The Mortgage Porter

It's time for HUD to revamp the FHA Streamlined Refi

HUD's Shaun Donovan was recently promoting Obama's jobs bill and the recently revised the Home Affordable Refinance (aka HARP 2.0).  Fannie and Freddie have revamped the Home Affordable Program to reduce the closing cost and eliminate the need for an appraisal on many qualified homes.

From Donovan last week on HARP for conventional refinances:

"...There are still millions of Americans who have worked hard and acted responsibly, paying their mortgage payments on time. But because their homes are worth less than they owe on their mortgage, they can’t refinance....

Just yesterday, the FHFA announced changes that will help more responsible borrowers take advantage of today’s low mortgage rates. These changes will knock down barriers such as closing costs and fees that can sometimes cancel out the benefit of refinancing altogether.

And by creating more competition so that consumers can shop around for the best rates, these changes will save homeowners on average $2,500 per year -- that’s the equivalent of a pretty good-sized tax cut..."

With HUD promoting HARP 2.0, I'm hoping that they're taking a strong look at their own FHA Streamlined refinance.  FHA streamlined refi's already do not require an appraisal as long as the loan amount is not being raised over the balance of the existing FHA loan.  

The problem with the FHA streamlined refinance is that with the last adjustment to FHA's annual mortgage insurance and funding fee, it's more difficult to have these refi's pencil out. The annual premiums are so much higher than past insurance premiums that despite today's much lower rates, the higher insurance fees often cancel out the reduced rate benefit. Seattle area and other home owners who are not underwater with their home values may be able to switch to a conventional mortgage (with or without private mortgage insurance depending on the loan to value) and an appraisal will be required to prove the current value of the property.

In my opinion, with FHA streamlined refi's, HUD should either allow a reduced mortgage insurance rate for streamlined refi's and perhaps not offer a credit of the remaining upfront mortgage insurance premium. VA's IRRL loans offer a reduced funding fee of 0.5% for refi's.

Another option would be for HUD to allow the FHA borrower to refinance their FHA mortgage with the same FHA mortgage insurance premiums of their current FHA loan.  

HUD should also make it easier for borrowers with FHA ARM's to be able to do a streamlined refi into a fixed rate program.  Current guidelines require a reduction in payment of 5% and a caps the interest rate at no more than 2% higher than the ARM. If the borrower qualifies for the higher payment and they are opting for a fixed rate program, they should be allowed to do so.  Currently this eliminates borrowers from being able to streamline refi from an adjustable rate to a 15 year fixed.

HUD already has the risk with the loan, why not help Americans with FHA insured loans reduce take advantage of this current low rate environment by making FHA streamlined refinances more feasible? 

Mr. Donovan, it's time for HUD to knock down barriers such as closing costs and fees that can sometimes cancel out the benefit of refinancing altogether for FHA streamlined refinances.

EDITORS NOTE: This post was updated 11/21/2011 with the addition of the paragraph addressing changing the requirement for a steamline refinance out of an adjustable rate.

On the FHFA Suing Banks over Mortgage Backed Securities

Why is it that I keep picturing the three Stooges slapping each other silly when I think about the FHFA suing the big banks over mortgages.

 

Shouldn't they be including the credit rating agencies in this slap fest?

Did Congress and other politicians (like Cuomo) not press Fannie and Freddie to lower their underwriting standards to make home ownership available to more Americans? Should FHFA sue Congress?

Doesn't Fannie and Freddie have their own automated underwriting systems and standards? Wouldnt Fannie and Freddie KNOW the quality of mortgages that were being originated (with exception to fraud)?

Let the slappin' begin.

Mortgage Originators should only originate mortgages

I think it's unfortunate that the SAFE Act didn't address having professionals who are helping people with the possible largest transaction in their life be limited to originating mortgages.  I feel quite strongly that it is NOT in a consumers best interest to use the same person to originate their mortgage AND sell them their home.

There is simply too much to keep up with in this climate with both mortgage originating and being a real estate agent.  New laws are constantly being created and underwriting guidelines change in a blink of an eye.  How can someone doing two important jobs do either "one" full time job well if they're split between two?   And I guess I also wonder "why" people who act as mortgage originators and real estate agents feel they must do this.  I consider myself a fairly savvy mortgage professional and I'm sure I could sell a home--but I wouldn't dream of it.  I'm dedicated fully to my profession:  mortgage.  

I cringe at the thought of a buyer disclosing all of their financial information to a real estate agent acting as a mortgage originator...especially if they don't want to buy the "maximum" they potentially qualify for.  I often times work with buyers who could qualify to buy much more than their agent knows and they ask me to not reveal this information.  If you're working with someone who is originating your mortgage and selling  you a home, they can't keep this information separate - they  know how much you can buy. 

