…in the NYTs on this article about the impact of the housing crunch on the high-end market:
“The first step for distressed homeowners, said Rhonda Porter, a certified mortgage planning specialist and broker in Seattle, is to pull out their loan documents and see what they say.”
Fannie and Freddie are implementing new loan level price adjustments (LLPA) based on credit score and loan to value. This is a
change for the worse from my previous post announcing the original LLPA. Now your credit score is even more critical. Some lenders are implementing these changes immediately with terms on when the loans must be locked and closed.
The following information is for purchases and rate/term refinances with mortgage terms longer than 15 years (cash out refi’s have additional hits).
The hits shown below are “to price” and not to rate.
LTV (loan to value) 60.01% to 70%
Credit Score 720 or better — no hit
Credit Score 640 -719 is a 0.500% hit to price.
Credit Score 620 – 639 is a 0.750% hit to price.
LTV 70.01 or More
Credit Score 720 or better — no hit
Credit Score 680 to 719 is a 0.500% hit to price.
Credit Score 660 – 679 is a 1.250% hit to price.
Credit Score 640 – 659 is a 1.750% hit to price.
Credit Score 620 – 639 is a 2.500% hit to price.
These “hits” are in addition to other factors that are used for pricing rates and even though I quoted lower credit scores, don’t count on Fannie/Freddie (conforming) financing…especially if you’re eyeing the temporary conforming-jumbo which requires a minimum 660 credit score.
So if you have a 719 credit score and are putting 20% down using a 30 or 20 year fixed rate mortgage, you are going to pay 0.5% more in fee than your friend with a 720 credit score. If your loan amount is $400,000, this is an additional cost of $2000. Or the “price hit” may be factored into to the interest rate. Typically (but not always) 0.5% in fee would equal about 0.125% – 0.25% higher in rate. A quarter point difference in rate runs around $65.00 per month ($775 per year).
Recommended read: How to Improve Your Credit Score.
I also encourage anyone who is considering buying or refinancing a home to meet with a Mortgage Professional as soon as possible. A little time and elbow grease may save you thousands.
I started this post with the plans of announcing the pricing for the Jumbo-Conforming mortgages…however, I just don’t have enough facts to do so yet. It looks like Fannie Mae’s add to rate is 0.25%…however, lenders will most likely have their own add to rate as well. (So far, I’ve only seen a jumbo-conforming rate from one lender which was in the high 6 range for a 30 year). As soon as I have more data, I’ll let you know.
Here is some basic information from Fannie Mae regarding temporary Jumbo-Conforming mortgages (loan amounts from $417,001 – $567,500 for King, Pierce Snohomish Counties):
Purchase Mortgages/Principal Residence
Fixed Rate: Max LTV/CLTV 90%. Minimum Mid-Score LTV>80%: 700 / LTV = or <80%: 660.
ARMs: Max LTV/CLTV 80%. Minimum Mid-Score: 660%
Limited Cash Out Refi (Limited cash out means you can recieve a maximum of $2000 cash back at closing).
Fixed/ARMs: Max LTV 75%/Max CLTV 95%. Minimum Mid-Score: 660
Cash out refinances are not eligible (this includes paying off a second mortgage with a refinance, which is considered “cash out”). Update 4/7/2008: Fannie Mae just issued clarification on this guideline: they will now treat paying off a purchase money second as a limited cash out refinance.
*Full doc only.
*2 months reserves (PITI) are required for primary residence.
*45% maximum DTI ratio.
*ARMS are qualified on the fully amortized PITI at the higher of the note rate or fully indexed rate.
*Limited to four financed properties, including the borrower’s principal residence.
Remember, this coach turns back into a pumpkin on December 31, 2008.
Lenders will start pricing “jumbo conforming” anytime…stay tuned!
Being in the escrow business is really fascinating. You see lots of things. You hear lots of things. You get to observe what is efficient and what slows down transactions.
Escrow can be confusing too. We really serve two masters: those that are our clients (the principals such as the seller or buyer or borrower) and those that are our customers: agents and loan officers who suggest and refer work to us or any other service provider. It’s also something to experience such a large transaction “quality control” chasm between different agents working for different brokerages even within a major brokerage franchise network.
But this post really is about how agents and consumers decide what you decide.
1) For example, an interesting thing occured. In the mail, I received a post card from Greg Perry of John L Scott marketing a home not far from my place. It’s not strange that I receive things in the mail from Realtors, but that the owner of the home is a broker from another company—why did they hire another agent to list the house? I know this owner because our kids play together and we’ve closed transactions for him. It is a fascinating move.
2) We have had several transactions with repeat clients who have used a different service provider (agent or loan officer) the second or third time around. Why are they doing this?
3) In escrow we work in high collaboration with just about every title company. Obviously, we do not have primary contact with the sales staff (title reps) but rather the attorneys, title officers and back office staff that are largely the engine under the title insurance hood.
