Archive for the ‘Top 10 Changes in Mortgage Industry’ Category

Mortgage Industry Update

I am pleased to announce that I, along with my co-owner and the staff of FCMC Mortgage Corp., have now joined Classic Mortgage LLC.   Classic Mortgage is a mortgage banker in New York, New Jersey and Connecticut.  At Classic, we will be able to offer the same excellent service; low lender interest rates and variety of brokered mortgage products as we did at FCMC Mortgage Corp.

However, in addition to brokering loans, since Classic Mortgage LLC, is a mortgage banker, Classic will make the loans themselves on many conforming, high balance conforming and FHA loans. As a mortgage banker, we will have more flexibility over the transactions. This will allow us to provide superior service to our clients with quicker approvals, better control over the loan process and easier closings. .

I would like to thank all of you who have allowed FCMC to serve your mortgage needs and those of your clients, friends and family since 1995.  It has been my pleasure to work with all of you.

I look forward to many more years of assisting with your mortgage financing needs. Please contact me any time with any mortgage related inquiries, questions or issues.

My new contact information is set forth below:

Dan Shlufman (MLO #6706): dshlufman@classicllc.com

CLASSIC MORTGAGE LLC.. MLS ID# 31149 25 E. Spring Valley Ave., Ste. 100 Maywood, New Jersey 07607 201-368-3140 (tel) 201-909-5839 (fax) www.classicmortgagellc.com

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HARP 2.0 Refinance Program Another Government Boondoggle Destined for Failure

On Monday, October 24th, to much fanfare, the Federal Housing Finance Agency announced that they were revising the Homeowners Affordable Refinance Program (a/k/a HARP).  In addition to lowering some of the costs of refinancing (which will certainly be appreciated and is helpful but is not an impediment to refinancing in most cases), the major revision was the lifting of the equity cap of 125% for “underwater” homeowners. Previously, HARP provided that a homeowner could refinance if they had up to 25% of negative equity (i.e. a 125% loan to value). 

Under HARP, which has been in effect for about 2 years, about 900,000 people have refinanced using the program. This is about 10% of the 9,000,000 people who have refinanced in the United States during that same time period. The federal government estimates that another 1,000,000 people will refinance under the new program commonly known as HARP 2.0.  I believe that at best this number will be less than half of their estimate (i.e. 500,000) and likely much less than that.  In addition, even if it is as many as 500,000, most of these people would have been eligible to refinance under HARP in any event but did not know about it or were not motivated to do so for any number of reasons.  Real estate prices nationwide have declined between 15 and 35% in most areas over the past 3 years. So, unless someone bought during the last year of the bubble and put down less than 5% (both combined representing a very small percentage of homeowners), they would have been able to refinance under HARP with the 125% loan to value allowance.  The reason they could not, other than in a very small percentage of cases, has nothing to do with the 125% loan to value.  It is the result of other factors that are detailed below and why this is destined for failure.

So why is this a boondoggle? (Note. boondoggle is defined by dictionary.com as “a project funded by the federal government out of political favoritism that is of no real value to the community or the nation”).  The short answer is because it does not address any of the 2 major shortcomings that made HARP of limited value to most homeowners who are  underwater. These are (i) subordinate loans (e.g. HELOCs) and (ii) homeowners who can no longer qualify for a loan due to changes in their credit scores, employment and/or income.  HARP 2.0 also does not address loans that are not being held by Fannie Mae or Freddie Mac. But, as this was never its intent, I will not comment on that in this post.

In addition to the 2 fundamental problems above, HARP 2.0 in touting the removal of limits on states hardest hit by the housing bust like Florida and Nevada fails to address a 3rd problem that is mostly unique to those 2 areas. These are the condominium requirements of Fannie Mae and Freddie Mac that still cannot be met.   Even if a homeowner can refinance under HARP 2.0 without regard to property values, without the removal of these requirements HARP 2.0 will be the epitome of a “paper tiger.”  Some of these condo requirements are that 50% of the units in the complex must be sold or in contract; that 70% of the units are currently owner occupied; that adequate reserves being maintained and that no litigation involving the condominium association exists.

