We've been here before...

There was a great article today from Rob Chrisman that referenced a small article about the HOLC. A very old acronym from the Great Depression. HOLC the old/new mortgage bail out model . The article makes interesting comparisons to today's mortgage market and the tools that were used to save home during the the Great Depression. You will find the comparison encouraging.

FHA News Release from Caliber Funding

Important FHA MIP Changes


Effective 10/4/10 – Applies to all FHA Loans with a Case Number date on or after 10/4/2010

Upfront MIP will go down to 1% for all FHA loans with Case Number date on or after 10/4. This will impact the amount

disclosed in Block 3 of the GFE.

Monthly MI will go up significantly for all loans with Case Number date on or after 10/4. This amount is

disclosed in all places where the monthly amount owed appears on the GFE (several places). The premium

will depend on the Amortization Term and LTV:

LTV Annual Premium for Loans > 15 Years

= or < 95 percent 0.85

> 95 percent 0.90

LTV Annual Premium for Loans > 15 Years

= or <90 percent -None-

> 90 percent 0.25

Under-disclosure of the monthly amount owed on the GFE may result in a RESPA tolerance violation. There

is no cure for the tolerance violation.

FNMA Loan Quality Initiative

Policy Effective 10/4/10

Caliber Funding has established policies and procedures in compliance with Fannie Mae SEL-2010-01

Selling Guide for the Loan Quality Initiative (LQI).

1. Effective October 1, 2010 Caliber requires documentation in the submission package that all parties

to the loan transaction are to be verified against the LDP/GSA list for all files, including but not limited

to, Government and Conventional products.

2. As a reminder, all FHA files require the FHA Case Number Assignment and CAIVRS report.

Un-disclosed Liabilities and Re-underwriting Requirements

Caliber Funding requires that all loans, regardless of channel, be underwritten using a tri-merge credit

report from an accredited agency.

In order to assure that a borrower has not incurred any new debts between the date of their application

and the loan closing, Caliber Funding will obtain a “Gap” report from 1st American / Credco on every

transaction within 5 days of closing.

The responsible underwriter on the transaction must review and clear the gap report. In reviewing the

report attention should be paid to any debts, inquiries or balance increases which have occurred since

the original credit was pulled and the file was initially approved.

Social Security Number Validation

Caliber Funding requires that the Social Security Number associated with each borrower in the

transaction be validated outside of the documentation provided by the borrower / broker.

Excluded Party Lists

Caliber Funding requires that all parties to the transaction, regardless of product, including but not

limited to the borrower(s), broker, originator, processor, appraiser, and realtor(s) be checked against the

standard HUD Limited Denial of Participation (LDP) and GSA lists.

Borrower Occupancy Verification

Caliber Funding recognizes and shares concerns in the industry regarding occupancy misrepresentation

and has implemented several steps in underwriting to help insure the borrower’s occupancy is as stated

on the loan application.

Caliber

Today and Tomorrows FHA Borrower: New changes to FHA lending guidelines and their effects on borrower qualification.

Well the summer is almost over and as we head into another fun filled school year in my home, FHA has some new rules for me to follow at the office. The job to qualify people for a home loan has never been tougher. As many recent mortgage borrowers can attest, the application process can be daunting, haunting, and overall intrusive to no end. Many borrowers feel the headache is not worth the reward.

Now we have word from HUD that FHA rules and guidelines will be changing yet again. Most notably and directly related to borrower qualification are the new MI requirements. These requirements were signed into law by President Obama on August 12, 2010 and gave the HUD secretary more authority and flexibility to change and modify the FHA program as needed to ensure continued liquidity in the mortgage market place.

Effective for originations in the beginning of October 2010, Upfront Mortgage Insurance goes from 2.25% to 1.0% for loans greater than 15 years in duration and over 95% loan to value. This is basically all low money down FHA purchase 30 year fixed loans. But wait, that’s good news. You thought this article would be glum didn’t you. Yes, that is good news, but HUD also changed the monthly mortgage insurance from the current .55% to 1.55% for the same type of transaction.

