Part of the The American Recovery and Reinvestment Act of 2009 includes bringing back the higher 2008 loan limits to certain areas. Locally this means we may see high balance loan limits increase from $506,000 for single family dwellings in King, Snohomish and Pierce counties back to $567,500. Fannie Mae, Freddie Mac and FHA will move forward and lenders will immediately follow.
Stay tuned.
Today I had several Mortgage Professionals contact me regarding PMI Private Mortgage Insurance Company cutting off mortgage brokers via email and comments here. I thought it must be a rumor…but it’s not, effective February 20, 2009 PMI Mortgage Insurance Company will no longer underwrite or insure loans for mortgage brokers. However if you’re a lender, PMI is ‘Right alongside you…we’re in it for the long run”.
From an email I received today from a Loan Originator:
It’s believed that PMI is the first of the nation’s seven MI firms to totally exclude loan brokers from their coverage menus. In recent months other MIs – including Genworth and MGIC – have tightened guidelines on broker-sourced loans, particularly condominiums and high LTV notes. A PMI spokesman confirmed the new policy change to National Mortgage News adding that, “This does not apply to correspondents.
Last Friday, when Fannie adjusted the allowance for the amount of financed properties owned from 4 to 10, other underwriting requirements on investment and second home borrowers were updated as well. (Freddie Mac still has the 4 financed property limit).
Reserve requirements vary depending on the number of financed properties owned (including primary residence):
1-4 financed properties 0wned:
5-10 financed properties owned:
Note: Freddie Mac’s guidelines are *currently* 6 months PITI.
Other underwriting changes for investment properties include:
Don’t forget that there is a significant price hit of 0.75% to fee from Fannie and Freddie with investment properties on top of the credit score/loan to value adds (LLPA). Seller contribution is limited to 2% of the sales price with investment property.
It is really challenging to keep up with our constant changing guidelines. Just this morning I was commenting over at the Seattle PI Real Estate Blog about the conventional guidelines permitting only four financed properties at a time for a borrower (more than four financed properties–no conventional mortgage for you!). Moments ago, I received this updating Fannie’s guidelines (Announcement 09-02):
Multiple Mortgages to the Same Borrower
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.
Just a reminder that any mortgage guidelines that you find on the internet may no longer apply!
I better hop on over to the PI and correct my comment from this morning. 🙂
From the New York Times
The Obama administration plans to move quickly to tighten the nation’s financial regulatory system. Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.
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Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.
None of this should be a surprise for regular readers of Raincityguide. I’ve been talking about tighter rules for mortgage brokers since 2001 and here on RCG for two years. Mortgage brokers will always argue that they are already tightly regulated. In some states, brokers have tougher regulations than consumer loan companies. Hey, wait a minute. Is President Obama going to let the consumer loan companies slide by without proposing tougher regulations for them as well? The top two largest predatory lending lawsuits were against consumer loan lenders Household Finance and Ameriquest. Both companies settled out of court and “admitted no wrongdoing” even though there was lots of evidence that their sales people were meticulously trained by management on how to do wrong.
Maybe tougher minimum sanctions and penalties are in order as well. We must also realize that these new regulations mean nothing without enforcement. I would rather see the states be in charge of enforcement than the federal government (well, with the exception of Florida where they have proven their supreme incompetence.) We need only to look at RESPA and the miserable job HUD has done trying to enforce this massive piece of regulation since 1975. So if it’s going to be up to the states, then the industry should prepare for a higher cost of doing business as a mortgage broker or consumer loan lender. This will be passed on to the consumer in the way of higher fees, rates, or both.
Dr.Paul Krugman “Wall Street Voodoo”
“recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.”
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“What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as “fair value
It was announced today that beginning Jan. 1, 2010 Freddie Mac and Fannie Mae will be required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. The purpose of the requirement is to prevent fraud and predatory lending, to ensure mortgages owned and guaranteed by those Enterprises are originated by individuals who have complied with applicable licensing and education requirements under the S.A.F.E. Mortgage Licensing Act. In addition, they will use the data collected to identify, measure, monitor and control risks associated with originators’ and appraisers’ performance, negligence and fraud. Hat tip John Long and Gordy.
Here is the PDF from the Federal Housing Finance Agency, Fannie and Freddie’s new regulator.
“This represents a major industry change. Requiring identifiers allows the Enterprises to identify loan originators and appraisers at the loan-level, and to monitor performance and trends of their loans,
I just received this memo from Chase:
“Home lending remains an integral part of our firm’s overall financial strategy, and as such, we have a responsibility to our customers, shareholders and employees. Over the last two years, we have diligently reviewed and adjusted our home lending strategy and practices to address the unprecedented challenges of today’s market. Today, we are announcing a strategic shift that we believe will serve our business and our customers well for the long term.
Moving forward, we have decided to focus on loan originations through the Chase bank branches, our Consumer Direct business, and retail-originated loans acquired from Correspondent lenders. Our new strategic direction is supported through the recent merger with Washington Mutual, which increased our bank branch inventory nationwide and enables us to serve nearly 70 percent of the American population.
As a result of our strategic decision, we will no longer accept any new locks and registrations from or purchase any loans originated by brokers effective Friday, January 16, 2009. As a result of these decisions, we are closing our Wholesale business….”
As of this moment, Chase will continue their correspondent relationships (our company is correspondent with Chase) but mortgage brokers just received another punch to the gut. You can also see how little notice loan originators receive in this type of climate.
The question is, how many other banks will follow Chase’s shift away from mortgage broker relationships.
…and she doesn’t ask us if it’s convenient or if we’re in the middle of a mortgage transaction, for a natural disaster to strike, such as the current flooding in Western Washington. When significant natural events occur, it may impact your mortgage transaction.
Most commonly, the lender will require the appraiser to do a re-inspection (442) of the property for any transactions that are not funded prior to the event. Even if your home uphill a mile from a flooded river, if you’re in a region (such as a zip code) that’s flooded, where an earthquake, wild fire or other has happened, be prepared for your transaction to be delayed. The appraiser is typically required to verify:
If the appraiser determines that the property has suffered from the disaster, repairs will be required with a follow up inspection (442) from the appraiser. All re-inspections from the appraisal are submitted to the underwriter for (hopefully) approval. It is possible that the underwriter may add additional conditions after the review. I have found 442’s to cost around $150 (per inspection).
If the appraisal has not yet been completed during a transaction, the appraiser will most likely need to address the disaster and whether or not it has impacted the value of the home.
It’s up to the lender (and can vary from lender to lender) on whether or not they will call for reinspections when a natural disaster happens.
Fannie and Freddie have finally announced (I’m sure to no one’s surprise) the acceptance of OFHEO’s Home Valuation Code of Conduct which bans communication between a loan originator/mortgage broker and the appraiser for conventional 1-4 single-unit family homes. Appraisals must be ordered through a third party clearing-house of sorts. I picture this being similar to ordering a VA appraisal, which is not a pleasant process.
Here’s an example from the Home Valuation Code of Conduct of what will no longer be allowed:
Lack of competition is generally bad for the consumer. And I see this slowing the process down and possible increasing costs…where is the incentive to be effecient or competitive? Who will pay the third party clearing house?
This is technincally effective on May 1, 2009; however, lenders are all ready implementing the new code. This is still very new and we’ll have to see in the weeks ahead how this all works out.