If you're considering using a mortgage originator who's also a real estate agent for your refinance, how do you know they won't try to sway you to selling (where they'l earn significantly more income) instead of refinancing?

It's almost a form a "dual agency" where you're having to rely a great deal on trust with the individual you've hired to care for your entire transaction.  For the "professional" who is acting as both your real estate agent and loan originator, this is simply too much commission (what a buyers agent is paid and the mortgage origination compensation at stake) to truly trust they're working in YOUR best interest.

HUD is not a fan of FHA mortgage originators having other employment in real estate related fields either (from HUD Handbook 4060.1 Chapter 2: Section 2-9)

Full, Part-Time and Outside Employment.  A mortgagee may employ staff full time or part time (less than the normal 40 hour work week). They may have other employment including self employment.  However, such outside employment may not be in mortgage lending, real estate, or a related field. Direct endorsement underwriters are included in this provision.

In Washington State, Real Estate Agents acting a Loan Orinators in a transaction are required to provide this written language as a Dual Capacity Disclosure:

This is to give you notice that I or one of my associates have/has acted as a Real Estate Broker or Salesperson representing the Buyer and/or Seller in the sale of this property to you.  I am also a Loan Originator and would like to provide mortgage services to you in connection with your loan to purchase the property.

You are not required to use me as al Loan Originator in connection with this transaction.  You are free to comparison shop and to select any Mortgage Broker or Lender of you choosing.

If you're getting ready to buy a home.  Select your professionals wisely.  You deserve a to work with a team of individuals who are dedicated and focused on their sole career.   This is a case where two heads are better than one.

If you're buying a home in the greater Seattle or Bellevue area, I'm happy to recommend a dedicated real estate agent and help you with your mortgage!

Click here if you would like a rate quote for a home located anywhere in Washington.

Related Post:

Who Does Your Loan Originator Really Work For?

Bribery to Work with the Builder's Preferred Lender

Is Your Agent in Bed with a Title Company?

My Thoughts on the Future of Home Mortgages and Home Ownership

Yesterday, I had the Future of Housing Finance playing in the background as I was working away on rate quotes and lock commitment confirmations for a few of my clients in the Seattle area.  Oh how I wish that I, or a fellow mortgage origintor who has been originating mortgages since pre-subprime days could be on the panel.  Since I'm not, I'm going to share a few of my thoughts on this post.

People who currently have a mortgage and who are credit and income qualified (have made their payments on time) should be allowed to refinance without an appraisal.  This would not only help home owners save hundreds of dollars each month with their mortgage payment, the end benefit would be real stimulus for the economy.

I believe all mortgage originators, regardless of the type of institution they work for, should be held to the highest standards of the SAFE Act.  (Currently mortgage originators who work for banks or credit unions are not licensed).  

I also feel strongly that those who present themselves to be residential mortgage originators (licensed or registered) should not be allowed to also sell real estate.  I'm concerned this has huge potential for fraud and the home buyer is not best served when a real estate agent knows the fine details of the buyers finances.  I view this as a huge conflict of interest.   HUD all ready has this standard: real estate agents cannot originate an FHA insured loan.  I'd like to see this implemented with conventional financing.

Last but not least, not everyone in American needs to or should own a home.   Owning a home is not a right, it's a privelidge that's one's personal financial choice.  And there's nothing wrong with renting a home.  Renting a home, like obtaining a mortgage, is a personal financial choice.  

What are your thoughts? 

Who Does Your Loan Originator Really Work For?

I often wonder how a consumer can truly trust a mortgage originator who sits in a housing development or a real estate office.  Yes, it's convenient when you're checking out that new home and the loan originator that works with the builder or real estate company just happens to be sitting there waiting for you or the next person who'll walk through their door.  Is that the best option for you?

HUD is questioning this with regards to builders with in-house lenders and if this arrangement is a RESPA violation.  It is harmful to consumers if the closing costs or rates are increased to compensate for what the lender may have to shell out to be that builder's preferred lender. Often times, you may find that the builder has built any cost to bribe you to work with their lender by increasing the sales price of the home.  RESPA violations aside, I've always felt that if you work with the builder's lender, you're providing your personal information to the "seller" or the more specifically, the employee of the seller.   The loan originator may be employed by a bank, but when they're constantly fed by the builder...where do their loyalties rest?

I feel the same way about loan originators who work as "joint ventures" with real estate companies.  They may be paying rent inside your real estate agent's office or just be on their preferred providers list with some sort of business arrangement.  I believe most of the big real estate brokerages in the Seattle area have an arrangement made to steer you to their lender, title or escrow company.   When a loan originator, title rep or escrow officer are constantly fed or partially owned by a real estate company--where are their loyalties?  If you only want to get approved for a $400,000 sales price, and can afford to much higher--do you think the LO who's shacked up with the real estate agent will let that agent know when they press the LO for more info on you?