But what does this really mean to the average FHA borrower? Let’s take a simple hypothetical purchase transaction. The borrower is buying a home for $275,000 and is going to put down the 3.5% and will finance his upfront mortgage insurance premium. Here is how this deal looks today versus post October 2010 changes.

                                                Old                          New

Borrowers pmt. @ 4.500%     $1374.90                 $1358.06

MMI Monthly MI Pmt            $121.63                   $346.00

Totals                                      $1496.53                 $1704.26

FHA has essentially raised the borrowers Principal, Interest and Mortgage Insurance Payments by $60 a month. This is an increase of 12+%.

While this increase seems timely considering the government’s spending of late and talk of expiring tax credits and new taxes too. This increase will get FHA much needed capital, more quickly, by requiring borrowers to pay more monthly versus financing a large amount of the overall insurance over the life of the loan.

With rates still hovering slightly above the all-time lows, this modest increase should not impact the purchase market a great deal. There maybe a few borrowers who are squeezed out of financing a higher priced home, but maybe that is the strange side-effect, some borrowers will not be able to buy as expensive of a home as they would like. And that is OK.

FHA Changes

FHA is changing it's terms, yet again. FHA will increase it's MMI or monthly mortgage insurance premium to as high as .90% from the current .55% and it's UFMIP or upfront mortgage insurance premium to 1% from the current 2.25% for purchase transactions. The result, plenty of technology updates and confused Loan Officers. The question is how will the streamline refinances be affected by this?

4% 30 year fixed...

It's official - we've hit 4% 30 yr fixed. I would offer a high balance client 4% 30 yr fixed today...4% has a small rebate, so smaller loan balances probably won't get that offer...yet.

Should you go with a Big Bank or smaller local mortage company

Posted on my blog a few days back was a link to an article regarding Realtors sending prospective buyers to direct lenders versus the big banks. The reason? Time.



I wanted to expand on that previous article and talk about the advantages of using a small or mid-size company versus the drawbacks of not using a big bank.



The simple truth is your loan will most likely end up with a big bank or at least their servicing group. Bank of America currently services several trillion dollars in mortgages. That’s “T” for trillion. But this doesn’t mean going direct to a big bank will provide a quick and painless refinance or purchase money loan. In fact, in many cases, big bank customers will pay a higher rate and fee combination.



Almost all big banks give access to their vast financial resources through intermediaries called correspondent lenders. These are direct lender that fund their own loans and then sell them to a bigger bank. This structure is common and has been in practice for decades.



So it would seem that going to a correspondent lender would increase prices. But it doesn’t, and here is how. The big banks have overhead and huge operations that eat into other division’s profits or losses. Another way to say it is the banks aren’t just in the business of making home loans. Mortgage Bankers and other direct lenders are solely interested in originating loans. The difference is the direct lender is focused on making loans and structures their company to provide the most efficient platforms in which to originate. As a result, turn times, pricing and overall customer service are generally far superior to the bigger bank.



This isn’t to say big banks are always slower or always higher priced. Ultimately your loan officer or mortgage consultant is the best indicator of how well your loan application process will go. But you can’t tell how good or how bad they are until you are deep in the process.



The best way to find a mortgage company is through due diligence and referrals. You can’t beat a trusted family member or friend who has something nice to say about the person or company that completed their transaction. And make sure that person works for a direct lender or small community bank and your service times should be reasonable.



So the top five reasons to NOT use a big bank are:



#1 You’ll be lost in the shuffle when applying. The big bank application volume is amazing since many think the big bank should have lower rates.



#2 Big banks take advantage of their brand and will provide rates that are above the national average



#3 You may not necessarily receive the personal touch with a big bank. Smaller companies are more nimble and better able to adapt to the changing needs of specific client needs. Turn times at some major banks are upwards of 90 days.



