers and agents thought a second appraisal was automatically required.  FHA did adopt conforming appraisal guidelines for declining markets at the beginning of this month, but that does not guarantee a second appraisal.

What triggers a second appraisal for FHA?

  • base loan amount over $417,000; and
  • loan to value equals or exceeds 95%; and
  • the appraisal indicates it’s a declining market; and/or
  • if the wholesale lender/bank decides the area is in a declining market.  

Per Mortgagee Letter 2009-09, FHA defines a declining market as:

“…any neighborhood, market area or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times.”

Appraisers are having to determine overall trends for market areas including analyzing the current supply and demand, days on market, absorption rate and the prevalence seller concessions.    For FHA and conventional loans, this is documented on Fannie Mae Form 1004MC which FHA adopted effective April 1, 2009.

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Please note that conventional, FHA  and VA appraisals require this new form.   FHA does have additional requirements:

  • At least two of the three recent sales (comparables aka comps) must be within the last 90 days of the effective date of the appraisal.  Plus,
  • A minimum of two active listings or pending sales.   The appraiser must insure the active listings and pending sales have “reasonable market exposure to avoid use of overpriced properties as comparables”.

If  a home buyer is using a FHA mortgage with a base loan amount over $417,000, they may want to consider saving up for that extra 1.51% down so that they are at a 94.99% loan to value and therefore (currently) avoid the potential second appraisal issue and make sure that the lender you’re working with does not have underwriting “overlays” that will impact you.   FHA’s second mortgage requirements can be found on Mortgagee Letter 2009-09.

Regardless of what type of financing you’re doing, know that the underwriter is going over the appraisal with a fine tooth comb.  It’s quite possible that if they don’t require a second appraisal, they may request additional information or comps from the appraiser which could take more time for your transaction to close.   Since this post is based on FHA transactions–we won’t even venture into HVCC here…that’s a whole other can of worms.

Pointless Pricing Tricks

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A few weeks ago, a home buyer shared some pricing scenarios a fellow mortgage originator was offering to them.   

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Scenario 1 looks like the mortgage originator wants the borrower to believe they’re only making a half point in loan fees and the borrower is paying an additional 0.625% to buy down the rate further.   How the borrower should look at this is that if they select Scenario 1, they are paying 1.125% to have 4.50% for a rate.  (This was provided to me in mid-March and does not reflect current pricing).

On most current Good Faith Estimates have the following lines designated for “points”

  • Line 801 = Loan Origination
  • Line 802 = Loan Discount
  • Line 808 = Loan Origination if you’re a Mortgage Broker

In all my years (9 as of April Fools) of mortgage originating, I’ve never seen an estimate with 0.5% origination and 0.625% discount points.   It just seems silly to me.   This really illustrates why a consumer should just add up the points paid regardless of if they are entered as discount or origination–if you’ve paid either, you’re paying points.   In fact, as I’m sure I’ve mentioned before (but it’s worth repeating) you should add up all closing costs disclosed in Section 800 of your Good Faith Estimate to see what you are paying for interest rate.   Some lenders may have additional fees, such as processing, underwriting, funding…etc.    Unfortunately, APR is not a fool proof way to compare interest rates.

While I’m dishing out advice, selecting a Mortgage Professional by interest rates–when we are currently receiving a new rate sheet ever 5 hours is crazy.   Odds are, you’re not comparing apples to apples and rate quotes don’t mean anything unless you’re locking in at that moment.

In this current market, make sure:

  • Your loan is locked for enough time to accomodate your closing.  A 30 day quote on a 35 day closing isn’t going to cut it.
  • Will your Mortgage Originator honor the closing costs shown in Section 800 of the Good Faith Estimate? 
  • Will your lender be able to provide loan documents to the escrow company earlier enough to accomodate the escrow company so they can provide you with an estimate HUD to review prior to signing?  (You need to request this, if you want to have your estimated HUD-1 Settlement prior to your signing appointment–it’s generally not requested by borrowers).

Are Loan Originators at Bank Home Loan Centers in Jeopardy?

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I have been focused on what the big banks are doing to the mortgage broker industry because as someone who works for a correspondent lender, it’s closer to home.  I am convinced that the big players are attempting to wipe out the mortgage broker industry while smearing it with mortgage meltdown blame so they can keep their hands clean.   (If anyone can provide proof of a bank admitting they created mortgage programs and guidelines that were instrumental in creating our current climate, I’d appreciate it).   I believe some major banks see this period in history as a grand opportunity to grab as much mortgage market-share by stepping on the little guy.   And it appears they may be doing it to their own mortgage originators who are employed at home loan centers.