Yes, you pay for their origination, title or escrow fees, but who are these people really work for.  Shouldn't you have more of a choice?   Some real estate agents will tell you that there isn't much difference in rate or fees--which they may truly believe; however, it may not be accurate. 

I "work for" Mortgage Master Service Corporation.  I'm paid by the consumer when we close a mortgage transaction together.  My business is dependent on my clients referring me to people they know who need a mortgage in the greater Seattle area.  I also have clients who find me from reading my blogs.   I am not part of any joint venture or arranged business agreements.  I'm not paid based on volume, quotas or selling a certain type of program.

Bottom line as a borrower in one of the largest transactions you may ever make in your lifetime, it is your responsibility to make sure you have the right team working for you.  Do as much research as possible before you've entered into a real estate contract.

Photo credit:  Sarah G... via Flickr

Mortgage Rates for a March Monday

I'm often asked what direction I think mortgage rates are headed.  Often times, it can be challenging to make a fair prediction...especially in recent times when many behaviors or responses have not reacted to economic data as they have in years past.  I can tell you that I feel strongly that we are going to see mortgage rates trend higher. 

The Fed has been involved with purchasing mortgage backed securities which has been keeping mortgage rates at manipulated lows that many consumers have grown to expect.  This is coming to a stop at the end of this month.   In fact, the Fed has all ready cut back on their purchases in an attempt to wean us.   Not only will we no longer have the Fed buying MBS to keep mortgage rates low, they will eventually have to sell the mortgage backed securities which will drive mortgage rates even higher.

If you're interested in today's rates, I wouldn't wait for April.  In fact, if it's "todays" rate you want, you need to lock it soon or just at least be prepared for rates to adjust more to where they would "normally" be without government intervention.

Speaking of mortgage rates, this week we have the Jobs Report being released on Friday morning...this economic data has historically had an influence on mortgage rates.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties). The conforming rate quote below is based on owner occupied with a mid-low credit score of 740 or higher, "full doc" purchase with a sales price of $500,000 and a loan amount of $400,000 single family dwelling (non condo). This scenario includes reserves (taxes & insurance) not being waived. Rates quoted are priced based on a 30-40 day closing with no prepayment penalties on any of the rates quoted below.

30 Year Fixed w/1 Point*: 4.625% (APR 4.777%).

15 Year Fixed w/1 Pt: 4.125% (APR 4.388%).

10/1 ARM 5/2/5 CAPS w/1 Pt: 4.125% (APR 5.580%).

7/1 ARM 5/2/5 CAPS w/1 Pt: 3.625% (APR 5.849%).

5/1 ARM 5/2/5 CAPS with 1 Point: 3.250% (APR 6.163%).

Conforming High Balance Rates. Pricing is based on the same criteria above except where the loan amount is $417,001 - $567,500 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $625,000 and a $500,000 loan amount. 

30 Year Fixed w/0.625 Pt: 4.875% (APR 4.988%).

Jumbo/Non-Conforming. Loan amounts up to 1 million for ARMs and 1.5 million for the 30 year fixed. The quotes below are based on 740 or higher credit scores with 80% loan to value with a loan amount of $650,000.

30 Year Fixed at 1 point: 5.500% (APR 5.797%).

7/1 ARM 5/2/5 CAPS @ 1 Pt: 4.875% (APR 6.425%).

5/1 ARM 5/2/5 CAPS @ 1 Pt: 4.500% (APR 6.605%).

FHA. Pricing based on credit score of 660 or better and loan amounts up to $417,000 for FHA in King, Snohomish and Pierce Counties.  (Mid-credit scores 620-659 has a 0.25% hit to pricing). 

30 Year Fixed @ 1 Pt: 4.750% (APR 5.382%).

FHA-Jumbo/High Balance. Pricing based on loan amounts from $417,001 - $567,500 for King, Snohomish and Pierce Counties with a 660 or higher mid-credit score. 

30 Year Fixed @ 1 Pt: 4.875% (APR 5.461%).

VA. Pricing based on credit scores of 620 or better based on loan amounts up to $417,000. VA loan amounts over $417,000 are also available.

30 Year Fixed w/1 Pt: 4.875% (APR 5.185%).

USDA Rural Housing. 100% financing with income limits and properties must be located within a specific area (this program is generally available in rural towns with populations of 10,000 or less). For eligibility, click here.  Priced with 60 day lock.

30 Year Fixed w/1 Pt: 5.000% (APR 5.312%).

This is just a small sample available of rates and products. This is not a guarantee nor is it a commitment of interest rate.  *For purposes of this post: "1 point" is 1% of the loan amount and would be reflected in line 801 or 808 (depending on whether the loan is brokered or not) Page 2, Section A of the new Good Faith Estimate. Unless the rate is bought down; there are zero discount points referenced which would be reflected on line 802 of the HUD-1 Settlement Statement  Section A, Page 2 (Your Adjusted Origination Charges) of HUD's new Good Faith Estimate.   

