Posts Tagged ‘Fannie Mae’

In another backward-thinking move, Fannie Mae has very subtly announced that they will be increasing their down payment requirements by decreasing their maximum iwsLoan to Value Ratios for MyCommunity® mortgages and for standard mortgages on 1-unit primary residences effective on or after the weekend of November 16, 2013.  The previous allowed down payments were at 3% based on a Loan to Value Ratio (LTV) of 97%.

The difference between 95% LTV and 97% LTV financing may sound slight but on a macroeconomic level, it’s huge.  It will postpone purchases for multitudes of buyers; particularly first time homebuyers who might find themselves in situations where they have to save longer before they get into the game of homeownership.

Perhaps more profound will be the unforeseen effect of limiting choices on mortgage insurance.  For many if not most buyers, borrower paid monthly mortgage insurance on a conventional loan is the worst choice.  Often the best choice is Single Premium Financed PMI but even Split Premium or Lender Paid PMI are usually better choices than standard monthly PMI.  If these choices seem eye crossing, click here for a PMI comparison and click here for a method of calculating and comparing PMI and you’ll see what I mean.  This change by Fannie Mae will effectively make it more difficult for the consumer to take advantage of what has likely come to be the most advantageous form of PMI.  This is a serious unintended consequence and could have been avoided by limiting the LTV to 95 and the HCLTV to 97%.  A little forethought could have avoided this travesty.

To me, this is as backward looking as Fannie Mae’s recent guideline change regarding condos.  Yes the default rates were high in 2012 on condos but those defaults were on legacy loans not the new ones.  The time to tighten condo guidelines was in 2008 and not 2012.  This is no different.  The time to require higher down payments was 4 years ago.  This last thing we need right now.

Sorry for the bad news.  Don’t shoot the messenger.

Here’s an expert from the Fannie Mae Release Notes:

LTV/CLTV/HCLTV Ratio Cap Lowered to 95%

DU Version 9.1 will reflect lower maximum LTV/CLTV/HCLTV ratios for standard and MyCommunityMortgage® (MCM®) fixed-rate transactions secured by a 1-unit primary residence. Those transactions will be subject to a maximum LTV/CLTV/HCLTV ratio of 95% (instead of 97%). DU will continue to allow CLTV ratios of 105% when the subordinate financing is a Community Seconds® mortgage.

Note: HFA loans submitted to DU are subject to separate LTV/CLTV ratios. For specific HFA guidelines, lenders should contact their state Housing Finance Agency (HFA), and mortgage brokers should contact their DO sponsoring wholesale lender. As a reminder, lenders must have approval to deliver HFA loans to Fannie Mae.

Charles Dailey - iLoan - NMLS ID# 79048 – Branch Manager, Loan Officer, Certified Military Housing Specialist – 612.234.7283

The ONLY civilized way to search for homes!

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Giving a pound of flesh in income and asset documentation has become the norm but it’s likely that unjustified lender paranoia has led them to ask for a bit too much of their clients.  My recent rant on this issue concerned verifying large, non-payroll deposits but now my rage has turned to the simple request of tax returns.  I’m not talking about FHA loans, VA loans, RD loans or Freddie Mac loans (although if you’re curious about Freddie, see attached), because if you’re looking for one of these, you’re going to be asked for a lot of paperwork.  I’m just talking about your plain Jane Fannie Mae loan.  If you’re looking for one of these loans, and I can see why you would, don’t let yourself unjustly be put through the Spanish Inquisition.

A little background. . . Everyone will be asked to sign an IRS 4506t form, with which lenders can authenticate supporting loan documentation and use for quality control.  So no matter what, your lender will have authentic data from the IRS pertaining to what your income was.  After this, collecting the paperwork may seem extraneous but two years of tax returns are needed, by Fannie Mae guidelines, in the following 10 instances where the loan applicant. . . :

  • earns 25% or more of his or her income from commissions;
  • is employed by family members;
  • is employed by interested parties to the property sale or purchase;
  • receives rental income from an investment property (only one year of tax returns is required unless the applicant meets one or more of the other conditions in this list);
  • receives income from temporary or periodic employment (or unemployment) or employment that is subject to time limits, such as a contract employee or a tradesman;
  • receives income from capital gains, royalties, real estate, or other miscellaneous non-employment earnings reported on IRS Form 1099;
  • receives income that cannot otherwise be verified by an independent and knowledgeable source;
  • uses foreign income to qualify;
  • uses interest and dividend income to qualify; or
  • receives income from sole proprietorships, limited liability companies, partnerships, or corporations, or any other type of business structure in which the borrower has a 25% or greater ownership interest (10% for Freddie Mac). Borrowers with a 25% or greater ownership interest are considered self-employed. The lender must document and underwrite the loan application using the requirements for self-employed borrowers

Source: 2013 Selling Guide, Part B, Origination Through Closing, Subpart B3, Underwriting Borrowers, Chapter, B3-3, Income Assessment, Section B3-3.1, Employment and Other Sources of Income, B3-3.1-01, General Income Information (06/26/2012)

Too many times, an underwriter who also underwrites VA, FHA and RD loans will cross disciplines or blur the lines of underwriting between loan types and end up underwriting a Fannie Mae backed loan as though it were a different type of loan.  So does this fit you?  If it doesn’t, and you’re being asked for tax returns on a Fannie Mae backed loan, you’re being unjustly put through the ringer on income documentation.

 Charles Dailey iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

This podcast outlines the differences between Minnesota mortgage pre-approvals and how they affect purchase transactions.  Homebuyers and home sellers can learn the risks and benefits of each different type and how they relate to their transaction.  This is essential information for understanding the implications of your choice on loan type for your purchase in a seller’s market.  If you’re a seller, it’s essential for understanding the risks and advantages of accepting an offer that comes with one type of mortgage financing vs. another.

 Charles Dailey iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

In the last 4 years, an effort has been made on the part of mortgage lenders to ensure precise accuracy on income, liabilities but also on making sure that their money is really their money.  Consequently they look for image“Indications of Borrowed Funds.”  One such indicator of potential borrowed funds is a large and irregular deposit on a bank statement and, when found, they can lead to the Spanish Inquisition of Letters of Explanation and documenting the origins of these funds.  When this guideline originally came out, it arrived without much clarity so naturally everyone took the strictest interpretation of what must be documented but those days are over now that the lending industry has new guidance.

FHA Requires that if a loan has received an Accept or Approve or Refer decision from an approved automated underwriting engine using FHA’s TOTAL Scorecard, the lender “must obtain an explanation and documentation for recent large deposits in excess of 2% of the property sales price, and verify that any recent debts were not incurred to obtain part, or all, of the required cash investment on the property being purchased.”[1]

That’s it.

