Guideline Change

Fannie Mae Restricts 2-Unit Borrowing

For the first time in nearly six months, Fannie Mae is imposing strict, new guidelines on American homeowners. 

This time, the hardest hit demographic is owners of 2-unit homes.

In its official announcement, Fannie Mae listed the following changes to its 2-unit financing programs, separated by occupancy type.

Primary Residence

• Purchase: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
• Rate-and-Term Refinance: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
• Cash Out Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 680.

Investment Property 

• Purchase: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
• Rate-and-Term Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
• Cash Out Refinance: Maximum loan-to-value drops to 70%; FICO minimums reset to 680.

With Fannie Mae’s new loan-to-value limits falling by as much as 15 percent, it’s a certainty that fewer 2-unit homeowners will be approved in the mortgage process.  This could slow both purchase and refinance activity in the coming months.

The good news, though, is that while Fannie Mae recommends that lenders institute the new policy immediately, September 1, 2009, is the “effective date”.

Therefore, if you plan to buy a 2-unit home, or if you own one and know you’ll need to refinance it soon, it may be a good idea to move up your timeframe. 

Lenders could implement the new guidelines at any time and usually do so without warning.

Guideline Change

Mortgage Lending Starts To Show Signs Of A Thaw

Getting approved for a home loan isn’t getting easier, but it doesn’t appear to be getting much more difficult, either.

In its quarterly survey to member banks, the Federal Reserve asked senior bank loan officers whether “prime” residential mortgage guidelines had tightened in the last 3 months.

Nearly 50 percent of banks said guidelines tightened last quarter, a much lower figure than during all of 2008 and a signal that mortgage lending may be turning a corner.

Guidelines remain restrictive, however.

Versus 18 months ago, lenders subject would-be borrowers to all of the following:

• Higher minimum credit score thresholds
• Larger minimum downpayments
• Lower debt-to-income requirements
• Mandatory fees based on certain loan traits

In addition, the availability of subordinate financing has all but disappeared when a home’s loan-to-value exceeds 80 percent.

Combined, these changes preclude a lot of Americans from getting access to today’s low rates but that could change in the coming months if the Fed’s reported trend continues.

Some experts believe that credit tightening started the recession. Credit loosening, therefore, could help lead us out.

Guideline Change

For the Second Month in a Row, Foreclosures Are Concentrated in 3 States

For the second month in a row, the country’s foreclosure activity was dominated by a small number of states.

As shown by the latest stats from RealtyTrac.com, more
than half of the country’s foreclosure actions from April were concentrated in just 3 states:

1. California
2. Florida
3. Nevada

Those 3 states are home to but 19 percent of the U.S. population.

No matter in which state you live, however, it’s important to understand the far-reaching ramifications of foreclosures.

Although real estate is local, mortgage lending is not. Fannie Mae and Freddie Mac insure loans in all 50 states and when those mortgages go into default, the government entities often take losses.

This is the primary reason both Fannie and Freddie asked for government aid to the tune of $19 billion and $6 billion, respectively, last week. It’s also the reason why loan fees have increased over the last 12 months — another way to shore up balance sheets is to raise consumer charges.

Furthermore, downpayment requirements are larger than before foreclosures proliferated and private mortgage insurance is more expensive, too.

These are important changes to homeowners in all states — not just the 3 named above. In some cases, they can be the difference between a home loan approval and an underwriting turndown.

Search the complete April 2009 foreclosure report for yourself on RealtyTrac’s website.

Guideline Change

8 Things You Absolutely Shouldn’t Do Now That Your Mortgage Application Is In-Process

With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities.

The downside of today’s unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business.

As a result, the process of underwriting and approving new mortgage applications is taking some conforming lenders as long as 2 months to complete.

This is double the time needed as recently as six months ago.

Because there may be 60 days between the application date and the closing date, it’s important for applicants to remember that mortgage approvals can be revoked at any time prior to funding.

As mortgage applicants, there are many events that are out of our control — job security and health matters, for example. But there are also events that are within our control.

Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process. It may be the difference between being approved by the bank, and being turned down.

1. Don’t buy a new car or trade-up to a bigger lease.
2. Don’t quit your job to change industries
3. Don’t switch from a salaried job to a heavily-commissioned job
4. Don’t transfer large sums of money between bank accounts
5. Don’t forget to pay your bills — even the ones in dispute
6. Don’t open new credit cards — even if you’re getting 20% off
7. Don’t accept a cash gift without filing the proper “gift” paperwork
8. Don’t make random, undocumented deposits into your bank account

Now, avoiding these items may not be practical for everyone. For example, if your car lease is expiring and you need a larger vehicle, it doesn’t mean you can’t buy the car — just check with your loan officer first to be sure the new payments won’t “break” your approval.

The same goes for accepting cash gifts from parents. There’s a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.

Mortgage lending is full of “gotchas” and with underwriting times stretching to 60 days, it’s a lot more likely that a mortgage applicant will trip into one. Following these 8 rules, though, is a good start.

Guideline Change

FHA Cash Out Refinances Getting More Strict as of April 1, 2009

If you’re in want of a cash out refinance, the most liberal cash-out program in town is about to make qualification more difficult.

Effective April 1, 2009, the FHA is reducing the maximum loan-to-value on cash-out refinances by 10 percent, dropping the loan size limit from 95% of the home’s value to 85%.

In its official press release, the FHA days it’s making the change to “limit its exposure to undue risk”.