Over the weekend, The Seattle Times covered a local story about how a group of employees from JP Morgan Chase’s home loan center in Bellevue “made some mistakes” when they “jumped ship” for a mortgage company.   What struck me, besides what it’s reported the employees did, was their reason for leaving:

“What prompted the mass migration.  According to written statements from the lending officers, last fall it got increasingly difficult to complete the deals they lined up after Chase moved it’s loan processing from Bellevue to Tempe, Ariz.  And in January they were told their work would be shifted into the bank’s branches….”

JP Morgan Chase has a much larger local presence with the acquisition of WaMU and their network of bank branches.   Will Bank of America do the same with Countrywide’s home loan center loan originators?   I’m assuming that loan originators located inside a bank branch are not compensated the same.   Banks could employ people with less experience and originators who do not have their own client base…they’re counting on consumers to just walk on in and apply for a mortgage….just trust “the bank”.

I know that if I worked for a mortgage bank loan center, I’d bone up on my Teller skills.

When it was a “Mid-Century Modern” bank, Washington Mutual served my clients well.

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It provided market rate mortgages which it held in the branch’s own portfolio. (WaMu advertised that its “WM Mortgage Loans” were never sold). Your home is a place to live, raise your family- not an investment.

Whether it’s a MCM (Mid-Century Modern) or other, that’s the way it should be regarded, loved and cherished. And a good home mortgage, preferably locally held and serviced made all this possible for me and my clients. As did many other Seattle natives, I started with “School Savings” pictured as a mural on the wall of a branch.
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WaMu and many other of the troubled banks and mortgage lenders got off on the wrong  foot when they went after the derivative bundled mortgages that were in demand by big operative builders like Toll Brothers as covered in this very inclusive 10/16/05 NYT Magazine article- Chasing Ground.

FOMC leaves rates unchanged

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There’s really nowhere to go but up with the target Fed Funds rate.   From the Press release:

“To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.”

As of the time of writing this post, I have yet to see lenders issue new rate sheets for the better in spite of significant improvements with mortgage backed securities.    We should be seeing improved rates soon. 

If you are in the market for a mortgage, whether you are buying a home or refinancing, be sure to provide your Mortgage Professional with all the required documentation needed.   We are all ready in the midst of a “refi boom” and this will compound the delays.   

Real Estate Agents: I highly recommend that you make sure the mortgage companies you have transactions with prioritize purchases over refinance business. 

Homeowners who are considering refinancing:  watch out for mortgage originators who are promising quick closings.  Every aspect of the refinance transaction will become clogged.

Everyone needs to be patient.

Nice Caller Wants to Modify My Mortgage

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I just received a very official sounding recorded message informing me that President Obama has a new program to help save my home–it’s NOT a refinance.  If my rate is over 7% or if I’m falling behind on my mortgage, I can be helped.  If I press 1, I’ll be connected immediately to a Restructure Specialist.  I’m feeling feisty…so I press 1.  

Immediately a polite gentleman boldly answered my questions.

Are you or do you represent my mortgage company?

No.  We’re a loan modification company.

If I understand Obama’s plan correctly, shouldn’t I call who I make my mortgage payments to for a modification?

Well you can, but the clients help receive better results.

Great!  Do you do this service for free?

No.  We don’t. 

Why would I pay you for this when I can call my mortgage servicer and do this for free?

Because you charge for our expertise.

How much does your expertise cost?

We have two convenient mortgage plans.  You can either pay $1899 or three installments at $699 each.

How did you get my phone number?  I’m on the do-not-call list. 

Our marketing department is calling everyone across the country with mortgages.

I couldn’t take it anymore.   I let him know that I was a Mortgage Originator who is versed on The Affordable Home programs and that I don’t condone this type of soliciting.    He told me he’s a mortgage originator too and then slammed the phone down in my ear.

There must be significant money in this industry to allow these companies to employ these solicitors.  I hope our State is agressive in regulating the loan mod industry to protect home owners from predatory actions.  

The recorded message on this phone call sounded so legitimate, I believe that people who are in desperate need of help would think it was coming from the Government.   If I didn’t have my background, and would not have known what to ask the gentleman on the phone, I’m sure he wouldn’t do anything to change that image.

Refinancing with a Second Mortgage? Patience, my Friend, patience.