Fannie Mae, probably in an effort to quell over documentation by the mortgage industry, provided additional clarity on how this is to be handled in a much missed announcement on November 13th of 2012 when more people had their minds on the holidays than the evolution of the mortgage industry.  Their clarification reads as follows:

“Lenders must obtain the borrower’s written explanation and documentation of the source of large deposits that are reflected on bank statements. Large deposits are defined as a single deposit that exceeds 25% of the total monthly qualifying income for the loan. If the source of a large deposit is readily identifiable on the account statement, such as direct deposits where the source of the deposit is printed on the statement, the lender does not need to obtain further explanation or documentation. However, if the source of the deposit is printed on the statement, but the lender still has questions as to whether the funds may have been borrowed, the lender should obtain additional documentation.”[2]

Yeah, . . . that’s it.

Some investors, though not all, add additional requirements to these but don’t be fooled as they are not too far afield of the basics that Fannie and FHA demand.  Here’s a typical example:

“(insert lender’s name here) requires verification of any one deposit or aggregate of deposits (not including payroll direct deposits) that exceeds 25% of the total monthly gross income but not less than $1000 in one specific account.”

Yep, . . . that’s it.

So here’s the bottom line.  If you’re being asked for more than what’s been outlined here, you’re being given special treatment.  And by special, I don’t mean the good kind.  If this is happening to you, it’s probably time to be thinking about another lender whose underwriters don’t think that there’s a monster in their closet when they go to bed.

Charles Dailey - iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

More and more, people are finding that their intent to occupy a home when getting a mortgage may not mean what they think it means.  More and more, loan officers are mralso finding out that it may not mean what they think it means.  One of the Mortgage Loan Officer national testing questions asked what intent to occupy meant and the correct answer, for testing purposes, was that the buyer would have to move in within 60 days.  Now, both on refinances and on purchases, it’s becoming important to know how long one will be staying there as well.

While not all lender’s guidelines are the same on this matter, at least at this point, here’s a sample of one of the top 10 lenders whose name, if I mentioned it, you’d definitely know:

“If borrower applies for an owner occupied transaction after closing on a previous owner occupied transaction with INSERT LENDER’S NAME HERE on a different property in the last 12 months, the new transaction will be ineligible. This guideline will not apply if the previous property has been sold or refinanced as a non-owner occupied residence. For owner occupied transactions, the borrower warrants he or she will occupy the property for at least 12 months.”

Many other lenders are adopting similar guidelines and don’t be too surprised if there ends up being a universal guideline that addresses this for all lenders.

The problem with this is the question on the loan application, “Do you intend to occupy the property as your primary residence?”  It’s a yes or no question not a “yes and by the way I warrant that I’ll be there for 12 months even though I can’t predict the future” question.  To make things worse, the disclosure notices state, “This is to certify that I/we do intend to occupy the subject property as it is my/our primary residence. I/We hereby certify under penalty of U.S. Criminal Code Section 1010 Title 18 U.S.C., that the above statement submitted for the purpose of obtaining mortgage insurance under the National Housing Act is true and correct.”  It doesn’t say we intend to occupy the property for at least 12 months.  In short, when neither the lender’s nor the borrower’s intentions are absolutely clear, terrible consequences can occur and the way transactions are currently handled, it’s not absolutely clear.

However, the Uniform Mortgage Instrument is clearer on the topic.  It states:

“Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control.”

Sadly, this is only small print at the end of the transaction that nobody reads.

This is shipwrecking a lot of purchases and is starting to have very close attention paid to it.

Sadly, because of this lack of clarity in a sometimes maddeningly hilarious lending process, it’s incumbent upon the borrower to ensure that the act of expressing intent to occupy is truly consistent with their short and intermediate term plans to avoid these consequences.  Mortgage investors are going to the trouble of disclosing their wishes in the form of private guidelines but they’re not disclosing their plan of action should the consumer fail to read their minds down the road.

SO THE MORAL OF THE STORY IS:  Be sure, if you’re planning to or accidentally have ended up in a situation where, you’ll be claiming occupancy on 2 loans in 12 months, . . . . consult a loan officer who’s familiar with this potential complication.

Charles Dailey - iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Most lenders will restrict the number of properties an investor can finance to a total of four properties.  This restriction was recently loosened to allow for up to ten financed properties.  There are unique restrictions regarding credit score, Loan to Value (or LTV) and reserve requirements that make getting them funded very difficult.

Here are a couple of bullet point guidelines you’ll need to be aware of:

  • No foreclosures in the preceding 7 years
  • No late mortgage payments within the last 12 months
  • 6 months of mortgage payments in need to be in reserves for each other second home or investment property (cash out from a proposed refinance doesn’t count)

If you can make it past these hurdles, the next round of problems lie in the LTV and credit score restrictions outlined here:

Fannie Mae LTV and Credit Restrictions on 5 - 10 Financed Properties

Fannie Mae LTV and Credit Restrictions on 5 – 10 Financed Properties

If you have purchased the property within the past six months (measured from the date on which the property was purchased to the application date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met:

  • The original purchase transaction was an arms-length transaction.
  • The original purchase transaction is documented by a HUD-1 Settlement Statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee’s deed [or similar alternative] confirming the amount paid by the grantee to trustee may be substituted for a HUD-1 if a HUD-1 was not provided to the purchaser at time of sale.)
  • The preliminary title search or report must confirm that there are no existing liens on the subject property.
  • The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).
  • If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the HUD-1 for the refinance transaction must reflect that all cash-out proceeds be used to pay down, if applicable, the loan (unsecured or secured by an asset other than the subject property) used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.
  • Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan.
  • The new loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV/CLTV/HCLTV ratios for the transaction).
  • All other cash-out refinance eligibility requirements are met and cash-out pricing is applied.

Lastly, expect everything about the loan file to be fully inspected and documented in underwriting (a.k.a. chewed up and spit out).  Because these are rare loans, often times they are treated with suspicion and thoroughly worked over before given the all clear.

Charles Dailey - iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

 

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

These days, any time a lender sees a square peg and a round hole, they tend to run for the hills.  In the case of homebuyers seeking a mortgage with H1B visa status, too often this is the

Show Me the Money!

case.  If they’d patiently take the “outside in method” of loan structuring (start with Fannie Mae/Freddie Mac, then check mortgage insurance guidelines and then reference the lenders underwriting guideline overlays), they’d find that these waters are not that hard to navigate and that round hole isn’t as round as it may appear.

An H1B visa is a work permit issued by a US Consulate or Embassy to a professional “alien” enabling them to work in the US temporarily (say for instance that Marvin the Martian weren’t from mars but had a law degree and was born in Finland).  The visa can last up to 6 years and can be extended beyond that time in the event that the applicant has a pending Green card application that was filed before the expiration of the 5th year.  The H1B work permit is issued to “professionals” who are working in a “professional capacity.” The H1B visa is tied to the sponsoring employer.  In my experience, those holding this visa are highly educated with desirous skill sets, are well compensated and usually have very little debt which makes them very good credit risks (holy run-on sentence).

So let’s try this “outside in method” of loan structuring and placement and see if these low risk homebuyers have a place in our mortgage marketplace.