One of the things that I have always wondered and one question that my wife actually raised while we discussed business matters is the following: how do agents choose one title company over another since the perception of agents in the market is that title insurance companies (heck, even escrow firms) all do the same thing and the end result of issuing a title policy or a closed transaction is the same result? In other words, agents have a tendency to say they receive good service, but what is that service they receive? Agents have very little if no contact with the title company other than the with the title rep. How are the title companies differentiating themselves especially when many are using just another name plate but are in fact a subsidiary of a large national title company.
Consumers have no idea how to differentiate Pacific Northwest Title (First American) from First American Title. Or, comparing Land America Title from Commonwealth or Rainier Title (Land America companies). It is kind of like comparing the Nissan Quest with the Mercury Villager. Both are virtually the same vehicle. Consumers rely upon their agent to differentiate for them. How do the agents differentiate between service providers for their customer?
4) Along those same lines, competition is cut-throat between service providers such as escrow and title, especially in a market where sales volumes are significantly lower than over the past four years. Agents are very fierce in fighting for their respetive loan officer or title or escrow company if involved in a sale. Tradition has it’s place, but what is the compelling proposition of one service provider or closing agent over another?
5) What is more important to an agent when suggesting a loan officer: closing the transaction, lowest rates and fees for their customer or client, or a combination? For example, one of the loan officers we work with does average volume but gives phenominal service to the client, loan docs are usually ready days in advance and nothing has ever not closed due to a problem created by this LO. On the other hand, we work with LO’s that due boat loads of loans and there are the occasional problems with service to their clients or other issues.
No…Zillow with mortgage is NOT boring…quite from it. I’m just a bit worn out after the historic day we’ve all gone through in the mortgage industry today and I’m ready to call it a night. However, just when I’m going to unplug my laptop…Zillow finally provides the public with some more clues on how Zillow will integrate mortgages on their site.
I’m lucky to have been included as one of the Mortgage Professionals getting a scoop before the release. And this has all ready been covered very well at Lenderama, Blown Mortgage and Bloodhound Blog to name a few. What I like the most about this concept (which not all the details have been revealed) is the fact that Zillow is doing background checks by an independent third party before they will accept a Loan Originator to be a part of this feature.
From Zillow’s blog:
While we’re not sharing more details right now, we can say that we’ve built our product around Zillow’s model of openness and transparency that is increasingly important in today’s home lending environment. And, consistent with our information-based model, we have no intention of being part of the transaction. After speaking extensively to both consumers and mortgage professionals about the product, we’re confident that all parties will ultimately benefit from Zillow’s unique approach to home lending that is unlike any other in the market today.
This is the phase for interested loan originators to apply. More zetails to follow…time for me to catch my real z-z-z-z’s.
OFHEO just announced the temporary conforming loan limits:
TEMPORARY CONFORMING LOAN LIMITS RELEASED FOR HIGH COST AREAS
Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) today released the maximum conforming loan limits that will be in effect through year-end as a result of The Economic Stimulus Act of 2008. That legislation permits Fannie Mae and Freddie Mac to raise their conforming loan limits in certain high-cost areas. The new jumbo limits are a function of median home prices as estimated by the U.S. Department of Housing and Urban Development (HUD).
The maximum for temporary jumbo conforming loan limits, which apply to loans originated in the period between July 1, 2007 and December 31, 2008, are as high as $729,750 for one-unit homes in the continental United States. Two, three and four-unit homes have higher limits as well. Alaska, Hawaii, Guam and the Virgin Islands also have higher maximum limits.
King, Snohomish and Pierce Counties
SFD: $567,500
2 Unit: $536,050 $726,500
3 Unit: $648,000 $878,150
4 Unit: $805,300 $1,091,350
Not all counties appear to have received an increase to loan limits as they did with FHA today. Other counties with temporary increased conforming loan amounts included Kitsap, Clark, Skamania, Jefferson and San Juan. This information is all very new and I will follow up with more information as I receive it.
Hot off the press for single family dwellings, revised FHA Loan Limits:
King County, Snohomish and Pierce Counties
Single Family: $567,500
Two Family: $726,500
Three Family: $878,150
Four Family: $1,091,350
FHA mortgages allow for minimum down payment (roughly 3%) and does require FHA mortgage insurance.
The Wall Street Journal reports that “the [FHA] upper mortgage limits also will apply to loans purchased or guaranteed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, FHA officials said”
More information to follow soon. 🙂 I just had to share this breaking news.
