Archives For BEWARE – guideline changes

warningThe CFPB is beefing up its ongoing investigation into Zillow for possibly violating RESPA.  Full article here from my friends at HousingWire You’ve been warned: CFPB puts Realtors, Lenders on RESPA violation watch

question mark manHere’s something ‘exciting’ (note: sarcasm) that your clients will be seeing going forward.  It’s appropriately called the TIP!

What is TIP?  It’s the Total Interest Percentage – basically it’s the total amount of interest they’ll pay over the life of their loan expressed as a percentage.

Now, that doesn’t seem to threatening, right??  Well, what IF the total interest paid shows 65% on a document they have to sign!!??  That might not go over so well….UNLESS they understand it.  My intent is not for you to be a TRID expert, more so to just simply be aware of some of the changes that will impact your client’s heart-rate during the home buying experience.

We (lenders, real estate professionals, title company reps) have had fun explaining APR over the years (said no one) and now we’ll have fun explaining APR AND TIP, which are included together on the same page of the new Loan Estimate & Closing Disclosure.

Here’s the sample that the CFPB used on their site:

TIP edit

Ouch!  69.45%!  Pretty sure you can expect a phone call from your clients when they see this nifty little number.  Don’t’ fret!  It’s really quite simple to explain.  To calculate TIP you’ll take the amount of interest paid over the life of the loan and divide that into the loan amount.  For the above example the CFPB used a $162,000 loan amount at 3.875% interest rate fixed for 30 years.

Here’s the 4 step calculation (stay with me here J)

  1. $162,000 @ 3.875% for 30 years = $761.78 p/mo
  1. $761.78 X 360 payments (or 30 years) = $274,242 (this is the total amount they’d pay over the life of the loan – you may recall this BIG number on the old Truth-In-Lending form….it’s gone! Small victory…VERY small)
  1. $274,242

   -162,000 (original loan amount)

$112,242 (this is the total interest paid)

  1. $112,242 divided by $162,000 (original loan amount) = 69%

Now, notice the CFPB used a rate of 3875% for their example….What happens when rates trend up to, say, 5%?  At 5% rate the TIP = 93%!!  Good times!!

Again, my goal is simply to make you aware of some of the changes to the mortgage disclosures so that when your clients ask you about it, and they undoubtedly will, you’ll know what they’re referring too.

jeopardyLet’s play a little IRS Tax Transcripts Jeopardy

Answer: Because the IRS is ‘underfunded’ thanks in part to massive federal budget cuts

Question: Why in the HECK are Tax Transcripts taking forEVER to process????

Update from one of the larger Third Party Validation Services explains why these transcripts, which lenders require to process a home loan, are taking considerably longer than usual.

  • IRS Blames Budget Cuts for Lengthy Turn Times on Transcripts
  • From: *RAIVS Communication Sent: Wednesday, February 25, 2015 4:26 PM Subject: IVES Requests As you may be aware, the IRS is operating at the lowest level of funding since 2008, and the lowest since 1998 when inflation is considered. All areas of the IRS are affected by the difficult choices these budget cuts have forced us to make. We recognize the importance of providing timely IVES products to you and your customers. We will continue to expedite IVES service and make every effort to handle your requests as quickly as possible. However, you may experience a longer turnaround time than in the past. Thank you in advance for working with us as we work through this change.

now back to your regularly scheduled programming,

-Cole

fha loan limitsGreat news friends – homebuyers in the DFW metro (and surrounding areas) will see increased purchasing power thanks to FHA’s decision to increase loan limits beginning January 2015. Currently the max loan amount for DFW area is $287,500 which means buyers may buy a $297,900 home by putting the very minimum down. However, as of January 2015 the max loan amount increases to $310,500!  This means buyers can buy a $321,750 home with the minimum 3% down payment – an increase of $23,850 in purchasing power!! This is GREAT news!

To find out the max loan amount in your specific county follow this link FHA Max Loan Amount Search!

I’ve had several FHA questions lately so I thought I’d shoot over some tips and rules of thumb for you to use as a reference guide. With FHA’s max loan amount increasing and conventional loan credit guidelines still a little tight FHA is becoming more and more popular.