#4 Big bank closing times can take 60-90 days. Most purchase contracts are being written under 30-45 day close scenarios. If you can’t close within that time you may suffer per diem penalties for not closing on time. These fees can be anywhere from $75 a day to over $300 per day.



#5 The Big bank don’t care about you. Bank of America now holds a financial relationship with 1out of every 2 people in the country. Do you think they will miss or appreciate your business?

10 Yr Hits 2.80%

In another sign of continuing pressure to keep rates lower and that mortgage production is not keeping with demand the 10 yr hit 2.80 @ 105.0+ !!

You can get a 4.25% 30 yr at no points and probably no fees if the deal is uber-clean and low LTV.

National Mortgage News - Loan Closings Drag On and On at the Megabanks

More evidence we are moving toward mortgage bank and mortgage broker originations. Unless YSP is truly going away. However, when I checked this AM, we still show YSP on wholesale rate sheets.
Here is a great article about Realtors who are now starting to refer busines away from the MegaBanks. Nice article Mr. Muolo.

National Mortgage News - Loan Closings Drag On and On at the Megabanks

Yield on the 10 Yr could hit 2.5%

According to one of the fathers of mortgage backed securities. Lewis Ranieri, the co-inventor of the mortgage backed security, believes the yield on the 10-year Treasury could fall to as low as 2.5% this year.
That would continue to further lower interest rates which are almost to 4% on a 30 yr fixed rate.

da' bidness

I watched this morning as "The Obama" signed FinReg 2010 today. I still have little understanding on how this is going to be implemented or what the impact really will be, but this guy has some great insights. One thing is for sure mortgage lending will continue to be an industry in the middle of a sea of change as we try to apply these new rules and business practices going forward and interact with a brand new agency to protect the consumer. I'm sure this will be a seamless integration of government entities, not. 

The bad news for consumers is this will no doubt increase the costs of borrowing. Is that bad? Well to me it means less people will qualify for loans, which means less competition for homes, which equals lower home values, which will increase interest rates, which will further slow the pace of borrowing.

Future looks bright!

FINREG - Grapevine Except from National Mortgage News

Found some interesting yet conflicting commentary on the bill. Here you go!

FINREG excerpt, ADIOS MTG BIZ


Feast your eyes on pg 1439:



ix) for which the total points and

fees payable in connection with the loan do

not exceed 2 percent of the total loan

amount, where the term ‘points and fees’

means points and fees as defined by Section 103(aa)(4) of the Truth in Lending

21 Act (15 U.S.C. 1602(aa)(4));



This relates to what is called "qualified mortgage" and is every fixed rate loan now being originated. EVERY FIXED LOAN

by frankenstyle July 14, 2010 8:53 AM





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It also dictates your max rate. Line 12 on pg 1436.

by frankenstyle July 14, 2010 8:56 AM





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Frank, you have a link handy to that?

by BuySide July 14, 2010 10:34 AM





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It's a bit more complicated than that. Frankenstyle, you may be looking at an older version of the measure. Below is a link to the Conference Committee version of the bill. See Title XIV of the bill starting on page 26 of that title, where it defines a "qualified mortgage". This entire bill is a real mess, but especially the mortgage provisions. Anyone voting for it needs to be voted out of office. More can be done to fix financial regulatory problems with much less legislation and gamesmanship by politicians. Call your Senator and compain if they are voting yes on this.



http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/Financial_Regulatory_Reform062410.html





(vii) for which the total points and fees (as defined in subparagraph (C)) payable in connection with the loan do not exceed 3 percent of the total loan amount;



‘‘(C) POINTS AND FEES.—

‘‘(i) IN GENERAL.—For purposes of

subparagraph (A), the term ‘points and

fees’ means points and fees as defined by

section 103(aa)(4) (other than bona fide

third party charges not retained by the

mortgage originator, creditor, or an affil21

iate of the creditor or mortgage origi22

nator).

