HARP changes to allow a greater number of refinances
While some of my industry friends rushed to be the first to get this information to the streets it seemed more prudent to verify the information found in the FHFA letter dated October 24. Now that a week has passed and the initial smoke has cleared here is a bullet point review of the important factors covered by this revamp of HARP.
- The existing loan must have been sold to Fannie or Freddie on or before May 31, 2009
- The current loan amount must be greater than 80% of the current value (LTV)
- This revamp removes the 125% LTV limit for fixed rate loans (there is no new ceiling)
- Lenders will get a new set of Representations and Warranties (this will affect some who may not participate)
- This eliminates the need for a new appraisal when there is a reliable Automated Valuation Model (AVM) available
- The program extends through December 31, 2013 (and you can bet some people will wait that long)
- This allows people to also refinance into a shorter loan term (because of the lower rates and their DTI)
- The mortgage cannot have been previously refinanced under HARP unless it was from March-May of 2009
- The borrower must be current on their loan payments at the time of refinance
- The borrower cannot have been late on payments in the previous six months and not more than once in the previous 12 months
- If refinancing into a fixed rate there is no maximum LTV
- If refinancing into an adjustable rate (ARM) there is a maximum LTV of 105%
- Condominiums are eligible under Enterprise requirements
- When this becomes available will vary by mortgage lender
- Program participation by lenders is not mandatory
Those are straight from the horse’s mouth. There has been a lot of speculation and some of it is not in the official document.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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No Cost or Zero Cost Home Loans
Once there was a young prince who sat for hours waiting on his chance to capture the great, white unicorn. The sorcerer from the other side of the mountain decided to trick the young prince and duct-taped a stick to a horse’s head and sent him into the forest. The prince, seeing the horse with the duct tape, thought he had finally found his unicorn …
Once there was a young home owner who heard an exciting story about the “no-cost home loan” and rushed to his computer to apply online. When he received his Good Faith Estimate he was so sure he was getting the best of all worlds he did not even bother to notice his loan amount was higher than it should have been and his interest rate was a little higher than he had heard from the reputable lender he had spoken with earlier …
Okay so the tale really isn’t always that grim. It is, however, always about that technical. There is no such creature as a “no-cost” or “zero cost home loan”. There are closing costs and somebody pays them. Not the sheriff of Nottingham, not the prince … the home owner or buyer. The person who is about to become the mortgagor, also referred to as borrower, is the one who always pays the closing costs.
There are three ways to pay closing costs:
- The buyer or seller can pay the costs in cash at the closing and they’ll be shown on the HUD 1
- The loan officer can increase the interest rate a little to get a higher yield and pay the closing costs
- The loan officer can increase the loan amount, when possible, and pay the costs from the refinance proceeds
The second and third bullet points in the list above are the ones used to cover the costs in the so called no-cost closings. This does not make these evil, bad or even suspect. In fact there are times when this method makes great business and can work in the favor of the borrower.
Borrowers generally keep the same loan for no more than 5 to 7 years. There are some instances, say when someone intends to live in the home only for a couple of years, where the methods can be beneficial. With that in mind the spread sheet below should illustrate the point nicely and help the borrower make the decision of which method is best to use for their immediate circumstance. See Figure 1 comparing a vanilla closing to a no closing costs home loan.
Figure 1: No closing costs home loan chart
While this chart is not 100% accurate to today’s interest rates or closing costs it is accurate enough to illustrate the point. The best you can do for yourself is to ask your loan officer for a quote in all three ways to help you make up your mind how you wish to proceed. With rates higher than personal yield from most stock investments and certainly CD’s you can see paying the costs at closing is generally a more fiscally sound decision, especially long term, than going for the exciting sounding no cost home loan. Your mileage may vary.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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How the Lowest Interest Rates Affect Your Ability to Buy
During this time period we are experiencing the lowest interest rates in Atlanta’s history for home purchases. Add that to the abundance of homes for sale in the Atlanta area and the low demand and it soon turns into a home buyer’s opportunity like not experience in our lifetimes. Home values have continued to decline since 2007 and, according to Yale economics professor and housing specialist Robert Shiller, the end is not nigh.
For people who need to purchase a new home in the Atlanta area the numbers do line up well for the buying opportunity. The oversupply of available home listings, fixed 30 year interest rates at or near four percent, and underwriting guidelines trending toward “reasonable” it certainly is time to consider the move. Now here is some really good news: lowest interest rates results in lower monthly payments which changes the buyer’s debt-to-income ration resulting in the ability to buy more home for less money.