It also lists the following cash-out requirements:

• With less than 12 months since the purchase date, a home’s value cannot exceed its original purchase price — even if home improvements were made.
• A homeowner must be current on his mortgage payments to qualify
• A second, verifying appraisal may be necessary, depending on loan traits
• Co-signers may not be added to the mortgage note in order to qualify

The last day to register a FHA 95% cash out refinance is Tuesday, March 31, 2009. The loan does not need to be “locked” — only registered.

So, if you know that a 95% cash out FHA refinance is in your future, talk to your mortgage planner before Wednesday morning about registration.

Guideline Change

Fannie Mae Rolls Back It’s 4 Loan Limit for Investors

Friday, Fannie Mae rolled-back one of its least popular mortgage guidelines updates of the last 12 months.

Effective March 1, 2009, real estate investors can once again own and finance up to 10 individual properties. The restriction reversal does come with new minimum requirements, however.

Homeowners buying a 5th, 6th, 7th, 8th, 9th or 10th home must meet the following standards, as set forth by Fannie Mae:

• 720 credit score
• 25% downpayment for a 1-unit (30% for a 2-4 unit)
• No mortgage delinquencies in the last 12 months
• 6 months of reserves for each investment property

In other words, Fannie Mae is re-opening the lending spigot for real estate investors with good credit, a sizeable downpayment and ample reserves.

According to Fannie Mae, the change rationale is that experienced investors can “play a key role in the housing recovery“. Until now, foreclosure auctions have gone at less than full speed because investors unable to pay cash have been halted by the existing 4-property Fannie Mae limit.

Going forward, expect a more expedient foreclosure liquidation nationwide which should, in turn, provide further support for the housing market.

And lastly, not to be forgotten, homeowners with more than 4 properties can finally participate in the ongoing conforming mortgage Refi Boom. Until now, they’ve been stymied by the 4-property restriction, too.

Guideline Change

Mortgage Guidelines Don’t Tighten, But Don’t Loosen Either

If the unfreezing of credit is paramount to an economic rebound, the first signs of a thaw may be here.

Monday, the Federal Reserve released its quarterly survey of 84 member banks. In it, the Fed says that fewer than half of its responding banks tightened “prime” mortgage guidelines over the last 3 months.

This is good news for active home buyers and other Americans in want of a new mortgage.

“Prime” is a vague term with respect to home loans, but it usually refers to mortgage applicants who can document:

• Equity or downpayment in a home
• Credit scores over 740
• Excessive income versus debt

In looking at the Fed’s survey, we can infer that because less than 50% of banks made credit less available, more than 50% did not. Borrowing may not be easier for prime borrowers, in other words, but it’s not harder, either. Count this as a small victory for the housing market.

All of this said, however, guidelines remain restrictive.

In the 12-month period beginning late-2007, banks continuously clamped down on low credit scores, low downpayments, and high debt-to-income levels. In addition, Fannie Mae added new fees based specific loan traits and second mortgages practically vanished from the marketplace.

The cumulative outcome of these actions precludes many Americans from participating in the current Refi Boom. However, if the trend reported by the Fed continues, lending may open up a bit later this year, providing a boost to housing and to the economy.

Experts believe that the tightening of credit helped create this recession. The loosening of credit, therefore, may be the way out.

Guideline Change

Move-Up Homebuyers Face New Lending Challenges This Spring

When a homeowner sells his home and decides to buy a new one, there are 3 basic options for the residence — sell it, keep it, or rent it.

Unfortunately, no matter which path they choose, move-up homebuyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past.

Mortgage guidelines are dramatically tighter for people “carrying two mortgages”.

Among the changes this spring’s buyers face:

Selling the primary residence
If you plan to close on your new home prior to the closing of your existing home — even if it’s only by a day — both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of homebuyers.

Converting your residence to a second home
If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth of mortgage payments + taxes + insurance in reserves for the current home and new home combined.

Converting your residence to an investment property
If your current home has less than 30 percent equity in it, any rental income derived from a tenant is disallowed on your mortgage application for the new home. You must still count the mortgage payment + taxes + insurance as a monthly debt.

In other words, being a move-up buyer isn’t as simple as it used to be. New lending rules make buying a new home an exercise in timing and financial planning. And the rules are expected to get tougher, too.

Therefore, if you expect to be a move-up buyer in the next 12 months, consider moving up your timeframe or — at least — planning ahead for it.

Understanding the new mortgage landscape and how they can influence your upcoming purchase may be the difference between getting approved for a home loan, and getting turned down.

Guideline Change

It’s Semi-Official – New Conforming Mortgage Fees Go Into Effect Monday

Even though its effective date is April 1, 2009, mortgage applicants should start seeing Fannie Mae’s new fee structure from lenders beginning this Monday, January 12.

The reason why Fannie Mae’s mandatory loan fees are hitting lender pricing so far in advance is because lenders can take up to 30 days to package and sell a loan to Fannie Mae post-closing. In effect, this moves the April 1 start date to March 1.

Then, figuring that March 1 is roughly 45 days from now and that 45 days is a normal window on which to close on a home or on a refinance, the start date again pushes back, this time to January 15.

Given lenders’ typical timeframe to close, fund, and sell a loan to Fannie Mae, in other words, it’s normal that pricing reflects the fee changes two-and-a-half months in advance. Homebuyers and would-be refinancers would do well to take notice.

If you are floating a mortgage rate today — or shopping for one — consider locking it in before the close of business. Effective Monday, any number of traits in your home loan could increase your closing costs:

• Your credit score
• Your downpayment / equity percentage
• Your home’s property type
• Your reason for wanting a mortgage
• Your loan type

For a complete look at Fannie Mae’s new, mandated loan fees, visit the Fannie Mae web site. If you have trouble interpreting the worksheet, call or email me and we can talk about it together.

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