Category Archives: Investing

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.   

Keeping the Keys to Your Home

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I love reading the comments over on the CR blog. They’re great entertainment when I need a break from trying to dig my way out from deep inside the new WA State Distressed Property Law class I’m writing. Tonight, as I was reading the comments from this post on Fannie Mae lifting the “declining markets” rule, I found a link to this website (hat tip w.)

Keepingthekeys.com is providing hope (for a fee) for homeowners who wish to use legal options to stay in their home as long as possible, or to prevent foreclosure altogether.

We’ve all read, and some RCG commenters have complained loudly, about loan servicing companies being slow to approve short sales, modify loans, or engage in any kind of foreclosure workout with homeowners. Well, perhaps the threat of predatory lending and violations of state and federal law at loan origination will bring loan servicers to their knees.

The legal team at Keepingthekeys.com seems to be focused mainly in California, where the current count of 1000 foreclosures per day seems to ensure a model for business growth for the next decade.

So what can homeowners do who are located in Washington State and want legal help? Sometimes homeowners in financial distress just want an attorney to take a look at their documents.  Taking this simple step is better than full blown homeowner denial, and legal help can often be more affordable than the homeowner might think.  I’ve been on the look out for Seattle area law firms offering affordable legal counsel for homeowners facing foreclosure.  Now I’ve found one and I bet you’ll never guess which firm decided to extend a hand to this market.  Thanks, Craig and Marc.

Now, what to do about all those homeowners who committed stated income fraud at application in 2007.  Hmmm.  Perhaps there’s a reason why foreclosure rates continue to climb.  Maybe it’s not just “denial” or “loan servicing” backlogs.  

Seattle Neighborhood Round-Up

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The weather is warming and so are the Seattle neighborhoods….

Issaquah Undressed asks: 50 to 80 in a day?   More changes happening on Beach Drive Blog.

Get your “Spring Cleaning” in gear for CHS Capitol Hill Seattle and The Garage Sale, and Miller Park Neighborhood Association announces neighborhood clean up this Saturday.

Capitol Hill Triangle and a favorite breakfast treat in a tiny cafe, and on Capitol Hill, the poster for this years’ Block Party! 

Captain Columbia City launches it’s new neighborhood personalities interviews, for more cinematic news…vote for your favorite “Movies on the Wall” at West Seattle Blog.   

Blogging Georgetown and the annual Georgetown Art and Garden Walk and Mid Beacon Hill is covering Georgetown and uncovering a new mural. 

It’s Farmers Market time again at Kirkland Weblog, and at the Outer limits: The Lake City Blog the Farmers Market is relocating. 

Broadway Seattle  bikes Broadway… The Wedgewood Blog … and the Rock Walk.   

Atop the Top: Queen Anne Highlights points out that a person can always learn something new about their neighborhood. Cosmo Seattle and new info on Denny Park. 

Pondering Fame and Infamy at One A Day -Mostly Seattle and lastly…Breaking News on Ballard Avenue!

Countrywide facing shareholder lawsuit

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Directors and officers of Countrywide Financial will have to defend themselves against “shareholder accusations of insider trading and an overall failure to monitor lending practices that led to the company’s collapse” per the New York Times tonight.

Rejecting the arguments of Countrywide executives and directors that they were unaware of lax loan operations that led to ballooning defaults, Judge Mariana R. Pfaelzer of Federal District Court in Los Angeles ruled Tuesday that she found confidential witness accounts in the shareholder complaint to be credible and that they suggested “a widespread company culture that encouraged employees to push mortgages through without regard to underwriting standards.

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.).

 

MGIC Tightens Underwriting Guidelines…Again

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MGIC has released underwriting guidelines that will go into effect on new applications as of June 1st. Here is the PDF.  Didn’t MGIC just finish doing that in March? From Housing Wire:

For all markets — so-called restricted markets or otherwise — MGIC said it will essentially no longer provide MI for any Alt-A loan. The company also said that it will no longer allow cash-out refinances in any market, investment properties, multiple units, and option ARMs to be eligible for its mortgage insurance. The insurer also will require a minimum of 3 percent down on any eligible purchase transaction

and this:

Loans in the conforming jumbo range — in a non-restricted market — must have a minimum of 90 percent CLTV and a minimum FICO of 700 to qualify for MGIC underwriting; in restricted markets, the CLTV requirement is tightened to 85 percent. MGIC said it will not insure any loan above $650,000 in any market.

As I have been saying for many months now, underwriting guidelines will, and should, continue to tighten until defaults begin to slow down.

A Mortgage Broker is not a Lender

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At the beginning of every law, there’s a preamble and then a set of definitions. Many of you know this: A mortgage broker is not a lender.
A lender is defined by federal law, RESPA, as an entity that makes loans.  This means the entity has the money to fund the loans.