There is only so much escrow can do when escrow receives loan docs at 5pm and the borrower must sign because an interest rate lock is about to expire and the rescission period puts their back against the wall, forcing them to sign the very same day (evening). Then the borrower (s), strangely unaware of the urgency, indicates:
1. Can you come to our house between 7:00-7:30 because American Idol is on at 8pm (like tonight, cough-cough) and we can’t miss it. Or, how about after the program is over?
or,
2. I drop Billy off at Basketball at 6:30 and pick him up at 7:30, so I won’t be home until 8:15 pm. Will 8:30 pm work for you? Oh, my spouse needs to sign as well? He does not get off his shift until midnight. Is that a problem?
Will these transactions close on time? If you do what Ardell suggests in Step #2, it is a sure thing..
I’m beginning to muster up the courage to ask management for new business hours: M-F 8-5pm; quick hour break for a run to Panda Express, sprint any last minute disbursed loan Payoff’s to the UPS terminal blocks from our office to make it on an airplane to wherever, do banking before the bank closes at 6pm; hustle back to the office, quickly re-check e-mail for more “last minute” loan docs promised days earlier, and then re-open from 6pm until midnight for signings from Bellingham to Olympia to Ephrata. Sat. and Sun. leave wide open for signings too.
When WaMU decided that most of Washington State zip codes are soft, they let Loan Originators know via email giving us just hours to submit loans under the old guidelines (pre-soft haircut of 5% or what ever the value is). I have another example of how little time we are given as LO’s to deal with changing guidelines in our industry. Keep in mind when you read this, this is from one lender: these programs/products are still available with other lenders.
At 6:42 a.m. this morning, I received an email from MortgageIt, a subsidiary of Deutsche Bank, announcing the following:
Dated 2/29/2008
Effective Friday, February 29, 2008 [last Friday]…
Discontinuation of the following products in their entirety:
FHMLC Home Possible
FNMA MyCommunity Mortgage
FNMA FLEX [All Fannie Mae Flex programs]
Loans APPROVED at this time of this notification that are negatively affected by the modifications (i.e. approved under the old guidelines) may still lock through the end of business Monday, March 3, 2008 for a maximum of 15 days at current rate/pricing.
Locked loans that re not approved at this time of this notification will have the price honored and may be underwritten to the old guidelines up to the original lock expiration date ONLY IF the loan package is submitted to the branch NO LATER than end of business Monday, March 3, 2008.
All loans must be closed and funded within the original lock expirations; RELOCKS AND EXTENSIONS WILL NOT BE GRANTED….
Again…this is just an example from one lender. What does this mean to me and other lenders? Obviously we won’t be using MortgageIt for these programs…we couldn’t if we wanted to. Other lenders are still offering (as of today) these programs. Much like WaMU declaring most of Washington soft…other lenders are not yet. Mortgage Professionals will opt for lenders who will provide the most options for our clients. Why work with a bank/lender who’s going to discount home values 5% when others are not?
This particular memo was backdated to Friday…or the email I received was distributed late. (I no longer have a MortgageIt Rep since they laid off their staff and shut down their local office in Bellevue). However, if I had transactions locked or approved with this company, you could see how I would have very little time to react for those transactions.
Just a sign of the current mortgage landscape.
If March begins roaring as a lion (as it seems so far), I do hope we go out as a lamb as far as our industry is concerned and that this is another “knee jerk” reaction and not a trend we see with other banks. Fannie Flex, MyCommunity and HomePossible have been great programs for many home owners.
This morning it was announced from OFHEO that Fannie Mae and Freddie Mac have agreed to some major changes with regards to how appraisals will be ordered for conforming mortgages:
“…including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.”
It’s ironic to me this is eliminating “broker-ordered” appraisals and “reducing the use of captive appraisal management companies” when it was Washington Mutual’s actions with eAppraisal that caused New York Attorney General Cuomo to investigate.
The appraiser I use has been doing his job for over 30 years. I trust him and respect his work. Last year, when he had an appraisal come in low on a property that was in a bidding war with zero down financing, I didn’t doubt him. The agents were furious…even the homebuyer wanted a new appraisal. They wound up buying the home for the appraised value instead of the bid-up price. I wonder if they realize what a favor he did for them by providing a true appraisal? (He’s come in low on some refi’s too). I have to admit, I’m less than happy realizing that I may not be able to rely on using his services for appraisals once the new guidelines go info effect.
I’m concerned that obtaining a conforming appraisal will be very similar to how VA appraisals are done: a crapshoot lottery. This is all well and good as long the appraisers in the pool are all competent and efficient. However when there is no competition for business, will it breed complacency?
I’m also wondering what will happen with the cost of appraisals. Presently, I have a rate sheet from my appraiser and I know how much the cost will be for each transaction after we have loan approval. Unless Fannie and Freddie decide to control what an appraiser will charge, the fees can vary. How will loan originators be able to provide accurate Good Faith Estimates without knowing who the appraisal will be through?
More questions than answers right now…and more changes with mortgages are on the horizon with HUD’s announcement of what the median home prices are due in about ten days.
Update: Fannie Mae is accepting comments until April 30, 2008.