Fannie Mae accommodates H1B visa carriers in the following way:

“Fannie Mae purchases and securitizes mortgages made to non–U.S. citizens who are lawful permanent or non-permanent residents of the United States under the same terms that are available to U.S. citizens. Fannie Mae does not specify the precise documentation the lender must obtain to verify that a non–U.S. citizen borrower is legally present in the United States. The lender must make a determination of the non–U.S. citizen’s status based on the circumstances of the individual case, using documentation it deems appropriate. By delivering the mortgage to Fannie Mae, the lender represents and warrants that the non–U.S. citizen borrower is legally present in this country.”

Private Mortgage Insurance companies typically carry slightly tighter guidelines that often look like this:

“The borrower may be a U.S. Citizen, permanent resident alien, or a non-permanent resident alien who is both legally present and can evidence a minimum two years of credit and employment history in the United States.”

Lastly, a careful review of investor underwriting guideline overlays must be done to make sure that one doesn’t accidentally step on a land mine when going through underwriting and yes, going through underwriting and crossing a mine field can sometimes sadly be similar.  After reviewing guidelines from several investors, I’ve carved out eight underwriting guideline overlays one might expect to run into with this type of mortgage:

  • Minimum credit score (very common with any loan these days)
  • Maximum loan to values (often times 80 percent but sometimes there are no restrictions)
  • Must have a social security number and not a Tax Identification Number (also known as TIN or ITIN – this is not always the case)
  • US source of income that’s expected to continue for 3 years (this one can be the toughest to deal with)
  • If using foreign currency only 75% of the currency value may be considered (this one is more rare than the others)
  • 2 years residency (common)
  • 2 years of credit history (common)
  • 2 years of employment (common)

I was inspired to get this information out today after getting a phone call from a fantastic applicant who was told by a loan officer from one of the top 10 largest banks in the US that he’d need to put 40 percent down to qualify for a mortgage for his home purchase simply because he had a H1B visa.  At first I wasn’t surprised.  But then . . . knowing that this bank sells their loans to Fannie Mae, uses the same mortgage insurance companies we do and is likely not to be ridiculously stricter than similar institutions, I could only chalk up their down payment request to ignorance of how to put together a prequalification for a H1B visa carrying non-permanent resident.  All you have to do is sand off the edges of that square peg and it will fit through that round hole just fine.

Charles Dailey - iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

 

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Many would say that perhaps Fannie Mae should have become tighter on their guidelines for condos back in 2008 and now that they’re seeing recovery, start to loosen up

Congratulations Fannie!

(kind of like the private mortgage insurance companies did).  The opposite is happening as clearly Fannie Mae wants to limit their exposure to condos in their portfolio.  Periodically, changes are made to Fannie’s underwriting guidelines and their automated underwriting software.  Some are small and some are large and impactful.  Condo buyers beware as they snuck this one in (effective October 20th):

“A limited project review will no longer be permitted on principal residences in condominium projects when the LTV/CLTV/HCLTV is greater than 80%. DU will require a full project review on principal residences in condominium projects when the LTV/CLTV/HCLTV is greater than 80%.”

It seems pretty innocuous but this will have meaningful consequences on a lot of transactions.  For instance as of right now, there is only one publically Fannie Mae approved condo project in the state of MN and last year 23.9 percent of the Twin Cities transactions were condo/townhouse.  How’s that for a lot?

Going forward, regardless of whether or not a condo project is established, these loans will no longer be eligible for limited reviews (sometimes referred to as Spot Approvals) and must go through full review.  Secondary market mortgage lenders are implementing this change now so be ready for its consequences.

A typical checklist for a Fannie Mae full review for condo projects would be as follows:

  • Appraisal Report
  • Conventional Condominium/PUD Warranty
  • Conventional Condominium HOA Questionnaire – here’s a sample
  • Copy of the Declaration Page of the Master Insurance Policy and evidence of Fidelity Insurance, if applicable
  • Current Operating Budget (typically not required for 2-to 4-unit projects)
  • Engineer’s Report, description of renovations and rehabilitation (if applicable)
  • Management Contract
  • Agreement of Sale

For examples of ineligible project characteristics, click here, and for a copy of the Fannie Mae announcement regarding condos needing full review where the down payment is less than 20 percent, click here.  For a full list of approval options, click here.  If you think that having the project approved FHA will make this easier; it won’t.  If you think one lender’s project approval will be shared for others to use in the same way as FHA DELRAP condo approval; don’t count on it (it’s optional so don’t look to lenders to voluntarily expose themselves to risk).

This does not mean that there will be an onslaught of loan declines.  More than likely it will only create more work for association managers, Realtors, loan officers, processors and underwriters.  Worst of all, it will add extra steps and between 2 and 7 days, depending on the competence of the lender and association management, to an already long and overly tedious process.

Charles Dailey - iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The ONLY civilized way to search for homes!

 

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Rest assured, if homebuyers or Realtors think they may have a good idea for a low down payment purchase loan program, they needn’t bother thinking since Fannie Mae has decided to make that executive decision on their behalf.  As of October 20th, the new choice will be between a fixed rate mortgage, fixed rate mortgage or fixed rate mortgage.  What’s best for the homeowner has now been mandated by Fannie Mae.

The maximum Loan to Value for ARM’s (Adjustable Rate Mortgages) is being dropped from 97% to 90% for all purchases and no cash out refinances (seriously, this is not a joke).  For all other ARM transactions, the Loan to Values will be dropped by 10% but not lower than 60% of the appraised value or purchase price (whichever is less).  So the new rules of the road will look like this:

Fannie Mae Loan to Value Chart

For a Complete Review of the New Eligibility Matrix, Click Here

In a market with record low interest rates, some may not think that this is a big deal because economically, a fixed rate mortgage makes a lot of sense right now.  But in a market where the economy is recovering, rates have drifted up and the yield curve produces rates on the 7/1 ARM that are dramatically lower than fixed rate mortgages (which is historically true), this is completely stupid.  What’s likely is that when that happens and the 7/1 ARM can be the best choice, Fannie Mae will still have these guidelines in place and thousands of homeowners will be denied the best loan for them.

But don’t you worry your pretty little head because Fannie knows what’s best for you.  You just sit there, don’t think and do what you’re told.

Charles DaileyiLoanNMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

This podcast of the Twin Cities Real Estate Radio Show covers general pro and con information on different loan types such as conventional, FHA and VA.

Charles DaileyiLoanNMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

I have had a lot of people ask me about how to buy a home after a short sale using FHA financing but it’s becoming more and more common that people are considering buying a home after a short sale using financing insured by the Veteran’s Administration.  These guidelines use to be murky but the issues concerning waiting periods after a short sale and underwriting guidelines are coalescing around an interesting blend FHA guidelines and Fannie Mae guidelines.

