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FHA Cuts Annual MIP!

January 9, 2017 — Leave a comment

fha updateFHA announced this morning that it is lowering the annual premium 25 bps.  It is effective for loans with a closing or disbursement date on or after January 27th, 2017.  By making the change effective for loans closed instead of case numbers assigned, it eliminates a lot of the confusion caused in 2015 when premiums were last reduced.

How does this translate into real dollars?

In most cases 3.5% down payment on a 30yr fixed loan (less than $625,000) the current annual MIP equals 85 basis points of the loan amount (Loan Amount X 0.85%).  The new rate equals 60 basis points (Loan Amount X 0.60%).

For example – using the perimeters above, a $200,000 loan currently yields monthly mortgage insurance payment of $141.67.  Under the new rate the monthly mortgage insurance payment drops to $100.  Generating ~$500 p/yr in savings!

This is HUGE!

Here is a link to the press release:  https://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2017/HUDNo_17-003

Here is a link to the Mortgagee Letter:  https://portal.hud.gov/hudportal/documents/huddoc?id=17-01ml.pdf

privacyYour right to privacy is a significant concern for mortgage professionals who are involved in the solicitation, origination, processing, closing and servicing of mortgage transactions.  Multiple laws protect the privacy of borrowers, and violation of these laws can result in serious liability.  Privacy laws protect borrowers from the time they receive a solicitation for a mortgage loan until their loans are repaid.

The actions that are necessary to maintain compliance with privacy laws are an ongoing concern for mortgage professionals.  Distinct privacy issues arise at each stage of a lending transaction, and additional issues arise while servicing a mortgage loan:

  • Completion of a Loan Application:  Under the Gramm-Leach-Bliley Act (GLB Act), a consumer becomes a customer, earning special protections of his/her personal financial information, when completing an application for a mortgage.
  • Processing of a Loan Application:  While processing a loan application, lenders and other settlement service providers exchange personal financial information about the loan applicant.  The Fair Credit Reporting Act (FCRA) protects the privacy of information that a lender and a consumer-reporting agency exchange.  The Gramm-Leach-Bliley Act (GLB) and the Safeguards Rule protect any private information exchanged by other settlement service providers.
  • Mortgage Settlement:  At the time of settlement, a loan is often transferred to a second financial institution for loan servicing.  The settlement service providers who no longer have a customer relationship with the borrower must safeguard the privacy of the borrower’s information during the period of time that they are required to retain records related to the transaction.  The Safeguards Rule establishes the standards for protecting the privacy of the borrower’s personal information.  When record retention periods expire and settlement service providers want to dispose of outdated records, they must protect the privacy of the information shown on the records by adhering to the requirements of the Fair and Accurate Credit Transactions Act’s (FACTA) Disposal Rule.
  • Loan Servicing:  As long as it accepts mortgage payments and provides statements to the borrower, a loan servicer must comply with the provisions of the Gramm-Leach-Bliley Act (GLB Act).  The loan servicer must protect the privacy of personal information and comply with the rules that address the sharing of information with affiliated and non-affiliated parties.  The loan servicer will also function as a furnisher of information to consumer reporting agencies.  When providing information to consumer reporting agencies on the borrower’s payment history, loan servicers must comply with the provisions of the Fair Credit Reporting Act (FCRA).
  • Loan Repayment:  When a borrower completes payment of a loan and record retention periods expire, the loan servicer must dispose of information in compliance with the Fair and Accurate Credit Transactions Act’s (FACTA) Disposal Rule.

question mark manAnswer: To remove private mortgage insurance you must be up to date with your monthly payments. And you have to reach the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home.

GREAT info from the CFPB’s original articlehere

To remove private mortgage insurance (PMI) that you pay on your mortgage loan, you must be up to date with your monthly payments. These rules apply to mortgages closed on or after July 29, 1999. Federal law generally provides two ways for you to remove PMI from your home loan: canceling PMI or PMI termination.

Request PMI cancellation

The Homeowners Protection Act gives you the right to request that your lender cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can’t find the disclosure form, contact your lender.

You can also make this request earlier if you have made additional payments to reduce the principal balance of your mortgage to 80 percent of the original value of your home.

There are other important criteria you must meet if you want to cancel PMI on your loan:

  • Your request must be in writing.
  • You must have a good payment history and be current on your payments.
  • Your lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
  • Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property hasn’t declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel PMI.