Once again, under the theory that “doing something is better than doing nothing,”  the federal government is attempting to fix a problem that does not exist rather than the one that does.  Unless they find some way to provide incentives to (mostly) HELOC lenders so that these lenders will agree to subordinate their existing HELOC to a new HARP 2.0 loan, the program will be of little value to most homeowners.  These HELOCs were taken out by many homeowners at the time of purchase to either avoid PMI or reach combined LTVs of 95% or even 100% . They were also taken out after the purchase for renovations, other investments and recreation (e.g. vacations).

In addition, for homeowners who are current in their mortgage obligations, their existing loans should be modified without regard to their current credit, income or employment status.  Because as almost everyone who cannot refinance for any of the above reasons has said, quite logically, “if I am making my current mortgage payment I will certainly be able to make my new mortgage payment if the amount is lowered by several hundred dollars.”  They then go on to say  “since the bank already has my loan, why won’t they let me refinance where there is no additional risk and actually less of a risk if my payment is lowered?”   Good points, good questions and very logical.  However, until the federal government starts listening to those of us in the industry who have day-to-day interaction with homeowners and to the homeowners themselves as opposed to the economists and other “so called” experts, the only laws we will have are “the laws of unintended consequences.”

December 2009 Changes

Recent Changes in the Mortgage Industry

     A. Homebuyer Income Tax Credit

* WHO QUALIFIES:

a. First-time buyers, people who haven’t owned a principal residence in the three years before purchasing the home. The principal residence may be a new or resale single-family home, condo, town home, mobile home or houseboat.

b. Repeat home buyers purchasing a principal residence.

* AMOUNT: Ten percent of purchase price, up to $8,000 for first time buyers and $6,500.00 for repeat home buyers.

* TIME FRAME: You must close on the home between November 6, 2009 and April 30, 2010.

* INCOME LIMITS: Single buyers may earn no more than $125,000 and married buyers no more than $250,000 to claim the whole credit. Above those incomes, buyers qualify for a partial credit.

* For more information on the new first-time home buyer tax credit, go to http://www.federalhousingtaxcredit.com.

      B.   Making Home Affordable Refinances

* WHO QUALIFIES: Homeowners who are current in paying their mortgages, whose first mortgage is between 80 and 105 percent of the home’s value, and whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.

* TIME FRAME: The mortgage must have been originated before Jan. 1, 2009. The program runs until June 2010.

* LIMITS: The property must be owner-occupied. The primary mortgage must be no more than $729,750 for a single-family unit

     C.  Making Home Affordable Modifications

* WHO QUALIFIES: Homeowners who are either delinquent in paying their mortgage or who can no longer afford the payments, either because their interest rate reset or they suffered a hardship such as reduction in income or medical problems. The primary mortgage payment, including taxes, insurance and homeowner association dues, must exceed 31 percent of monthly income. The aim is to bring the primary mortgage payment down to 31 percent of monthly income by dropping interest rates, extending the loan period or even forgiving principal.

* TIME FRAME: The mortgage must have been originated before Jan. 1, 2009. Borrowers can apply until Dec. 31, 2012. Modified mortgage interest rates can drop as low as 2 percent for five years and rise gradually after that period.

* LIMITS: The property must be owner-occupied. The primary mortgage must be no more than $729,750 for a single-family unit. Borrowers are allowed to have their mortgages modified only once.

* INCENTIVES: The program is largely voluntary for lenders and mortgage servicers. There are cash incentives both for servicers to modify the loan and for borrowers (up to $5,000 over five years) who stay current with their modified mortgage payments. The Treasury Department promises additional incentives to reduce second mortgages when servicers are working to modify primary mortgages.