There are six unique stipulations and they are as follows:

  • The borrower must have made all mortgage and installment payments within the month due for the 12 months prior to the short sale – This is the same as the FHA rule
  • The short sale must serve as payment in full on the existing lien(s) and the existing mortgage servicer may not require repayment of the difference between the mortgage balance and the short payoff – This is the same as the FHA rule
  • Borrowers may not execute a short sale to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distanceThis is the same as the FHA rule
  • If a borrower was delinquent on the mortgage at the time of short sale, iLoan will not approve the borrower for VA financing for at least two years after the date of the short sale unless the borrower experienced significant extenuating circumstances and the loan receives an automated underwriting “approve” or “accept” response – This rule is borrowed from the Fannie Mae guidelines for buying after a short sale except Fannie Mae requires 10% down after 2 years where VA financing will allow for 0% down
  • Borrowers having short sales will not be approved if they also have a previous bankruptcy or foreclosure at iLoan
  • Borrowers having a short sale within the most recent three years and credit scores at or under 639 are ineligible at iLoan

Outside of these stipulations, only the basic requirements for a VA loan must be met.  While these 6 provisions are inflexible, outside of them, we approach these would-be veteran home purchasers with an open mind as we see them as an excellent credit risk.

Equally important to finding a good loan officer for this type of transaction is finding a good and enlightened Realtor.  Their role will be key in in executing the sale of the current home (if it’s not already sold short) and the selection of the new property if the new property cannot be similar or superior within a reasonable commuting distance from the previous property.  Particularly, they should know that you don’t need to be late on your mortgage to do a short sale in most instances and be willing to guide you through that process without a technical default.  That will be necessary for a would-be buyer if they don’t want to suffer a long waiting period.

Charles Dailey - iLoan - NMLS ID# 79048 – Branch Manager, Loan Officer, Certified Military Housing Specialist – 612.234.7283

The ONLY civilized way to search for homes!

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Anyone you know struggling with mortgage payments due to unemployment?

Forbearance Terms Eased for Freddie’s Borrowers

Freddie Mac gave unemployed homeowners who are struggling to pay mortgages owned or guaranteed by the company a break on Friday when it eased its temporary forbearance restrictions. Effective February 1, Freddie Mac servicers will no longer need prior approval from the government sponsored enterprise (GSE) before extending forbearance of up to six month’s duration to its borrowers who have lost their jobs. Servicers can also seek preapproval for a second six month period of forbearance for those borrowers if needed.Read the entire article from above

at http://www.mortgagenewsdaily.com/01082012_borrower_assistance.asp

You may be eligible for a HARP Refinance. Does Freddie Mac Own My Loan?  Find out here: https://ww3.freddiemac.com/corporate/

Forbearance Terms Eased for Fannie’s Borrowers

In this Announcement, Fannie Mae is introducing an Unemployment Forbearance program that provides servicers the flexibility to assist borrowers who have a financial hardship due to unemployment. These new requirements are consistent with the Unemployment Forbearance guidelines established by the Federal Housing Finance Agency for Fannie Mae and Freddie Mac.

You may be eligible for a HARP Refinance. Does Fannie Mae Own My Loan? Find out here: http://www.fanniemae.com/loanlookup/

Joe Harvey

Senior Mortgage Advisor

NMLS 242632

Email: Joe@MortgageJoe.com

Direct: 612-701-6346

Fannie Mae HomePath Mortgage Loans… NO Appraisal, NO MI and NO Condo Certification!

Looking for a fix up property… with mortgage financing readily available?

You believe you are either a handy person when it comes to home fix up projects or maybe you know someone who is handy. Shopping for foreclosed homes seems like a great idea for you, as foreclosed properties are the properties most likely to have some fix up projects that need to be completed.

This is a great idea, right up until you are not able to get financing on that foreclosed property. You may qualify for a mortgage, but the property must also qualify for financing and this is determined by an appraisal inspection. If the appraiser determines there are work orders on the property, the lender may flat out turn down the mortgage or it will be a requirement that the work be completed prior to closing. And, to make it interesting, generally speaking the seller will not allow you to do the work and many times will not do it themselves either. Pretty much turns the property into a cash only opportunity.

Do not give up… you just need to look in the right place. Fannie Mae has a number of foreclosed properties on their books, and believe it or not, they are not interested in being in the business of retaining properties, so they came up with special financing, called the Homepath Mortgage.

The Homepath Mortgage might be just what you need to meet your home purchase goal of doing some fix up yourself. Not all the properties are going to have repair needs, but it is one of the best resources for finding those that do! Depending on the property, there are other special features of the Homepath Mortgage, which make it the right choice for today’s buyer.

No appraisal – so there are not going to be any work orders of items to be repaired prior to closing or any other property issues.

No Mortgage Insurance – even though you have less than 20% down payment, it will not be required.

Down payment starts at 3% requirement for owner occupied – lower than FHA requirement of 3.5%

Down payment starts at 15% for investment properties – lowest investor down payment requirement available in the market.

Seller paid closing costs – up to 6% for owner occupied (please note: often, the banks will only give 3.5%, best to make full price offer if you want the full 6%, just my opinion) and 2% for investment properties.

No Condo Certification – no extra cost of paying for a condo review or worries about passing the requirements.

First Look Feature – owner occupied buyers have a 15 day advantage to purchase these properties before they are available to investors.

To find a property that qualifies for Fannie Mae Homepath Financing, go to www.homepath.com and you will be able to search all the properties that Fannie Mae has available in your area.

Please do not hesitate to contact me if you have any questions or concerns regarding this special financing, I have been writing these mortgages for years, it just might be the perfect mortgage for you!

Thanks! Deb Muelken – The Mortgage Lady

Personal ID NMLS#364933 Company ID NMLS#4474

Preferred Phone – 651.353.8531

Secure Fax – 1.877.869.7392

Email: deb@iloanhomemortgage.com or deb@debthemortgagelady.com

Website: www.debthemortgagelady.com

If you’re among the more than 7 million of US home-owners who are expected to qualify under the expanded guidelines, there are several preparatory steps you need to take to ensure your

HARP Mortgages

application is reviewed first.

Our assumption is that lenders will be absolutely DEVASTATED with new refinance applications in the coming months, underwriters will prefer to deal with the “cleanest” files first. There is a distinct advantage to being first in line with an underwriter–not only can your loan close sooner, you may qualify for better loan terms.

You can read a detailed HARP Q&A here

New HARP

The defining characteristic of the newly expanded HARP program is the allowance of an unlimited loan-to-value (LTV) ratio. No matter how underwater you are… you can still apply.

HARP 2.0 gives homeowners the ability to refinance into today’s low mortgage rates without concern for private mortgage insurance, high closing costs and fees, and not even requiring an appraisal in most cases.

Beyond that, a HARP loan looks a lot like any other mortgage. Lenders are looking for borrowers with solid incomes, good assets and quality credit scores.

5 steps for your HARP preparation

Since HARP mortgages are backed by Fannie Mae and Freddie Mac, the underwriting process will resemble that of any other conventional mortgage. There will be loan disclosures to sign and supporting financial documentation to get to the processor and then to the underwriter.

To ensure your HARP application lands on the top of the stack, you’ll need to follow these 5 preparatory steps:

1. Ensure Fannie or Freddie backs your mortgage

Since day one, only those with mortgages owned or guaranteed by Fannie or Freddie could qualify. Fannie and Freddie each have a loan lookup tool which allows homeowners to search for their loan.

To check if your mortgage is backed by Fannie Mae, visit http://www.fanniemae.com/loanlookup/. If your mortgage is not found, try Freddie Mac’s loan lookup at https://ww3.freddiemac.com/corporate/.  Be sure to enter your address as it appears in the United States Postal Service here: https://tools.usps.com/go/ZipLookupAction!input.action.