Debt To Income Ratio (DTI)
Debt rate is a key factor in home loan approval. When the processor or underwriter calculate the applicant’s actual debt ratio they compare all payments included on the credit report against all verified income as displayed as adjusted gross income on the applicant’s federal tax returns with a couple of small caveats. For most individuals calculating DTI is rather simply dividing monthly expense by gross income (See the graphic).
Here is how the debt ratio is affected by interest rates. Using a home loan amount of $300,000 let’s look at a table that shows the monthly payment (principle and interest) based on a range of interest rates from 4% to 8% and it should become self evident. Let’s use the magic DTI ratio of 45% meaning a maximum of 45% of your gross income may be obligated for monthly payments. In fact many loan programs since the collapse of sub-prime lending require a maximum DTI of 45%. See the image for a self-explaining example of what happens on a $300,000 as the interest rates begin to rise.
Affect of lowest interest rates on buying power
It becomes quickly obvious that as interest rates rise the buyer qualifies for less home. This is the primary reason today is a very good time to buy because rates are incredibly low (and will not stay that way) and home values are “in the tank” (and will not stay that way).
Call me today and let’s talk rates, cost and effect on your buying power.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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Executive Home Loan Rates Lowest Ever
Mortgage rates lowest in history.
The news is everywhere today that home loan rates have dropped to an all time low – even lower than the historic lows we have been seeing for the last several months. While this may be a reflection on the poor state of the economy it is also an opportunity for those who are ready, qualified and able to refinance or purchase to save a tremendous amount over the lifetime of their home mortgage.
Today I just priced a fifteen year fixed mortgage at 3.25% with an APR of 3.78% on a $180,000 refinance and low closing costs (point in yield). This is an incredibly low rate and most certainly cannot be sustained.
Why are rates so low? The 10 Year Treasury yield is low. That’s the main reason.
Ti qualify for these low rates you need a good credit score, at least 20% equity in your home (or a 20% down payment), steady income and a few minutes to complete an application.
Even though you may have heard and read “mortgage rates can’t stay this low for ever” and they seem to have been hanging pretty low for the last few months the statement is still correct. Here’s what it looks like on a few different loans at low rates:
| 15y 3.25 | 30y 3.875 | Required Value | |
|---|---|---|---|
| 180k | $1,265 | $846 | $225,000 |
| 240k | $1,686 | $1,129 | $300,000 |
| 360k | $2,530 | $1,693 | $450,000 |
*This does not constitute and offer to lend. Applicant must qualify by applying for the loan and providing the necessary information and documentation to prove eligibility. These are conventional rates and the APR may vary based on how closing costs are paid: the borrower may pay them in cash, they may be “rolled in” to the loan amount or they may be paid from rate yield.
Image: photostock / FreeDigitalPhotos.net
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Fast Closings for Georgia Home Loans
Sometimes FAST is the key to success. You may have seen advertisements from lenders who “guarantee” very quick closings and offer to “make it right” if they don’t meet the deadline. That is not what this is – in fact instead of promising something that cannot be delivered unless a long, long list of stipulations is met we’ll start with the facts and deliver based on the borrower’s ability along with the ability of a few third party providers to deliver. Eight days is possible and can be done and something reasonably close can be achieved in the majority of cases.
Fast Home Loan Closings for Georgia Mortgages
- Good credit, income and assets are required for the fastest closings. Some hopeful competitors won’t even consider a loan application with someone who has challenges and they only want to work with “the cream of the crop”. So do we, however we work with anyone and everyone.
- The property must be acceptable and ready to occupy under standard lending guidelines.
- The borrower(s) need to have all of the requested verifying documentation in the lender’s hands within hours of being requested.
- A short sale purchase that has not been approved by the current lender for selling short.
- Rehab loans like the FHA 203k.
- Loans where any one of the borrower’s has a DTI of higher than 45% or a credit score lower than 640.
- Loans where the down payment is less than 20%.
- When the borrower has a difficult time finding documentation requested by the loan officer or underwriter.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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Glimmer of hope in new home sales report March 2011
New home sales report March 2011
Is there hope for a recovery cycle to begin in 2011?
Industry insiders and prognosticators alike have been making guesses at exactly when we would hit bottom and when recovery would begin since we entered the market downtrend. While many were well educated guesses and other hunches based on theories created on the barstools of America they have all been simply guesses. Whether or not they are accurate will only be born out in the coming days, weeks, months, and years.
According to the Census Bureau report (see graphic) there were over 300,000 new homes sold in March of this year (2011). The more encouraging number for this southeastern based mortgage marketer is that 162,000 – well over half – were sold in the south. Click the graphic for a larger representation.