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I really try to lean towards writing about purchases here at Rain City Guide…don’t know why that is…it just is.  But the fact is, there are a lot of refinances going on right now and many may have second mortgages that are not going to be paid off as part of the refinance.    A recent comment on my post about unhonored rate locks prompted this post…it’s probably not his mortgage professionals fault his refi is taking this long…it’s his second lien holder.

helocIf a second mortgage is not paid off, the new first mortgage will require it to be subordinated.  This means that a subordination agreement must be recorded to make it public record that the second mortgage (often times a HELOC) is in second lien position and not first lien–this all boils down to who gets what rights in the event of a foreclosure.

Just because a lender request a second mortgage/HELOC lien lender to subordinate, doesn’t mean they have too…they get to mull it over and they can refuse to subordinate…which means that with the refinance, if the first mortgage (the proposed refinance) or the home owner cannot pay off the existing second mortgage, it’s probably a dead deal.

Some home owners want to keep their second mortgage or HELOC (home equity line of credit) because:

  • they can’t get a new one based on today’s guidelines and lack of availability.
  • they have a great rate that can’t be replaced.
  • their refinance will be classified as a cash out refinance if the second mortgage/HELOC was not obtained when they purchased their home.  (It doesn’t matter if the home owner refianced the orignal purchase money second mortgage and NEVER took cash out of the home–it’s treated as “cash out” with a whole new set of rules and pricing).
  • including the second mortgage pushes the home owner over certain loan limts (conforming, FHA, etc.).

Most second lien holders will not consider subordinating until the have a copy of the appraisal for the refinance and full underwriting approval from the first mortgage….then you wait for them to process it.   Some banks are taking more than a month AFTER receiving the appraisal and loan approval before they will CONSIDER IF they will subordinate…and there’s no guarantee they’ll do so.    I’ve seen some banks charge $250.00 to process a subordination REQUEST (no guarantee).    A borrower may be out the appraisal cost and the subordination fee with no refinance worse case scenario.

Have an honest conversation with your mortgage professional and ask questions…

  • Should or can you pay off the second mortgage with your refinance?
  • How long should the subordination take?  (some banks or credit unions take longer than others)
  • What happens if you lock and the subordination takes longer than expected?

If you’re a home owner with a second mortgage/HELOC that you want to subordinate, be prepared for a much longer closing which means, if you’re locking at application, a slightly higher rate or more in points–the longer the lock period, the more expensive it is.   Or you can risk floating your rate.  The choice is yours and there is no guarantee that the second mortgage/HELOC lien holder will subordinate…any risk (borrower or lack of equity remaining in the home) may cause the bank to give the subordination a thumbs down.  It’s nothing new.

Unhonored Rate Locks

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Did you know that a locked rate is a commitment for a loan to be delivered to a lender?   Mortgage companies and loan originators are often judged by how many loans they deliver or what their lock fall-out ratio is.   A normal expection used to be around 70-75% of locked loans to be delivered–now I’m hearing reports of 30-40% of locked loans actually being delivered to the lender.  

This is dangerous for mortgage brokers and correspondent lenders.  Why?  Wholesale lenders are cutting back and “cherry picking” which companies they’ll work with.   A significant factor is lock-fall out.  If odds are, a locked  loan is not going to be delivered, why should they work with that mortgage company?    

Sometimes the wholesale lender may be ordering the mortgage company to be “cut off” of future business and sometimes it may be the wholesale lender having their Account Executives that they need to reduce their client base to a certain amount of accounts (as a way to reduce the commission they’re paying the AE’s). 

There can be many reasons for a locked loan not to be delivered, such as:

  • the loan could not be approved because of the property (appraisal issues) or the borrower.
  • private mortgage insurance issues.
  • the borrower decides not to proceed with the transaction.

Here’s how one wholesale lender rates fallout:

  • 0-24.99% = Full approval.
  • 25-34.99% = Monitor
  • 35-49.99% = Watch
  • 50-74.99% = Probation
  • 75% or more = Inactivated.   Good by wholesale relationship with that lender.

Wholesale lenders don’t care if it’s due to the borrower not proceeding with the refi or if it was their underwriting that “killed the deal”…it often counts towards that dreaded lock fallout ratio.

A disturbing trend I heard from a local title insurance company is “double applications”.  Where a borrower is proceeding with a refinance transaction with two different lenders.   If both loan originators have the loan locked, someone is going to lose!   Not to mention, the expense to the title and escrow companies who are working on a transaction a consumer is not going to honor.   The only way this is caught, is if the title or escrow company happen to be the same one that the two loan originators the consumer is using.   Regardless of if both loans are locked or not, it’s unscrupulous behavior.    

Borrowers–please do not have two loan applications going on at the same time with two different loan originators.   When you do decide to lock in a rate with a mortgage professional, understand it IS a commitment.

