Mortgagee Letter 11-10

I have already heard that some of you think this will hurt the housing market and our economic recovery. Why the changes? HUD wants to strengthen the FHA’s Mutual Mortgage Insurance Fund, known as the MMIF. Think about it this way. If FHA doesn’t become pro-active now and FHA disappears in the future, then where do you think we would be regarding financing options. 

Keep in mind that Fannie Mae has a pricing change that goes into effect on April 1st, 2011.  Pricing Hikes for Conventional Loans in April 2011  That many lenders and investors have already made this change to their pricing.  Also, there is no change to the Upfront Mortgage Insurance Premium of 1 percent for FHA loans, just the monthly premiums have been changed.

Old verse New Monthly Mortgage Insurance Changes

This chart is from Mortgagee Letter 11-10 – Annual Mortgage Insurance Premium Changes -

As you can see by the red arrow, indicating that this goes into effect on April 18th, not April 4th.  So what does this all mean to those refinancing or buying new homes with a FHA mortgage?

This is based on a $250,000 sales price and the end result is that it would cost the buyer $50.26 more in their total monthly mortgage payment. You can also look at it from the flip side when qualifying buyers. This could lower the new buyers purchasing power by about $9,000. Meaning, instead of the $250,000 purchase price in the example, they can now afford a $241,000 home.

This new change is for your primary 1 to 4 unit properties. This change does not affect Title 1 loans, the HECM loan (reverse mortgages – which I am writing about tomorrow), the HOPE loan, and a few other types of FHA loans. This can also be found in the new FHA mortgagee letter 11-10.

There are also new changes to how one would have to request a FHA case number, cancellations of FHA case numbers, and a few other issues. These changes can also be found in the new FHA mortgagee letter 11-10.

Here is a quick breakdown of different purchase prices just to give you an idea how much more your mortgage payment will increase because of the new FHA monthly mortgage insurance change. In simple math, your mortgage payment will go up $10 per month for every $50,000.

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The agency released their recommendations for a complete overhaul of the mortgage market today, essentially calling for less attractive government-backed mortgages to restore the largely absent private market.

Among the changes they’d like to see are higher down payment requirements for Fannie and Freddie backed loans (10% down) and costlier annual mortgage insurance premiums on FHA loans (up .25%).

That, along with higher guarantee fees on loans securitized by Fannie and Freddie, should get the private market for mortgages up and running again.

Additionally, Treasury has recommended that the conforming loan limit fall to $625,500 from the current elevated level of $729,750 in the most expensive regions of the country on October 1, 2011.

All of these measures are aimed at reducing the government’s share of the mortgage market, which could prove a burden to taxpayers if not dealt with.

But the move could push mortgage rates higher, which are already at 10-month highs, according to the latest release from Freddie Mac.

And the fear is that such changes could throw a wrench in a possible housing recovery later this year.

The report noted that more than nine out of every ten new mortgage are guaranteed or insured by the government.

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1. Lock in your rate as soon as you know you have a good deal in front of you, and you know roughly when you can close (30 to 60 days should be the longest lock period).
2. Lock it in with a lender who has the option of a “float down” if possible. If rates get better, you can participate in a portion of that improvement.
3. Lock it in with a lender who has a liberal rate-lock extension policy. No rate-lock extensions are free. Some even expire beyond the ability to extend. Make sure, whenever possible, that you work with a lender who will allow you to extend your lock if for some reason your deal takes a little longer to close than anticipated.
4. Don’t think about it very long. The rates go up a whole bunch faster than they come down. If the above is to your liking, lock!

No one can time the market. If I get one question more than any other these days it’s “what is going to happen in the next few months with interest rates?”

No one knows – plain and simple. If anyone tells you what will happen to interest rates in the future, consider not working with them – they think they know things they could not possibly know.

We do know what moves rates. We can even know anecdotally (after the fact) what did move rates. But then, we also know who won the Super Bowl – on Monday morning. We even know why, almost exactly why.

But, we never know what will happen to them.

Lock in your interest rate with the above options as soon as you are able to.

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America’s service members sacrifice a great deal to keep America safe. That’s one of the reasons they enjoy some special protections against foreclosure and mortgage default through the Servicemembers Civil Relief Act.

Someone apparently forgot to tell officials at JP Morgan Chase, the nation’s second-largest mortgage bank.

The finance giant overcharged thousands of military members on their mortgages and improperly foreclosed on dozens of active duty service members. The staggering details, recently unearthed by NBC News, highlight rampant violations of the SCRA that put thousands of soldiers on the brink of financial ruin.

Under the SCRA, service members struggling to keep up with mortgage payments can have their interest rate reduced and be insulated against foreclosure. Chase officials apparently flouted the law, charging as many as 4,000 service members well above the 6 percent cap spelled out in the SCRA.

They also initiated foreclosure proceedings against more than a dozen homeowners.

For their part, Chase officials have characterized the mistakes as “grim” but not malicious, according to NBC.