Mortgages not listed on either website are not backed by Fannie or Freddie and, therefore, are not HARP-eligible.  There is still a remote possibility depending on if you entered your information correctly or not.

2. Determine if your mortgage is old enough

Only those whose mortgages were securitized prior to June 1, 2009 can apply for HARP. In general, this means that your mortgage must have started in mid-May 2009 or earlier. You can find your mortgage start date by looking at your closing paperwork. In the upper-right-hand corner of your settlement is your “funding date”–that’s the date you’re looking for.

Note: Since it can take up to 60 days to securitize a Fannie or Freddie loan, even if your start date is close to June 1, 2009, you still may be ineligible.

3. Does your current mortgage have LPMI?

HARP 2.0 is designed to help homeowners with or without private mortgage insurance (PMI), but the government’s revisions specifically excludes homeowners that chose lender-paid mortgage insurance (LPMI).

LPMI is mortgage insurance that’s built into your rate. If your mortgage statement itemized your monthly PMI, you have borrower-paid mortgage insurance and are thus eligible.

4. You must be current

HARP 2.0 requires that all homeowners have made their last six mortgage payments on time, with a maximum of one 30-day late payment in the past year. This information is verified against your credit report, so be sure to review your credit reports prior to submitting your application.

5. Find and organize your supporting paperwork

Since HARP mortgages are underwritten like every other type of mortgage, you will be required to provide bank statements, a driver’s license, homeowners insurance information, pay stubs and W-2s. If you’re self-employed, you’ll have to provide at least 2 years of tax returns to verify your income along with some more supporting documentation.

Your speed in which you return these items to your lender can dictate your mortgage rate. If you plan on applying for HARP 2.0, gather all these items in advance. The less you leave to the last minute, the smoother your application will go.

Again, there will be a crush of new applications when HARP 2.0 is open to the public. If you’re going to apply, you must follow these tips to be one of the first approved and one of the fastest to close.

The HARP Refinance Program will expire December 31, 2015.

Reblogged with Permission VIA: http://www.mtgprofessor.com/Qualification/About_the_Qualification_Page.html Posted October 29th, 2011

View the Mortgage Qualification Tool

One major difference between the housing finance system today and the system that prevailed prior to the financial crisis is in loan underwriting — the set of rules and procedures governing who is approved for a loan and who is rejected. The swing has been from lady bountiful to Mr. Scrooge. Rules have been tightened across the board. Where the major mistake before the crisis was approving loans to borrowers who should have been rejected, the major mistake today is rejecting loans that should be accepted.

The problem has been compounded by a cyclical swing in home appraisal bias. During the period of steady home price increases before the crisis, appraisals tended to have an upward bias, which meant that they seldom derailed a transaction that was otherwise acceptable. Today, with home prices having declined sharply and with no price recovery yet in sight, appraisals have a downward bias. Deals are not getting done because the property values are coming in too low. Because appraisals become available late in the underwriting process, furthermore, many applications are rejected after the borrower has paid an appraisal fee and sometimes other fees as well.

Because of the heightened risk of rejection and the costs that go with it, potential borrowers need a quick way to determine whether or not their likelihood of rejection is high or low. In addition, if the likelihood of rejection is high, they need to know exactly where the problem is, and what they might do about it. A new page on this site does exactly that.

It divides underwriting rules into three broad requirements: absence of recent bankruptcy and foreclosure, acceptable combination of credit score and down payment, and acceptable expense-to-income ratio.

Requirement 1: Absence of Recent Bankruptcy and Foreclosure

If you have had a recent bankruptcy or foreclosure, you are not going to qualify for a mortgage. The system is quite rigid, and while it forgives, the forgiveness takes time. My program will tell you exactly how long it will take.

Requirement 2: Acceptable Combination of Down Payment (Equity) and Credit Score

Lenders want borrowers to make a significant down payment (equity in a refinance), and to have an acceptable credit score.. The two are combined because the requirements for each depend on the other. For example, on conforming loans that will be sold to Fannie Mae or Freddie Mac, the minimum down payment is 5% and the minimum credit score is 620. However, at a down payment of 5%, the minimum credit score is 720, and at a credit score of 620, the minimum down payment is 40%.

The program shows where the credit score and down payment entered by the user compares to requirements set by a) Fannie and Freddie on conforming loans, b) FHA on FHA-insured loans, and c) Portfolio lenders on other (non-conforming) loans. Because the data entered by the user is unlikely to be exactly the same as the data entered by a lender, the program shows a user who qualifies how close he is to not qualifying, and it shows a user who doesn’t qualify how close he is to qualifying.

Requirement 3: Acceptable Income Relative to Debt Payments

Guidelines set by the agencies and lenders limit the ratio of required debt payments to gross income to 41-43%. Income is gross income that can be documented. Debt payments include the payment, property taxes and homeowners insurance on the mortgage at issue, plus payments on revolving credits and other debts that won’t be paid off within the next 6 months.

The program calculates the user’s ratio and compares it to the maximums on FHA, conforming and non-conforming loans. In cases where the user’s ratio exceeds a maximum, the program shows the debt payment reduction or the income increase required to meet the guidelines.

In contrast to down payment and credit score requirements, which are rigid, maximum expense ratios are not rigid. Underwriters may raise or lower the maximums, depending on other features of the transaction.

The New Tool Won’t Underwrite You

The new tool is not a complete substitute for having your loan application underwritten by a lender. The major differences are:

  1. The new tool uses the income you enter but does not ask you to document it. A lender will ask you to document income, as well as the assets needed for the down payment.
  2. The new tool uses the credit score you enter but the lender will use a score obtained from another source, which may be different. The difference is likely to be small but even a small difference can matter if the score you enter places you close to the rejection line.
  3. As noted, underwriters have discretion to adjust maximum payment-to-income ratios to other features of the transaction.

View the Mortgage Qualification Tool

The writer is Professor Jack M. Guttentag of Finance Emeritus at the Wharton School of the University of Pennsylvania.  Comments and questions can be left at http://www.mtgprofessor.com

The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac, has announced a series of changes to the Home Affordable Refinance Program (HARP). This program was designed to be able to help people who were in a position of negative equity. Now, it someone is upside down on their home, there will be no limit to how far upside down they are in order to qualify for these loans. This program will continue to be available to borrowers with loans sold to the Fannie Mae or Freddie Mac on or before May 31, 2009 with current loan-to-value (LTV) ratios above 80 percent.

Here’s a summary of the most significant changes to the HARP program:

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;

• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;

• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;

• Eliminating the need for a new property appraisal where there is a reliable A VM (automated valuation model) estimate provided by the Enterprises; and

• Extending the end date for HARP until Dec. 31, 2015 for loans originally sold to the Enterprises on or before May 31, 2009.

This change, coupled with serious talk of the Fed doing more quantitative easing involving purchasing mortgage backed securities, could be mean BIG opportunities for people who, while well qualified as borrowers, have been locked out of being able to get today’s more favorable interest rates.