31/43 qualifying ratios – this means that your client’s total monthly payments (those that report to the credit bureaus) + their house payment (PITI) should not exceed 43% of their GROSS monthly income.  The first number (31) represents the percentage of their income that the house payment (PITI) alone should not exceed.  These guidelines can sometimes be exceeded with an automated-underwriting decision (computer generated approval): Example, the Holmes’s earn $5000 p/mo (total farce) before any taxes are withheld.  In this case the Holmes’s should keep their total house payment close to $1550 and their total monthly payments (credit cards, auto & boat loans, student loans, etc.) + the total house payment close to $2150.  Again, with automated underwriting lenders can typically get outside these ratios….but these are good rules of thumb.

$310,500 – this is the max loan amount in the DFW area.  Can the sales price be higher than this loan amount?

Yes, absolutely!  As long as your client has money to put towards a down payment so that the loan amount is not exceeding the max in your county, the sales price can exceed the max loan amount.

Assuming they are putting the very minimum down of 3.5% they’d be able to purchase a home with a sales price of $321,750 with an FHA Loan.

Example – purchase price = $321,750….3.5% down payment = $11,261…..loan amount = $310,488 ($22 under the max loan amount J)

PLUS, the seller is allowed to pay their closing costs!

Go HERE to search your specific county FHA Max Loan Amount Search!

giftWhat is the down payment requirement? – FHA requires a minimum 3.5% cash investment.  Can this be a gift?

Yes! The entire 3.5% can be a gift!

What are the non-allowables? – What dollar amount should you put in the contract for FHA non-allowables?  NONE, ZERO!  Those were the old days!  The only non-allowable is the tax service fee which is typically less than $80.  This can easily be absorbed by a lender.

Is there a minimum credit score? – Most lenders have gone to a 640 credit score requirement.  Although FHA does not have a published minimum credit score lenders have noticed a pattern of poor performance with credit scores lower than 580.  We will allow for as low as a 600 credit score on our in-house product.

clock moneyWhat are turn times?  How quickly can we close? – I would NOT write in a contract close date less than 30 days out.  FURTHERMORE, I would make sure there are plenty of days from the end of the option period to the closing date.  Most lenders will NOT order an appraisal until the option period is over and the buyers are still moving forward.  It does not do any good to have a 30 day close, with a 15 day option period.  You will probably need 15 business days from option period ending to the close date to be on the safe side.  Again, this is a general rule of thumb….for stress free home purchases, that is!

Can my client use a co-signer? – Yes, Absolutely!  Keep in mind that a co-signer/co-borrower will be treated just like the actual borrower and will need to provide all their income & asset documents.  The lender will configure a joint debt-to-income ratio based on a combination of ALL income and ALL debt.  Generally a co-signer needs to have great credit, good income, and minimal debt.

Can my client purchase without their spouse on the loan due to credit? – Yes, Absolutely!  However, FHA requires that lenders consider the non-purchasing spouse’s individual debt.  For example, if your client’s spouse has an auto loan and a few credit cards in his/her name alone, then these monthly payments will be factored into your client’s debt-ratio. Lenders MUST pull a credit history on non-purchasing spouses.

Is FHA only for first time homebuyers? – NO!  This is a common misconception.  You can use an FHA loan on your 2nd, 3rd, 4th, 5th, or 20th home.  Under most circumstances you can only have 1 (one) FHA loan at a time.

Can I refinance a conventional loan to an FHA loan? – Yes, Absolutely!  Since FHA is more forgiving (in my opinion) with its underwriting guidelines we have successfully moved families out of a high interest rate and/or adjustable rate (ARM) loan and into a low fixed rate FHA loan.

USDA zero downFiscal Year End Conversion Process Due to Increase in Annual Fee

On October 1, 2014 the annual fee for both purchase and refinance loans will increase from .4% to .5%.  This change is required to maintain a neutral cost of the program. The USDA annual fee is paid monthly as part of your USDA mortgage payment. For more info on USDA loans in an easy-to-understand short article please Click Here.