‘‘(ii) COMPUTATION.—For purposes of

computing the total points and fees under

this subparagraph, the total points and



fees shall exclude either of the amounts described in the following subclauses, but not

both:

‘‘(I) Up to and including 2 bona

fide discount points payable by the

consumer in connection with the mort7

gage, but only if the interest rate

from which the mortgage’s interest

rate will be discounted does not ex10

ceed by more than 1 percentage point

the average prime offer rate.

‘‘(II) Unless 2 bona fide discount

points have been excluded under sub14

clause (I), up to and including 1 bona

fide discount point payable by the

consumer in connection with the mort17

gage, but only if the interest rate

from which the mortgage’s interest

rate will be discounted does not ex20

ceed by more than 2 percentage

points the average prime offer rate.

22 ‘‘(iii) BONA FIDE DISCOUNT POINTS

23 DEFINED.—For purposes of clause (ii), the

24 term ‘bona fide discount points’ means

25 loan discount points which are knowingly

paid by the consumer for the purpose of

2 reducing, and which in fact result in a

3 bona fide reduction of, the interest rate or

4 time-price differential applicable to the

5 mortgage.

6 ‘‘(iv) INTEREST RATE REDUCTION.—

7 Subclauses (I) and (II) of clause (ii) shall

8 not apply to discount points used to pur9

chase an interest rate reduction unless the

10 amount of the interest rate reduction pur11

chased is reasonably consistent with estab12

lished industry norms and practices for

13 secondary mortgage market transactions.



HAD ENOUGH??...

by oldbe July 14, 2010 10:55 AM





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This is the amended version:



http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:s3217as.txt.pdf

by frankenstyle July 14, 2010 11:00 AM





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So, in a nutshell, Barney Frank has succeeded in the disassembly of an industry. Unless I'm misinterpreting something.

by wherewasi July 14, 2010 11:22 AM





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correct, this basically removes any chance of a subprime product from entering back into the market based on a limit of 1.5% above the "prime offer rate"

Wasn't it yesterday that said 25% of citizens are below 599 now? Housing market, meet your doom.

by frankenstyle July 14, 2010 11:34 AM





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I think the opposite. Brokers will be limited on fees. Subprime will be originated through the finance companies that can service the loan. The Beneficials of yesterday should be making a comeback. Self Employed will be getting a cash flow loan that documents their ability to repay through bank statements. Those with big money will rule again. Originators used to today's big splits and making big money on a loan will exit.

by the voice of reason July 14, 2010 12:04 PM

FINREG

So I have eagerly, OK not eagerly, awaited the passing of the FINREG 2010 what is touted to be the biggest increase in government oversight in the financial industry since the great depression. Of course, I am keenly interested in how the bill will impact me, my family, my career, and therefore my future.

So I get on the Internet last night and guess what. No one has published a detailed accounting of what this bill will actually create. I've seem some bullet points, but even those bullet points fail to fully layout or even explain how the bill will change the mortgage market. Some talk has been "Yield Spread is illegal now", is it? I don't see that - wholesale companies are everywhere and last rate sheet I checked had rebate all over it and lots of it.

2300 or twenty-three hundred. It seems like ever more when you write it out. But that is how many pages it takes to protect the consumer from the evils of the banking empire. Funny enough, no one who voted for it has even read it. And even if you did ( and I am not going to) the text would likely cripple your brain into a mush unrecognizable to all but physicians.

Written by attorney's and legally like minded MBA's, the bill is really only a road map and rough draft on how to prevent the train wreck that is the financial crisis.

Even this morning, after the bill has been signed and ready to deliver to the President for signature,Goldman Sachs settled with the SEC and largest earthquake recorded in DC struck. You tell me what that means, but in my world that's an omen.