To find out if a loan is owned by Fannie Mae or Freddie Mac, first find the property’s standardized address by going to the United States Postal Service website, click on “lookup a zip code,” and find the properties “standardized address.” Then, enter that address into these lookups to see if there’s a match:

Does Fannie Mae Own My Loan?

Does Freddie Mac Own My Loan?

FHFA Harp Changes.pdf

Charles DaileyiLoanNMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

I have a lot of people call me to get pre-qualified to purchase a home using FHA financing after a short sale. Early on, not a lot of these scenarios panned out but these days, more and more of them do. When they don’t, the number one reason is because they took bad advice from a party to their short sale transaction. That advice? “Mr. and Mrs. Short Seller, you need to be late on your mortgage to qualify for a short sale.”

This is often false and has devastating consequences. In many cases, proving imminent danger of default is all that is needed. Imminent danger of default is defined this way, “a borrower is considered to be in imminent danger of default when he or she is likely to default on his or her mortgage payments within the next twelve months.” Before we get into the consequences of misinformation, let’s review the facts:

1. Fannie Mae does not require a mortgage to be late in order to qualify for a short sale.

2. Freddie Mac does not require a mortgage to be late in order to qualify for a short sale.

3. FHA does require a mortgage to be late in order to qualify for a short sale (stupid).

4. VA uses the “imminent danger of default” rule on modifications but there hasn’t been a clear Circular regarding its use with short sales, . . . yet (and it doesn’t say they need to be delinquent either).

5. PMI providers do not universally require a mortgage to be late in order to qualify for a short sale – some do and some don’t (the trend is leaning towards more not doing it in the future and most of their policies are published on the web).

There is risk in getting this advice wrong both for real estate professionals and home seller’s alike. For seller’s, should they go into default solely for the sake of getting a short approved, they will forfeit their chance to be eligible for buying a home after a short sale using FHA financing for 3 years (or 1 year if they qualify for the FHA Back to Work program). They will also undermine their chances of getting a shorter pre-foreclosure waiting period with Fannie Mae financing if they want to use the extenuating circumstances argument. In short, it knocks them out of home ownership for a minimum of 1 and up to 3 years.

If a seller doesn’t know that they’re giving these opportunities up when they make late payments and should later find out that it may not have been necessary, the person who gave the wrong advice might want to refer to this whole paragraph as the “provable damages” section of this post. Unless the person giving such advice was an informed attorney or the loan servicer, any other might as well be practicing law without a license.

Loan servicers get this wrong quite frequently too although somehow they get kind of a pass on this one. The bottom line is that they need to adhere to the servicing agreements between them and the owner and insurer of the loan. Say for instance your call a loan servicer, . . we’ll call them P.J Chevy Morgan and they are servicing a loan that’s owned by Fannie Mae that doesn’t have mortgage insurance and they say that the loan must be late in order to get approved for a short sale, the solution is simple. Kindly inform them that they aren’t servicing their loan in accordance with the wishes of the owner of the loan and they should review their contract and quit making ignorant statements. And, in the meantime, continue processing the short sale under the assumption of imminent danger of default. If evidence of their mistake is provided (links above), they will proceed. A lot of these people working for servicers are truly surprised to learn that they’re wrong and are accommodating after the fact.

There are two lessons here. Home sellers doing a short sale should do the extra research on the owner and insurer of their loan and look into their policies on “imminent danger of default” vs. true default and real estate professionals should be wary of giving advice on these matters and would do best to carefully and concisely relay communication (with a paper trail) from other parties to the transaction rather than make suggestions. Indeed many real estate professionals are requiring the retention of outside counsel to handle all short sale negotiations and this just may be the wisest course.

Useful links:

Does Fannie Mae Own My Loan?

Does Freddie Mac Own My Loan?

 

Charles DaileyiLoanNMLS ID# 79048 – Branch Manager, Loan Officer, Certified Military Housing Specialist – 612.234.7283

 

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

The role of closing costs in a purchase agreement can be confusing both for buyers and sellers.  In the present market, it is customary for there to be sales concessions.  A real estate sales concession can be many things including but not limited to price, repairs and yes, . . closing costs.  Asking the seller to pay for closing costs, pre-paids and discount points is common.  At the end of the day though, a buyer may have several value added considerations such as seller paid closing costs and repairs after an inspection contingency but the seller will (or at least should) always negotiate on the basis of what their net proceeds after all concessions will be.

The term seller paid closing costs is really a misnomer though.  A more appropriate name would be buyer financed closing costs.  This is because despite the fact that it can appear that the seller is paying for them, this isn’t the case.  The buyer always pays for closing costs but the question is how.  Will the buyer have them rolled into the purchase price or pay for them with cash out of pocket or a combination of the two?  These are the choices.  No matter what choice is made, they are still technically paid for by the buyer.  If this weren’t the case and the seller actually paid for them, why is it that the IRS lets the buyer write off a portion of these costs on their tax return instead of the seller writing them off?  It’s because no matter how you slice it, the buyer pays them.

There are many benefits to a buyer when structuring their purchase agreement such that the seller pays closing costs.  It can lower the cash required to close, extend the purchase price a buyer is able to offer, lower the eventual rate that the buyer gets, buy out mortgage insurance and many more.  These various benefits should be weighed by a homebuyer prior to putting in an offer so they know that the offer structure they’re submitting is the most intelligent structure to meet their objectives.

When contemplating the structure of an offer, a homebuyer should remember the limits that certain loan types have for seller contributions.  Here’s an outline:

  1. Conventional (loans backed by Fannie Mae and Freddie Mac)
    1. Over 90% LTV: maximum “seller paids” = 3% of the purchase price
    2. >75% LTV & < 90% LTV = 6% of the purchase price
    3. <75% LTV = 9% of the purchase price
    4. Investment properties at any LTV are capped at 2% of the purchase price
  2. FHA (loans insured by the Federal Housing Administration)
    1. All FHA loans are capped at 6% of the purchase price
  3. VA (loans insured by the Veteran’s Administration)
    1. All VA loans are capped at 4% of the purchase price
  4. RD (rural development loans)
    1. Rural Development loans are strange in that they don’t have a cap but most investors force a cap of 6% of the purchase price

Constraints on seller concessions for loan programs are not the only consideration.  If a homebuyer is looking at foreclosures, they need to know that most bank owned properties where the property is owned by Fannie Mae or Freddie Mac (which is a lot of them) will only allow 3% of the purchase price in seller paid closing costs.  Therefore, even if a homebuyer is planning on a FHA loan with 6% in seller paid closing costs, should they encounter one of these properties with a lower purchase price, they could be facing the decision of choosing between a higher interest rate or a higher down payment.

Managing the role that seller paid/buyer financed closing costs will play in a transaction is important and not to be left to the moment one is making an offer before consideration is given.  Parties to a transaction shouldn’t get confused about who’s really paying them and make ill-informed decisions accordingly.  It’s also important to ensure that a homebuyer’s loan officer and Realtor work well together to ensure that the offer structure is of maximum benefit to the buyer.