Brokers, by definition do not loan their own money. Instead, they’re middlemen who go out and find the mortgage money. The entity funding the loan is the “lender.

When it's good to know a "wiseguy"

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If you’ve ever watched a show like the Sopranos you know that there is a term out there called wiseguy that has a potentially dangerous undertone.  Well, yesterday, for one of my new listings I was thrilled to know a wiseguy, or rather a Wise Locksmith, Chris Weissman.

While driving from Renton to Bellevue’s Bridle Trails neighborhood, to show this listing, I get a phone call from another agent who has shown up to view it with a client.  He’s having trouble with the door and wants to know if I am aware of any problems or special way of handling the lock to make it turn.  “No, I haven’t had any problem with the lock before and neither have the other agents that have viewed the house already”, I tell him.

Come to find out, after calling one of the sellers, there is a way from the inside of the house to turn a little switch that would lock the home from the interior and it would make it so the master lock wouldn’t work.  Not good.  *Note to sellers – always let your agent know about quirky things like this so we can stop it from happening in the first place.*  Not only was I losing this viewing but the pending showing I was about to do would possibly be lost too.  On top of it, I lost one other possible buyer showing when yet another agent came by while we were working on getting the problem fixed.  My inner MacGyver kicked in.  I wasn’t about to do some fancy trick with a paper clip but I could quickly sort out a possible way to solve the problem.

And here is where my wiseguy comes in.  Chris is actually a former client of mine.  He and his girlfriend, Maridee, sold a condo and purchased a home through me about 18 months ago. I learned at that time that he was a locksmith and I’ve referred him to several clients since that time, with very good results I will say.  So, Chris gets a call from my partner, Michael, to see if he can help and he’s on top of it immediately coming over from the Seattle area during rush hour and actually making it within about a 20-30 minute time frame. I was thrilled.  One of the great things about working with various people and different types of contractors day in and day out is that when you need something fast – most of these wonderful folks will drop everything to come help you.

His first instinct was to try various methods and tricks he’s learned throughout the years to find special ways of opening locks. Unfortunately that didn’t work.  The second attempt through the garage didn’t work but mostly because it is on an electric opener, so then he had to tear off the existing door handle and replace it with a new lock.  I’ll say that it’s a little disturbing to see how easily some of this stuff can be taken off a property – although Chris did say that since he does this all the time he makes it look easy.  He just hates having to destroy stuff.  He didn’t damage the door though and that’s all good.

It ended up that the buyers that wanted to see the house at my scheduled showing ended up coming back (I rang their cell) and we had a successful viewing.  One of the other agents is planning to come back too but I likely won’t know if that 3rd agent comes back.  Either way, the house is accessible again and all is well that ends well.  Since the clients aren’t looking at offers till next Wednesday we should be set but I’ve got Chris on speed dial now, just in case….

"It's Microsoft's World, Kid…

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I just live in it.”

That was the line in CSI: NY last night, where Microsoft’s Photosynth was used to reconstruct the events prior to and during a crime at a high school prom. They loaded up all of the photos taken on every student’s cell phone ( a big box of them).  Then they used Photosynth to timeline the victim and suspects whereabouts in the moments before the Guidance Counselor was slain.  One of my clients worked on this program, so I was “tuned in” last night. 

Rather than my trying to explain what Microsoft Live Labs Photosynth is, for those who didn’t see the show last night, here’s a video that Robert Scoble put up when Photosynth was the hit of the O’Reilly Web 2.0 Summit in the Fall of 2006.  Here’s another great and even better video called Nasa meets Photosynth. 

Another description from Wikipedia: “from Microsoft Live Labs and the University of Washington that analyzes digital photographs to build a three-dimensional point cloud of a photographed object.[1] Pattern recognition components compare portions of images to create points, which are then compared to convert the image into a model.”

The program last night and the Nasa meets Photosynth video give some great examples of how this technology can be used.  In the comments someone noted that he might be able to “watch his child grow up” by using this technolgy, and someone else referenced a marriage of Flickr and Photosynth for multiple purposes. 

As a side note, I am one of those people who didn’t like Bill Gates too much, until I saw him “honored” in the eyes of a friend from India.  Watching my friend speak from the standpoint of “anything is possible”,  I realized what a huge role model Mr. Gates is for so many young people with dreams. When I see young people striving to become great in their own right, every single day, spurned by the idea that “everyone can be great…just like Bill Gates”, I bless Mr. Gates for his ripple effect.

Someone bought me an Apple computer…I refused to use it for six months and then gave it back.  On the other hand, they are going to have to pry my iPhone from my cold dead hands…until Microsoft comes out with a replacement product 🙂