March 2011 housing numbers may hold promise
Although modest and somewhat an island of positive in a vast ocean of negative the March 2011 new home sales numbers as tabulated by the US Census Bureau proved an increase.
On the other hand there are variables in the equation
“We’ve gotten spoiled by the idea that
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interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.” (NYT)
$ % yrs % $
We are not certain when mortgage interest rates will begin to rise, nor are we sure how high they will trend. The cyclical nature of the economy indicates a strong likelihood rates will rise, possibly sharply, and could easily see double digits in a short time. This, however, is an unknown although it is predicted by some professional economists who have a track record of prediction such changes.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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Get a home for just $1
Buy a home for one dollar?
Don’t shoot the messenger! In fact I was inadvertently involved today in an exchange between a real estate agent and a loan officer from another company where the agent was insisting the HUD $100 down program was over. It is not as of today and you can verify that for yourself.
If the $100 down HUD homes program was an issue I can only imagine what the $1 HUD homes debate would bring. So instead of making any statements about it at all simply follow the link and see what new special (if any) HUD is offering in your area.
HUD’s Dollar Homes initiative helps local governments to address specific community needs by offering low to moderate income families the opportunity to purchase qualified HUD-owned homes for $1 each.
Dollar Homes are single-family homes that are acquired by the Federal Housing Administration (FHA) as a result of foreclosure. The following link is for Georgia homes and as of this posting there are 12 available in Georgia on the $1 program. That changes regularly.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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Subprime loans and home ownership
Home Ownership and Subprime Loans
During the last decade lending guidelines changed dramatically. The changes at the beginning of the decade were precipitated by loosening federal guidelines as a result of the outcry for more equal access to home loan products for under-served markets. The old adage ”give ‘em and inch and they’ll take a mile” soon came into play.
While sub-prime loan products, a name simply referring to loans that did not meet conventional guidelines, had been in existence prior to – and in fact are still in existence today – they became more the standard for many brokers and banks alike because they were simpler to close due to their lax lending requirements. By 2007 non-conforming loans comprised the largest percentage they had in history and the lack of requirements for underwriting are what made these loans so dangerous.
Among the many requirements for underwriting conforming loans which did not exist in non-conforming (sub-prime) loans was the necessity to verify the legitimacy and originality of required documentation like bank statements, pay stubs and others. Unfortunately this laxness spilled over into conforming and government lending as well. Until recently underwriters and investors rarely required any sort of evidence of the originality of documents.
The Veteran’s Administration (VA) has always been more likely to ask for evidence of originality when the copies are actually submitted. It only follows that the VA would be one of the first agencies to re-enforce this policy. However the VA is not the only agency or organization to require CTC for non-original documentation. In fact it was very common in the 1990s and earlier for post-closing auditors to write up a file which did not have “Certified True Copy” (CTC) photo-copies in the file.
Chances are over the next few months the CTC policy will come into play across the board. This means applicants will be increasingly like to be asked to submit either original documentation or notarized copies. It may be possible your lender will ask you to send in documentation or visit your local notary public to have your photo copies witnessed. Chances are the request is non-negotiable.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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What are closing costs?
It would be simple to say “closing costs” are the amount of money required to be brought to the closing table at the time of purchase or refinance. Oh that it were that simple yet it is not. In fact different agencies and organizations have different definitions for the same term. Perhaps we can do some good here and provide the true definition for the components of closing costs, establish which costs go where and which costs are negotiable.
If you want to say closing costs are the total fees you bring to the closing table that would include this list and maybe more in some cases:
- Appraisal fee – to the appraiser
Pie Chart of Closing Costs
- Credit score fee – to the credit bureau
- Origination fee – to the loan officer
- Funding fee – to the lender
- Underwriting fee – to the lender
- Processing fee – to the processing company
- Broker fee – to the mortgage broker (if there is one)
- Recording fee – to the county courthouse
- Loan registration fee – to the state department of banking and finance
- Title exam – to the title company/private investigator
- Attorney fee – to the closing attorney
- Attorney’s wire fee – to the attorney
- Lender’s title insurance – to the title insurance company
- Owner’s title insurance – to the title insurance company
- Real estate taxes and escrow – to the state, county, city where due
- Home owners insurance – to the owner’s insurance company
- HOA fees – to the HOA/COA
Some of these fees are only closing costs because the lender, unless the borrower chooses to waive escrows of taxes, insurance and HOA, would be required to be paid over time anyway. In fact most HOAs require an initiation fee even if you are paying cash. That is the best way to think of closing costs as associated with purchasing a home anyway: which fees would exist even if there were no lender: attorney fees, recording fees, appraisal fee, home owner’s insurance, etc.