So what does this mean for consumers since we clearly cannot determine how this bill will really impact lending. They say no more Stated Income loans? Well unless you have 5% capital at risk for those loans (that's not that much) It also exempts FHA and many want fannie mae and freddie mac added to that exemption. So the big banks won't lend then...Well they really aren't right now all that much anyway. So expect it to get harder- not easier to get a new loan.

Fees? Did you say fees. yes these are the things we will all need to get used to seeing more of. Banks will undoubtedly send the costs of ANY new legislation on to the consumer in one way or another. Just wait to see how expensive it will become to have checking account.

Bottom line, no one really knows the true impact of this bill. But one thing is for sure - it's gonna be expensive for all of us.

fannie mae ok's bk's after two years?

some have asked if fannie mae will allow a new purchase with a bk being dismissed over 2 yrs ago. the short answer seems to be only if a dependent or spouse passes away or a bonafide medical issue causing extreme financial distress. yes....it must all be documented. most loan officers are just declining these - so stay informed.

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4.5% at no points - feels good to lock rates this low.

closing times are still consistently 25 days on average.

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The role of the mortgage broker in today’s mortgage market. “GFE” Good for Everything, or a good faith estimate.

With the launch of the 2010 Good Faith Estimate we read articles about the fall of the mortgage broker and that brokers will be unfairly disadvantaged when reporting rates and terms. I am here to call all that poppycock. The simple truth is a borrower can clearly determine how much is being charged or made by the broker and when dealing with a bank or direct lender a borrower does not see all the income being made on their loan. The “TIL” or Truth In Lending Statement still reports the same APR for a broker and lender assuming the same exact terms even if the broker is receiving lender compensation for the loan. Lender compensation or yield spread premium is how brokers offer no points loans and is no different than a bank selling your loan to Freddie Mac except a bank does not disclose this income they receive.

But let’s not forget the role of a mortgage broker. The broker should be presenting him or herself as an authority in the market place, and have multiple investors whereby to deliver their loans. The assumption being that the broker has delivered the best loan product for the client at the most competitive rate and terms to the best individual investor at the time. And every broker should be able to beat a big bank or big bank lender – if they want to. But therein lies the real issue - broker abuse.

Being a mortgage broker became the go to job in the 90’s 00’s for many getting into the industry - and licensing couldn’t have been easier. It just became too easy for mortgage brokers to hijack their clients and charge excessive fees all the while really only being regulated by the wholesale lenders themselves. Of course, those firms had insatiable desires for more paper, so that wasn’t really good oversight, and the states and federal government were apparently asleep for 10 years.

Having originated both as a broker and lender after the new GFE was put into place; I feel I am as capable as anyone to speak to the differences between dealing with a direct lender, bank, or mortgage broker. There aren’t really any differences.

Direct lenders will tell you mortgage brokers cannot be trusted to fund a loan, and mortgage brokers will tell you the banks take 90 days to close. The reality, they are both accurate. There are brokers who can just simply not operate in today’s lending environment and can therefore really train wreck a transaction. But equally frightening is that banks do often take months to close the most simple of refinance or purchase transactions. And often time tell clients late into the process they are not approved or the transaction cannot be completed. Many times due to their own lack of experience mortgage professionals.

Today more than ever it is important to know who you are working with – and be familiar with the actual experience level. Referrals are always great way to determine who to work with. This is not a part-time job. Mortgage professionals need to be licensed and educated in all aspects of residential lending in today’s market. Mortgage brokers generally need even more licensing and education than their bank peers. So your local mortgage broker may be the most knowledgeable mortgage professional available and the cheapest.

So before you go knocking the mortgage broker make sure you are comparing apples to apples and oranges to oranges, and most important, work with someone you trust.





With over twenty years experience in mortgage lending, a Certified Mortgage Banker Designate (CMB) from the Mortgage Bankers Association of America, and billions in funded loan experience, I can assist you and/or your clients with the most important financial decisions related to your residential and commercial real estate. Please call or email me today



Michael A. Foote, CMB
Certified Mortgage Banker

949.584.4600