2009 Loan Limits Confirmed by OFHEO

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It’s official!  OFHEO has announced the return of the 2008 limits:

Loan limits for mortgages originated in 2009 are set under the provisions of the American Recovery and Reinvestment Act of 2009.  Under that legislation, loan limits for 2009-originated loans are set at the higher of the 2008 limits and those that were originally announced for 2009 under the terms of the Housing and Economic Recovery Act of 2008. 

I’m anticipating that lenders will immediately endorse these limits.  Here are the revised 2009 loan limits:

King, Snohomish and Pierce Counties

  • $567,500 – One Unit
  • $726,500 – Two Unit
  • $878,150 – Three Unit
  • $1,091,350 – Four Unit

Other counties, including Kitsap, Jefferson, San Juan, Clark and Skamania counties are also at higher limits than other Washington State counties which are not part of the “high cost areas”.   For all Fannie and Freddie loan limits, click here.

Still unknown is how this will be priced.   FHA should be following with their revised loan limits as well. 

Update 2/25/2009: FHA loan limits for Washington Counties thru 2009 are here.

Notes from WAMP’s Meeting on Home Valuation Code of Conduct

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This morning I attended  Washington Association of Mortgage Professionals (WAMB) meeting in Bellevue to learn more about the Home Valuation Code of Conduct (HVCC) which will dramatically impact conventional appraisals.   It was a somber room of fellow mortgage brokers and correspondent lenders along with the panel of various representatives from the industry.  

In a nutshell, mortgage originators (if paid commission) will no longer have contact with appraisers for conventional mortgages.  Appraisals will be ordered via an appraisal management company–oddly similar to what Washington Mutual used before New York  Attorney General Cuomo investigated.   Although this is effective for loans delivered to Fannie/Freddie on May 1, 2009 or later, lenders will adopt the Code well in advance in order to be able to deliver compliant loans.

Lisa Goldsmith from Amtrust Bank discussed how they’re going to comply with HVCC beginning around April.  Amtrust will treat mortgage brokers and correspondent lenders the same.  

  • When the loan is registered with Amtrust, they will provide an AVM (an unreliable estimation of value IMO).  This is the only chance the mortgage originator has to decide whether or not they should proceed with the appraisal order.
  • The order is placed with an Appraisal Management Company (AMC).
  • A copy of the appraisal is sent to both the borrower and the mortgage originator.

The mortgage broker will have no idea who the appraiser is until the appraisal is delivered.  Correspondent lenders may be able to order appraisals as long as they meet the HVCC (and I’m sure they’re a huge risk of buy-backs if correspondents opt for this route).   In fact, mortgage originators (if paid commission) may not communicate with the appraiser.  

A big issue is portability of the appraisal.   If for some reason, a broker starts with a lender, like Amtrust, and then decides during the process they want to switch to another lender, Amtrust holds the appraisal.  The consumer has all ready shelled out $400-$500 to one lender.  It will be up to Amtrust to release the appraisal (if this is even acceptable) or another appraisal may need to be issued if the loan is switched.  The power is not with the consumer and it’s not with the mortgage broker.

Quality is a huge concern as well.  One mortgage originator stated that he currently has an issue with an appraisal that was provided via an AMC for a waterfront single family residence.  What he received was an appraisal with 6 comparable properties–4 of them were condos!    Second appraisals can be requested when it’s a question of quality–they cannot be done for “value shopping”.

It gets better…Fannie Mae amended guidelines earlier this year allowing appraisal management companies to be owned by lenders!   

“The lender’s ownership of or affiliation with an appraisal management company is no longer restricted.  However, any appraisal management company that provides the lender with an appraisal must adopt written policies and procedures implementing the revised Code.”

From Appraisal Press:

“In it’s current form, the HVCC discriminates against appraisers by (a) effectively requiring lenders to engage appraisers through appraisal management companies, which retain 40-50% of the fees paid by lenders, reduce competition as a result of industry consolidation, and deteriorate appraisal quality by forcing veteran appraisers from the workforce, and (b) creating an artificial preference for automated valuation models, which will result in fewer appraisals, reduced market transparency and the danger of increased in-house lender abuses.  The HVCC will deprive consumers of their right to obtain independent, quality appraisals.

So let me get this straight… banks and lenders can own or have ownership interest in appraisal management companies.  The AMCs (possibly owned by banks/lenders) can select which appraisers make their list AND they will reduce the appraisers incomes in an all ready challenging market.   Who regulates the AMCs?  

NAMB’s fighting HVCC and I don’t always support all of NAMBs views…I have to agree with them here.   Once again, instead of dealing with the offenders, industries are in the process of being punished wiped out.