Two of the biggest fees associated with the purchase of a home are not considered closing costs and those are the down payment and the real estate broker fees. Brokerage fees are not considered a closing cost because they are added to the sales price and the seller pays them and down payment is going straight to the purchase of the home. If we counted down payment as a closing cost then someone paying cash would be considered to be paying 100% closing costs.
What about “no closing costs” loans? Simple. They don’t exist. The buyer or home owner who is refinancing pays the costs either in cash, from the proceeds of the loan, using a down payment assistance program, or by the lender increasing the rate enough to earn more in interest. None of those closing costs go away when they are required. The attorney doesn’t work for free, the appraiser doesn’t work for free, the loan officer, processor and underwriters do not work for free.
Hopefully understanding these fees and where they go will help you in your next purchase or refinance to understand the cost and how to better manage or prepare for your closing.
*The set of closing costs used for this chart are typical for a mortgage broker. They will vary from state to state and lender to lender … but not by much.
Related articles
- Good-faith estimates bring higher closing costs (sfgate.com)
- Survey: Mortgage closing costs 37% higher (usatoday.com)
- New rules limit too-low estimates of closing costs (knoxnews.com)
- What are “seller concessions”? (kennycook.com)
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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Dangers of shopping mortgage rates online
You’ve seen those ads touting some crazy low number like 2.125% home loans! The first thing I usually notice is there is no APR advertised on the same line and in the same font – federal violation. This is often my first hint this is a lead generation company and not an actual lender. Lead generations companies, so it seems, can advertise just about anything they like since they are not actually providing home loans. In my opinion those who buy leads from companies who advertise should be held equally accountable – not likely to make me popular among “the liars club”.
Some months ago I wrote a post about this subject and even received a couple of phone calls from mortgage brokers, mostly out west, who would like to have done me bodily harm. We all know people in the industry who make outrageous claims they can very rarely deliver and weasel their way around the law by publishing a mult-paragraph disclaimer secreted away on some difficult to find asterisk centric page.
Even with the rates you see published by Zillow and BankRate, both reputable companies, you will often find the brokers and lenders who feed those companies the rates pushing it to the very lowest number possible to be achieved under the best circumstance on the best of days. Those rates never take into consideration anything except the best of circumstances and to really see the full picture one would need access to the qualifying factors – which are will hidden if published at all.
Understanding mortgage pricing is like understanding pricing for any other service: the higher the risk the higher the cost. Lenders base mortgage rate factors on credit score, loan amount, property type, and other factors due to the risk provided from those types of loans over the years. It’s no secret that the pool of borrowers of people with 720 or higher credit scores, 20% or more down payment and purchasing a single family home in the $200,000 range are less likely to miss a payment or default on the loan than the pool of borrowers with credit scores around 630 and 3.5% down on the same home. It’s just a fact of numbers.
So when you see interest rates advertised your first response should be doubt – and that will serve you well. If you have a middle credit score of 740 or higher, are paying at least 20% down on a home within the conventional mortgage limits for your area, you have a good income and ample assets then it is possible you will qualify for the rates you see advertised online.
BIG WARNING: There is a, an I use the term very loosely, “mortgage company” which advertises regularly on one of these type websites and their rates always seem about a full 1% lower than everyone else’s. Every day they take thousands of phone calls of people who do not qualify for those rates. Do yourself a favor – find a reputable lender who doesn’t use parlor tricks and flashy numbers to steal your trust. Hang up, call someone local and trustworthy, and give them your business.
ABOUT ONLINE LEAD COMPANIES: Most online lead companies will sell your information to 3 to 5 (or more) people. Even though the lead company may have advertised some obnoxiously low interest rate the company who purchases your lead is under no obligation to offer it. These mortgage brokers will pay as much as $50 or more for your phone number and you bet they are going to do whatever they can to get their money back. Don’t get me wrong, some of these lead buyers are the most honest and ethical people you will meet. Unfortunately many of the lead companies have neither honesty nor ethics.
Related articles
- Mortgages: Preventing Credit Score Dings (nytimes.com)
- Benefit of higher credit score dwindles at top end (sfgate.com)
- U.S. 30-year mortgage rates fell in week – Zillow (reuters.com)
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Daily Rates for Qualified Buyers
Today |
Last Week |
|
| 30 Year Fixed | 3.59% | 3.65% |
| 15 Year Fixed | 2.91% | 2.89% |
| 5/1 ARM | 2.81% | 2.57% |
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