If you meet these requirements your servicer generally must cancel your PMI when you request it.

Automatic PMI termination

Even if you don’t ask your lender to cancel PMI, your lender still must terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. You also need to be current on your payments on the anticipated cancellation date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date.

It’s worth noting a termination request is different than a cancellation request. Your lender must terminate PMI even if the principal balance of your loan has not actually reached 78 percent of the original value of your home – for example, because the value of your home declined.

Final PMI termination

There is one other important requirement that some homeowners need to be aware of:  your lender must terminate PMI if you reach the midpoint of your loan’s amortization schedule before the 78 percent date. The midpoint of your loan’s amortization schedule is halfway through the life of your loan. Most loans are 30-year loans, so the midpoint would occur after 15 years have passed.

Termination of PMI at the loan’s midpoint may occur before reaching 78 percent of the original value of your home for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment. Keep in mind that you must be current on your monthly payments for termination to occur.

If your loan is guaranteed by the Federal Housing Administration (FHA) or Department ofVeterans Affairs (VA), these rules generally won’t apply.  If you have questions about mortgage insurance on an FHA or VA loan, contact your servicer.

If you have lender-paid mortgage insurance, different rules apply.

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.

divorce couple pulling houseRefinancing while divorcing is a very hard thing to do.  Emotionally and financially, it can be very stressful.  Finding an experienced mortgage lender in the state of Texas who is capable of handling this delicate situation is essential. 

Texas is a common law state and if you are married and own Real Estate that is considered your primary residence with a homestead exemption, both spouses have equal rights to the equity in the home.  Equity is the value of the home minus the mortgage loan amount.  The Owelty Lien is designed to give each spouse what is owed to them as detailed in the divorce decree states.  I have found that the Owelty Lien is one of the best tools in finance designed to help make the division of home equity possible without selling the home. 

An Owelty Lien is also essential to remove one spouse from the existing mortgage.  Most people erroneously believe that the divorce decree releases them from the responsibility of the mortgage debt.  This is incorrect.  Even if the decree awards the home to one spouse, if the other spouse is on the original mortgage they are still responsible for the debt and any delinquent or negative credit reporting will be reflected on both spouses credit report.  Yikes!!

Often this is the last hurdle in a divorce and can be a very emotional transaction that requires attention to detail and empathy.  Most lenders and loan officers are not even aware of this type of transaction and often times misguide clients through a Texas Cash-Out Refinance.   

Owelty Lien Refinance and a Texas Cashout Refinance, What is the Difference?

Simply stated, the Owelty Lien Refinance is hands down the much better option than a Texas Cashout when settling the Real Estate variables during the divorce, and there are a number of reasons why.

money locked upTexas State Law states, once a cash-out loan, always a cash-out loan.  This means that once you refinance your primary residence and take cash out of it, that mortgage is “flagged” as a Texas Cash-out mortgage or the legal term is, Texas a(6).   There are a number of reasons why you would prefer that your mortgage not be a Texas a(6) mortgage.

1)  All banks, lenders, and investors bump your interest rate a little higher when dealing with the Texas a(6)…this means that if you go to refinance your house a couple years down the road after you have gotten a Texas a(6), even if you are just refinancing to lower your rate/payment and taking ZERO cash from the equity, you still get “hit” with a little higher rate

2)  Texas law says that you cannot take more than 80% of the equity in your home for cash…this means you are limited to an 80% loan-to-value on your mortgage.  If you bought your home 5 years ago and only put down 5%, you likely do not have equity to the extent you could use a cashout, because you have to have more than 20% equity to start taking cashout…THE OWELTY LIEN FOLLOWS REGULAR LENDING GUIDELINES AND YOU WOULD BE ABLE TO REFINANCE IN AN OWELTY.

3)  The transaction for a Texas a(6) is much more turbulent than an Owelty.  There are waiting periods set into the a(6) and special documentation that does not’t typically get viewed and included in other loans that are included in the a(6) that wdivorhen not administered correctly can post pone the closing…better to use a loan officer with extensive Texas lending history rather than an online or TV commercialized lender where they are licensed in Texas but office in another state. 

If you are in need of an Owelty Lien to finish the split of assets in your divorce, contact a Certified Real Estate Divorce Specialist – contact Cole today.  No matter where you are in Texas, we can handle your process. 

uncle same piggy bank

On December 19, 2014, legislation was passed once again allowing for the tax deductibility of mortgage insurance (MI) premiums for qualified borrowers.