Charles DaileyiLoanNMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283


The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Breaking Down Fannie Mae’s Appraisal Rules

Have you heard of the Home Valuation Code of Conduct (HVCC)? If you are a lender or Realtor, of course you have. What I wanted to do with this post is breakdown Fannie Mae’s policy now that HVCC has expired. Basically the Code lives on and has been slightly rewritten from the original. Unlike HVCC, Fannie’s policy has the force of law behind it. This new policy is clearly illustrated in Fannie Mae’s Appraiser Independence Requirements, Fannie, Freddie Mac, the Federal Housing Finance Agency and others developed this specifically to replace HVCC.

So whether you are a homeowner trying to refinance into a lower rate or Realtor trying to make sure your purchase transaction doesn’t fall apart due to the appraisal – You should familiarize yourself with the policy’s eight sections.

 

(Please Note that Fannie Mae’s use of “Seller” refers to the lender completing the loan and is not referring to the seller of a property in a purchase transaction)

Section 1 and 2

These sections discuss two key aspects:

  1. The appraiser must be licensed or certified in the state where the property is located.
  2. No one affiliated with the lender, appraisal-management company or any other partner of behalf of the seller can influence the final appraisal value in any way.

Section two states that a seller can’t order or obtain a second appraisal for a mortgage-financing transaction unless there is strong reason to believe the original appraisal is flawed or tainted, or unless the second opinion is a pre-established review or quality control process.

Section 3

This section states that borrowers must receive their appraisal at least three days prior to closing. This section also makes it clear that borrowers can waive the three-day requirement but only if their waiver is received at least three days prior to closing.

In addition, at closing, sellers must provide the borrower any appraisal revisions and information about why the changes were made. The revisions, however, can’t impact the value determination.

Section 4

In the fourth section of Fannie’s policy, it deals with appraiser-engagement rules. It declares that lenders – or a thirst party specifically authorized by a lender – are responsible for choosing qualified appraisers and for delivering payment to those appraisers.

The lenders’ sales or mortgage-production personnel must be separated from the personnel in charge of appraisal functions. This section also states clearly that no one related to sales and mortgage production can have any substantive communication with appraisers relating to or having an impact on value.

Section 5 and 6

In Section five, it clarifies the use of appraisal reports by in-house appraisers or affiliated appraisers are allowed as long as lenders comply with the appraiser-independence requirements and provisions.

Section six discusses appraisal-transfer rules. It states that a lender may deliver a mortgage with an appraisal created by an appraiser that was chosen by another lender as long as that appraisal was prepared in compliance with the appraiser-independence requirements.

Sections 7 and 8

Section 7 discusses the requirements for appraisal-misconduct reporting. The final section defines a requirement for lenders to implement this policy by creating written policies, procedures and training for their employees.

In closing, Fannie’s policy from Fannie’s perspective is designed to enable appraisers to be free of coercion and influence, while promoting better transactions for everyone who relies on their value judgments.
Check out this News Video on what some are doing to get the home value they feel it is worth

Michael DietrichNMLS ID 334183 – 651.206.3377

Doesn’t the Seller Pay for All of Our Closing Costs?

We all have to remind buyers that they are responsible to pay the required down payment percentage (3.5% for FHA or 3-10% etc for Conventional) AND their closing costs/pre-paids too. Even if you stipulate that the sellers contribute towards “closing costs and pre-paids” in the purchase agreement it may not cover ALL of those fees.

If you want a smooth purchase transaction make sure that you ask your favorite mortgage guy if there is a NEED to try to get all/most of the closing costs/pre-paids included with the offer. It could be the one little detail that causes the deal to fall apart if the buyer is short of CASH.

Here’s a quick general reminder:

Conventional:

  • Over 90% LTV: maximum “seller paids” = 3%
  • >75% & < 90% = 6%
  • <75% = 9%
    (small purchases OR for a permanent rate buydown if value is there)
  • For INVESTMENT PROPERTIES at any LTV = 2%

FHA:

  • FHA guidelines state 6% is allowable

VA:

  • VA guidelines allow qualifying Veterans to have
    the sellers contribute up to 4% of
    the sales price. For a couple different
    reasons… I highly recommend the buyers agents I work with to include at least
    3% to the 4% maximum to give our Veterans the best possible loan program with
    the lowest “out of pocket” expense.

USDA Rural
Development:

  • This is a tricky one because there really is NOT
    a cap on this but some investors may limit the contributions to the 6% limit.

Even though these program types have their maximum allowable seller paid closing cost guidelines, don’t be surprised when you’re negotiating if you learn that the seller won’t allow more than 3% in seller paid closing costs. This is particularly common on bank owned properties where the asset is owned by Fannie Mae or Freddie Mae.

To conclude… the relationship between the borrower, the agent and the “mortgage guy” needs to be open and active BEFORE an offer is submitted. A wise man once told me that “RELATIONSHIPS (both personal and business) FAIL when there is a BREAK DOWN in COMMUNICATION”.

Steve BrandNMLS # ID 261849 – 612.386.5306

It has been widely and wrongly asserted that someone who is getting divorced in Minnesota cannot purchase a home prior to finalizing a divorce decree and at the same time prevent their soon to be ex-spouse from being entitled to marital property rights in the newly purchased home.  This used to be a serious problem that made the already long and painful process of getting divorced in Minnesota even longer and more painful yet.  In 2004, the Minnesota legislature put this recurring issue to rest.

In 2004, the MN legislature enacted MS 507.03 PURHCASE-MONEY MORTGAGE; NONJOINDER OF SPOUSE.  Amongst other things, it established the following:

“When a married individual purchases real property during marriage and mortgages the real property to secure the payment of the purchase price or any portion of it, the other spouse shall not be entitled to any inchoate, contingent, or marital property right or interest in the real property as against the mortgagee or those claiming under the mortgagee even though the other spouse did not join in the mortgage. A statement in the mortgage to the effect that the mortgage is a purchase money mortgage constitutes prima facie evidence of that fact.”

So this takes care of the ownership interest issue but despite the fact that this law went into effect so long ago, the question still routinely arises in underwriting.

Laws concerning ownership interest in real property vary state by state.  Often times, underwriting for mortgages is centralized in one area for multiple states.  These underwriters might assume, albeit incorrectly, that a spouse must go on title for the new purchase.  They might assume, albeit incorrectly, that the spouse might need to sign the mortgage note.  They might assume, albeit incorrectly, that the spouse might need to sign the mortgage instrument.  The spouse only needs to sign the Truth in Lending disclosure according to the MDIA amendments to the Truth in Lending Act from 2009.  What’s important is working with a loan officer that knows how to navigate wrongly applied guidelines should they be applied by underwriting or even title companies.