Fee Increase Example:

Your new USDA loan originated after October 1, 2014, is for $120,000. The annual fee of 0.50% equates to $600 owed to USDA your first year. The $600 is divided by 12 and paid monthly as part of your USDA payment = $50.00 monthly.

Curious if the home you’re looking at is eligible for USDA financing?  Find out by clicking here!

Here is the publication from USDA’s site – click here!

debbie downerOn Jan. 10, the Consumer Financial Protection Bureau (CFPB) rolled out new rules governing how mortgage lenders originate loans. The regulations are designed to prevent shady or predatory lending and otherwise protect consumers. Financial institutions have been preparing for the changes for months. The big fear is that potential homebuyers will be blindsided.

What do ATR and QM mean?

The two keywords from the new rules are “ability to repay” (ATR) and “qualified mortgage” (QM).

  • The ATR provision requires lenders to gather extensive documentation to assure that borrowers will be able to keep up with their mortgage payments.
  • One provision caps total points & fees at 3 percent for loans of $100,000 or more.
  • A more controversial part requires that the mortgage payment, including taxes and fees, plus credit card and other loan payments not exceed 43 percent of a borrower’s gross monthly income.

Lenders don’t have to adhere to the 43 percent debt-to-income ratio, but if they don’t they probably won’t be able to sell the loan to Fannie Mae or Freddie Mac – unless they meet very specific criteria.

 

Qualified mortgages are a new standard that excludes certain mortgages types — interest-only, adjustable-rate, balloon loans, and negative-amortization mortgages, for example — that helped prompt the housing crisis.

ATR and QM: The Goals and Possible Outcome

Most people agree with the goals of the new rules — safer loans and fewer defaults — and in fact, mortgage lenders insist they’ve already adopted many of them voluntarily. “Mortgage lenders have no appetite for loans that may go bad, the consequences are too far reaching, and the sins of the past are still warm and steamy,” says Mark Greene at Forbes.com.

But the devil is in the details, and details can bring unintended consequences.

  • One outcome is almost certainly a decrease in new loans in the first part of 2014. The self-employed and low-income borrowers are the most likely to be challenged by the new rules.
  • Real estate attorney Shari Olefson estimates that “about 20 percent of people who have mortgages right now, will not be able to get qualified mortgages.”

To ensure everyone is on the same page when it comes to financing, set the right expectations at the beginning by having them consult with a mortgage professional as early in the home buying process as possible.

mel wattEarlier this week we learned that Fannie Mae (and Freddie Mac) plan on increasing their Loan Level Pricing Adjustments (LLPA) beginning April Fool’s Day 2014.  This will, without doubt, impact interest rates for loans to those with even the most pristine credit.  My friends at The National Real Estate Post put out a layman’s article that sums it up for us – thank you Frank & Brian!

What is a G-Fee increase, and will we see one?

The FHFA (Federal Housing Finance Agency), the agency that oversees FNMA (Fannie Mae) and FHLMC (Freddie Mac) while they are under conservatorship, recently gave a directive for the agencies to increase their guarantee fees, or “g-fees”.  What does this mean to you?

What is a G-Fee?
The guarantee fee is is a fee charged by FNMA and FHLMC to lenders for bundling, servicing, selling, and reporting MBS (mortgage-backed securities) to investors.  The fee is supposed to protect against credit related losses in the mortgage portfolio, as well as to allow the agencies to make a profit.

Why is the G-Fee being increased?
The g-fee is being increased to improve the bottom line at the agencies, as well as to encourage private firms to increase participation in the mortgage MBS market.  You can read the 2 page press release HERE (direct link: http://goo.gl/HZUXUB )

What does this do to mortgage rates?

A g-fee increase will cause mortgage rates to go up.  In the case of the most recent g-fee increase of 10 basis points, rates would go up about .125%.

When will this take effect?

It was supposed to take effect for March, which actually means loans being originated in January would feel the effects (because those loans would be delivered to the agencies in March).  However according to an article in the Wall Street Journal, the incoming director of the FHFA, Mel Watts, will announce that he will delay implementation of the fee increase.  Mr. Watts will be sworn in as director on January 6th.  Check out the article HERE (direct link: http://goo.gl/oedI5t )