The company said it would issue about $2 million in reimbursements and ensure that foreclosed upon property owners return to their homes.

“We are deeply appreciative of those who fight to protect our country and Chase funds a number of programs that provide benefits to military personnel and veterans, and while any customer mistake is regrettable, we feel particularly badly about the mistakes we made here,” Kristin Lemkau, chief communications officer at JP Morgan Chase, said in a statement to NBC News.

The Chase debacle underscores the need for greater consumer protections for military homeowners. And that’s why the recently announced Office of Servicemember Affairs is so important.

Part of the fledgling Consumer Financial Protection Bureau, the OSA will closely monitor unscrupulous lending practices against service members and provide education for military families nationwide.

Holly Petraeus, wife of Gen. David Petraeus, current commander of U.S. forces in Afghanistan, is heading up the new agency.

Multiple studies and surveys have shown that military members are more likely to be financially overleveraged than their civilian counterparts. Deployments, changes of station and other elements unique to military life can take a toll on families and their fiscal health.

“Those who serve in the military should be able to focus on their jobs and their families without having to worry about getting trapped by abusive financial practices,” Elizabeth Warren, special advisor to the Treasury secretary for the CFPB, wrote on The White House blog. “America’s national security depends on that basic premise.”

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Essentially, the government wants to ensure that banks and lenders who write higher-risk mortgages actually retain some of that risk (5% to be exact), instead of selling it off to investors and wiping their hands clean of it.

After all, this originate-to-distribute model was arguably how we got into this mortgage crisis to begin with.

However, since the legislation was introduced, banks and industry players have come up with a number of ways to be exempt from this new rule, including:

“requiring documentation of income and assets, setting debt-to-income ratio standards, and restricting things like prepayment penalties, balloon payments, and negative amortization.

But Wells wants to take it one step further and ask that both those purchasing and those refinancing have 30 percent down payment/home equity.

Critics (including most other banks and lenders) believe this will lead to a large pool of loans subject to the five percent risk retention rule, greatly increasing mortgage rates.

In fact, the MBA believes rates could be as much as three percentage points higher on loans subject to the rule.

FHA loan lending would also increase because it’s not subject to the risk retention rule, putting more strain on taxpayers.”

Wells Fargo argued that half of mortgages already carry a 30% down payment, but critics believe the move could shut out smaller lenders and increase market share for the top banks, who already have plenty.

If down payment requirements/mortgage rates do rise, it could throw a wrench in the housing recovery everyone’s hoping will get underway this year and next.

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The appraisal process can prove frustrating and time consuming for scores of prospective home buyers.

In turn, many appraisers have gotten a bad rap in recent months.  To help consumers better understand the process and the role of appraisers, the Appraisal Institute recently published a list of tips. Based in Chicago, the Appraisal Institute is an association of more than 24,000 professional real estate appraisers.

The tip sheet comes at a time when some appraisers are taking heat,  blamed at times for potentially costly delays and even for prolonging a decline in real estate values.

“Appraisers today are doing the same thorough, fact-based research and analysis they have always done,” Institute president Joseph C. Magdziarz said in a news release. “Appraisals are especially important because they are an objective and unbiased source of information. Unlike others involved in real estate transactions, the appraiser is an independent professional who performs a service for a fee rather than for a commission.”

The institute points to standard market declines and subsequent lender caution as the driving force behind some mortgage processing delays.

Here’s a look at some of the Appraisal Institute’s tips for consumers:

To learn more, consumers can download the Appraisal Institute’s checklist (note: this is a PDF file) via its website.

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The SAFE Act of 2008 is a form of legislation that has been batted around in Washington for years now. Lawmakers have long been frustrated with the payment of commissions to mortgage loan officers that are based on the cost of the loan to the consumer. In other words, the more lucrative the loan is for the bank (costlier to the consumer), the more money the sales person makes when the loan closes.

The question I’m posing for consumers today is this: Are you safer as a result of the SAFE Act? It’s a fair question. Let me give a little more information and perspective.

In overly simplified categories, the SAFE Act changed the mortgage industry in two main ways. First, it required its loan originators (the sales end of the business) to be licensed by the federal government. And second, it changed the way these sales persons could be compensated for the loans they originate.

First – licensing. Licensing is a good thing. Getting into this business today is supposedly not as easy because entrants are required to pass a test and a background check. Convicted felons, for example, will not pass. The relevant question however, is do all loan officers need to be licensed? The answer is no.

The reason for this is that banks and credit unions are exempt from the licensing requirement. Did you know that more than 80% of mortgage loan volume is done through a bank or credit union? That means, odds are, your loan officer today is not likely to be an “safer” than before the SAFE Act.

I am not one who normally agrees with the government, but I think that licensing loan officers is a great idea and was long over due. It should simply apply to all who are involved, rather than to just some.

The second change since the SAFE act has to do with how these loan officers are compensated. Stay tuned for my next post on that one.

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