The financing hurdles associated with buying a home prior to the execution of a divorce decree exist.  Firstly, the purchaser must qualify for both mortgage payments and all other liabilities reporting to their credit report.  All combined, these must meet the Debt to Income Ratio requirements of the loan.  This must be so in order to satisfy FHA’s “buy and bail” rule and a similar guideline held by Fannie Mae (Fannie Mae’s Seller’s Guide B3-6-06, Qualifying Impact of Other Real Estate Owned (10/30/2009)).  This guideline alone prevents a lot of purchases from happening prior to finalization of a divorce decree.  The second hurdle is isolating the purchasing spouse’s income from the non-purchasing spouse’s income.  If all income from the purchasing spouse is W2’d income, this is easy to do.  If there is a mixture of self-employed income on the previous years’ tax returns (for instance both parties are self-employed or have a jointly owned business), it can be a rat’s nest to detangle and will take a skilled loan officer.

These transactions are not without their challenges; however, in Minnesota they can be done.  Often times, they can represent the first truly big decision made independently for some time and that can be quite a liberating feeling!

Charles DaileyiLoanNMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

Although we wouldn’t know it from watching the six o’clock news, mortgage underwriting guidelines and mortgage insurance underwriting guidelines have been in a pattern of loosening, not tightening.  This trend started in late 2009 and continues today with such examples as lower minimum credit scores for mortgage underwriting guidelines and fewer declining markets for mortgage insurance guidelines.  As this has happened, another trend has emerged.  The phrase “underwriting exception” is coming back in practical contexts rather than a nostalgic reference to days gone by.  These days, underwriting exceptions are more and more common where a mortgage loan file has “Compensating Factors.”

At face value, the phrase compensating factor seems to have a common sense meaning (an element of a credit application that is so strong that it offsets something weaker in the application) but it’s more complicated than that.  Different mortgage types manage the consideration of compensating factors in different ways.  For instance, conventional loans backed by Fannie Mae and Freddie Mac typically evaluate them using an Automated Underwriting System (a software system that determines a borrower’s loan eligibility based on a predetermined set of financial criteria and is subsequently reviewed by a human).  FHA and VA mortgages are also evaluated this way but are underwritten manually too.  Through all these models, the principles of Compensating Factors remain the same.

FHA’s written guidelines outline specific examples of what compensating factors may be taken into consideration:

  • The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past 12-24 months.
  • The borrower makes a large down payment (ten percent or more) toward the purchase of the property.
  • The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit.
  • Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses.
  • The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits.
  • There is only a minimal increase in the borrower’s housing expense.
  • The borrower has substantial documented cash reserves (at least three months’ worth) after closing. In determining if an asset can be included as cash reserves or cash to close, the lender must judge whether or not the asset is liquid or readily convertible to cash and can be done so absent retirement or job termination.
  • Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves. “Assets” such as equity in other properties and the proceeds from a cash-out refinance are not to be considered as cash reserves. Similarly, funds from gifts from any source are not to be included as cash reserves.
  • The borrower has substantial non-taxable income (if no adjustment was made previously in the debt to income ratio computations).
  • The borrower has a potential for increased earnings, as indicated by job training or education in the borrower’s profession.
  • The home is being purchased as a result of relocation of the primary wage-earner, and the secondary wage-earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area. The underwriter must document the availability of such possible employment.

There are other examples not specifically mentioned here such as a monthly housing payment being low by comparison to the borrowers’ monthly income or a high debt to income ratio might be allowed if a house with a mortgage against it is pending sale but won’t close prior to the need for the new mortgage.   Any compensating factor used to justify mortgage approval must be supported by documentation to be considered.

With lending guidelines taking a more open mind, it’s time to look to compensating factors when a situation arises where a credit score is slightly low, a debt to income ratio is high, a buyer needs to temporarily assume 2 housing payments and a number of other circumstances.  Be sure not to buy into what you see on the evening news and trust that common sense in mortgage underwriting is more real than many might think.  Be in the know and take advantage of it!

Charles Dailey - iLoan - NMLS ID# 79048 – CA DOC, MN DOC & WI DFI – 612.234.7283

You may not be familiar with the term “buy and bail” but lenders are. And if you’re not familiar you may be very surprised when a lender denies your loan when you try to convert your primary, current residence into a second home or rental.  That is, unless you stumbled upon this blog.  First let’s talk about conventional loans (those backed by Fannie Mae and Freddie Mac.)

If you are applying for a conventional loan, the guidelines are as follows:

Borrowers who currently own their own home typically have three (3) options when they decide to purchase a new Primary residence. They can …

  • sell the current residence and payoff the outstanding mortgage,
  • convert the property to a second home assuming the borrower can qualify with both the existing and new mortgage payments, or
  • convert the property to an investment property and provide documentation that they will rent the property and use the income to offset the mortgage payment.

In order to ensure that borrowers have sufficient equity and/or reserves to support both the existing financing and the new mortgage being originated, the following guidelines are required for qualifying borrowers purchasing a new Primary residence when the current Primary residence is pending sale or they are converting their existing Primary residence to a second home or investment property.

Current Primary Residence is pending sale but will not be sold (closed) prior to the new transaction:

  • Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction.
  • Six (6) months of PITI for both properties is required to be in reserves. Reduced reserves may be considered of no less than 2 months for both properties if there is documented equity of at least 30 % in the existing property. Valuation can be derived from an appraisal, automated valuation model (AVM), or Broker Price Opinion (BPO) minus outstanding liens. Valuation is subject to underwriter approval. Reserve requirements for loans submitted are dictated by the automated underwriting findings and will replace the requirement listed above.
  • The current principal residence’s PITI will not be required to qualify the borrower as long as the reserve requirements above are met and an executed sales contract for the current residence is provided and confirmation that any financing contingencies have been cleared.

Conversion of Primary Residence to a Second Home

  • Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and
  • Six (6) months of PITI for both properties is required to be in reserves. Reduced reserves may be considered of no less than 2 months for both properties if there is documented equity of at least 30 percent in the existing property. Valuation can be derived from an appraisal, automated valuation model (AVM), or Broker Price Opinion (BPO) minus outstanding liens. Valuation is subject to underwriter approval.

Conversion of Primary Residence to an Investment Property

  • Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction: and
  • Six (6) months of PITI for both properties is required to be in reserves unless otherwise dictated by automated underwriting findings.

Up to 75% of the rental income may to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property. Valuation can be derived from an appraisal, AVM, or BPO minus outstanding liens. Valuation is subject to underwriter approval. If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

  • a copy of the fully executed lease agreement; and
  • the receipt of a security deposit from the tenant and deposit into the borrower’s account.

If you are applying for an FHA loan however, the guidelines are similar but slightly different in significant ways.  Also, keep in mind, there are  few exceptions to using FHA financing when you already have an FHA loan.  Here are the guidelines:

The main difference with FHA is that they don’t have specific cash reserve requirements in the same way as conventional loans.  In this way, FHA is more lenient.  Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm) may be considered in the underwriting analysis under the following circumstances:

Rental income:

  • Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance.  A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required.  FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.
  • Sufficient Equity in Vacated Property:  The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.  The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.

Here is a link to FHA’s Mortgagee Letter 08-25 that originally outlined these requirements: http://portal.hud.gov/hudportal/documents/huddoc?id=08-25ml.doc.

I’m providing these guidelines as reference.  They are by no means a replacement for a good loan officer who can help structure a loan that is right for you without hours of internet research!

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