* SPECIAL CIRCUMSTANCE: When an applicant is at least 60 days delinquent, the servicer must modify the loan if doing so is less expensive than proceeding with foreclosure.

* For more information on the federal program Making Home Affordable, go to http://www.financialstability.gov.

D. Continuation of Increased Loan limits from Economic Stimulus Package of 2008 For 2010 they are currently up to $625,000-$729,000 in certain “high cost” areas as provided by the Federal Housing Finance Agency (“FRFA”) while remaining at $417,000 in all other areas of the country.

  1. Lenders have created a subclass of loans known as “high balance” conforming loans as a way to differentiate from the conforming loans.
  2. The pricing on these loans is higher by about .25-.50% than the standard conforming loans on refinances.
  3. Substantial increase in rates for cash-out on these loans

E. Continued Absence of Jumbo Fixed Rate Loan Market

      1. Banks cannot sell these loans so they must hold them in their portfolio

      2. Rates are much higher to reflect this risk and lack of liquidity

      3. Most jumbo loans are now adjustable rate loans made by savings banks not commercial banks

F. Difficulty in obtaining cooperative loans.  With the consolidation of some of the larger cooperative lenders such as Washington Mutual and Wachovia, there are fewer lenders available to make these loans.

      1. Requiring much lower loan-to-values on larger loans

      2. Increasing costs on conforming loans with loan-to-values over 75%

      3. More scrutiny of cooperative including its insurance and fidelity bond

G. Virtual Elimination of No Documentation Loans and most No Income Verification Loans. Very few of these loans still exist and where they do the rates are much higher than on standard loans and require a much larger downpayment.

H. Significant reduction in loan to value ratios (i.e. the loan amount over the property value)

1. Jumbo loans-mostly need to put down 20%. 

2. Conforming loans are made at standard rates up to 90%.  Certain programs usually tied to income are still available up to 95% and even 97%.

I.   Increased credit score requirements for all loans.  Minimum credit score was increased from 620 to 660.  On jumbo loans it is 680 with many lenders requiring over 700 credit scores. On home equity loans in many cases it is as high as 680 or 700.

J. Pricing of loans (i.e. interest rates) are now affected by credit score.

      1. Best pricing requires a credit score of 740 or better and LTV less than 60%

      2. Some programs now require 700 credit score

      3. Interest rates significantly worse if credit scores are below 680

K. Home Equity Lines of Credit and Home Equity Loans

      1. Loan to values reduced so much recently that there are effectively no HELOCs as piggyback loans to avoid PMI or private mortgage insurance.

      2. Generally at maximum levels of 70-80% of the property value.

      3. Existing home equity lines are being frozen when lenders reevaluate property values and find that they have dropped significantly.

L.  Limited number of subprime loans still available.  All require full documentation and lower loan-to-value.

      1. FHA loans have replaced the subprime loans for people with poor credit and with low downpayments.  These loans all have private mortgage insurance (no matter what the loan-to-value) and higher fees.

M. Stricter adherence to debt-to-income ratios.  Lenders have reduced their debt ratios to 38-45% depending on the lender and the program

N. Elimination of many interest-only loans.

      1. Only available on primary residences

      2. Require credit scores over 700 to qualify for them

      3. Qualification is based on fully amortizing loan

O. Declining home prices

      1.   affecting value of appraisals (on large properties two appraisals may be required)

2.  lenders are reviewing appraisals carefully and requesting clarifications, reviews and additional comparable sales.

    P. Mortgage Modifications

1. Companies being formed to do these. 

                        a. Most of these companies are former subprime brokers

                        b. charging exorbitant fees of $3500 on average

            2. Borrowers can accomplish this by themselves at no cost just by contacting their lender and discussing the options available or by using HUD approved counseling agencies at no charge (A list of lenders and counselors can be found at http://www.hopenow.com)

            3. Borrowers need to provide documentation indicating their inability to pay the loan.