The deductibility is effective for purchase and refinance transactions closed after December 31, 2013. MI premiums paid or accrued after December 31, 2013 and through December 31, 2014 may qualify for tax deductibility on borrowers’ subsequent federal tax returns* as follows:

  • Borrowers with adjusted gross incomes below $100,000 may deduct 100% of their MI premiums.

 

   • For borrowers with adjusted gross incomes from $100,000.01 to $110,000, deductions are phased out at    10% increments for each additional $1,000 of adjusted gross household income.

scavenger huntIt’s suffice to say that my clients do NOT like lender required document ‘scavenger hunts’ – let’s be honest, who really does? In today’s world of tighter credit standards, loan ‘buy-backs’, uber compliance and 100% audits (vs the good ol days of 10% audits) it’s critical that lenders underwrite your loan to the inth degree, crossing all T’s and dotting all I’s. Ultimately this prevents a couple of things from happening:

  1. The lender will be able to sell or securitize your loan which then frees up more capital for the lender to continue to lending to more home buyers and those that need to refinance
  2. You are not inconvenienced post-closing with requests for MORE documents

The number one grief I see clients experiencing is proving a solid paper trail for the money being used for qualifying (including the down payment and closing costs). Now, I use the term ‘qualifying’ because often times lenders must verify sufficient funds for down payment + closing costs AND reserves (more on this later). Please note that every single red cent must be sourced, seasoned, and verified.

In a perfect world the lender collects two months’ worth of COMPLETE (all pages) bank statements showing sufficient funds for closing withOUT any large deposits (greater than $300) that are not payroll related.

For example – let’s say your total cash-to-close is $20,000 and your bank statements show that you’ve had an average balance for the last two months of $25,000. There are some noticeable large deposits BUT they are clearly payroll deposits with your employer listed in the memo line on your bank statements. Easy peasy lemon squeezy! Done!

Unfortunately it is very rarely that simple. Here are just a few things that will send an underwriter into orbit and require an explanation and possibly further documentation:

  1. Bank statements show money being transferred in from another account – lender will undoubtedly request statements from the other account
  2. ‘In Branch’ or ‘ATM’ deposits – if these are greater than ~$300 OR if there are multiple deposits like this the lender will require an explanation and possibly documentation
  3. Name on the account is a/your business – be prepared to provide documents
  4. Using funds from a brokerage account requiring the liquidation of assets (stocks, bonds, etc) – be prepared to provide a paper trail sourcing the liquidation

large depositsUsing the same figures from the above example – let’s say your total cash-to-close is $20,000 and your most recent two month’s bank statements show your current balance to be $18,000. Although you may be thinking “I’ll easily accumulate the additional $2,000 needed for closing between now and closing day”…..unfortunately it’s just not that easy. Believe it or not lenders will require documentation of the additional $2,000 in advance of closing day – at least a week or two in advance. The lender will require documentation showing the additional $2,000 going into your bank account AND require an updated balance showing that $20,000 is now in your account.

Here’s where it gets a little tricky (which is fancy mortgage talk for ‘frustrating’). IF you’ve had any undocumented deposits (like those from the list above) from the time you provided your last bank statement to the time you deposited the additional $2,000 the lender will require an explanation AND documentation.

piles of documentsFor example – if mom, dad, boss, best friend, charity or your church gave you a few hundred dollars because you’re a great friend AND that deposit shows up on the updated bank statement that the lender needed in effort to document the additional $2,000 needed for your cash-to-close then, well, you probably guessed it, yep, the lender is going to require documentation on that.

There are so many scenarios, way too many scenarios to cover in this short artiCOLE – my mission here is simply to help explain the WHY behind all the requests. As a 16 year badge totin’ veteran loan officer (I made up the badge part) the last thing I want to do is send my clients on a scavenger hunt. A good loan officer, a good consultant, an advisor worth their salt sets the table up front and establishes very clear expectations thereby preventing later frustration.

Real estate finance can be very complicating, overwhelming, taxing and laborious – however, according to cole, it doesn’t have to be. If you are experiencing these symptoms let’s talk, I’d absolutely love the opportunity to show you how lending can and should be. 682.223.6210 OR cole@coleholmes.com