Rates are as of March 1, 2010 at 2:00 p.m. and may change at any time. Available programs may change at anytime as well.  To see rates that I'm quoting "live" click here.

My "Ideal" Home Purchase Time Line

Previously I reviewed HUD's Home Purchasing Time Line, which I found several issues with if you're a home buyer in Washington State.  If I'm going to pick something apart, it's only right that I offer an example of how I think it should be corrected.

Below is HUD's suggested time line.

Here is how I see a successful purchase transaction evolving.  My modifications to HUD's time line are in blue below.

Rhonda Porter's Ideal Home Purchase Time Line   

Step 1: Determine what you can afford. Make sure you really consider how much home you can personally afford (not just how much home you qualify for or what a lender tells you).  Please do not stretch yourself to be "house poor".  Keep in mind the lessons that this economy is teaching all of us.

Step 2: Shop for a mortgage pro. Oh how I wish that instead of a shopping cart for rates (which is a moving target) and fees on page 3 of the new Good Faith Estimate, that it had a place for you to "shop" your mortgage professional instead.  Perhaps a place where you could compare resumes and available products instead of focusing so much on rate and fee.  The person who will be guiding through the process of obtaining one of the largest debts you may have in your lifetime should not be selected so casually.

Step 3:  Choose the best loan for you.  After selecting your mortgage professional; he or she should consider your financial goals and help provide you with information to allow you to make an educated decision on which mortgage program best suits your goals based on what you currently qualify for.  You need to know what your total payment will be and how much money will be required for your down payment and closing costs BEFORE you start looking for your next home.

Step 4: Find a real estate agent.  I recommend asking friends and family members who have recently purchased or sold a home and interview them.  If you need a recommendation for one around the greater Seattle area, please ask me!

Step 5: Shop for other service providers.  This has to happen BEFORE you prepare an offer on your next home assuming your lender permits you to shop (this is per RESPA guidelines--not a control freak mortgage originator).  If you select your own title and escrow service provider, there is no cap to how much their fees can change at closing.  If you use the providers from the mortgage originators preferred list, the accumulative fees at closing cannot exceed 10% from the good faith estimate.

Step 6: Find a home and negotiate contract terms.  Now you can start searching for your next home with confidence since you know what you can afford and you have your home buying team assembled.

Step 7: Have house inspected.  I recommend this even if your home is new construction.  I can tell you a few stories...but this post is all ready getting too long!

Step 7.5:  Shop and select your home owner insurance provider.  Do not wait until closing to do this.  Home owners insurance rates can vary and your credit score will impact your insurance rate.  Also if the home has a history with certain insurance claims, there could potentially be issues that are better to be aware of early in the process.

Step 8: Loan is processed.  Once we have a signed around agreement, your loan is processed and various services are ordered or set up.  This is also the time to review you lock options to determine whether you want to commit to an interest rate or float (not lock). 

Step 9: Loan is approved.  The loan approval may come back with conditions.  This happens after the underwriter reviews what has been submitted to them during the processing period. 

Step 10: Do the final walk through. 

Step 11: Go to settlement.  Prior to your escrow appointment, I recommend that you obtain a copy of your estimated HUD-1 Settlement Statement 1-2 days in advance so that you have time to review the final figures.  Be sure to let your mortgage professional and escrow officer/settlement agent know that you expect this as the lender will need to provide your loan documents to the closing company a few days earlier than "the norm".  The same is true if you want a complete copy of your loan documents to review prior to your signing appointment.

Step 12: Move in!  Yay--this can be such an exciting time!  Typically there may be a few days between signing your closing documents and moving into your new home. 

HUD's Home Purchasing Time Line

HUD has unveiled their new "Shopping for your Home Loan - HUD's Settlement Cost Booklet".  What was once a ppamphlet that was included with your loan application has been replaced by a 49 page booklet.   This revised guide for borrowers was created to accompany HUD's new Good Faith Estimate which goes into effect on January 1, 2010. 

HUD's new guide is to help consumers navigate the new Good Faith Estimate.  I'm not going to go all the way through it on this post, I do want to point out issues with HUD's Home Purchasing Time Line (which you'll find on page 4).

 

Do you see anything wrong with this picture?   Let's review step by step.

1. Determine what home you can afford.   I agree with this.  What home you can afford may be different than what home you qualify for.  You don't have to buy as much home as you may qualify for and you might qualify for less than you desire.  What's most important is being able to afford the home.   I think this step is referring to doing some serious gut checking and reviewing of your personal budget BEFORE meeting with a real estate agent or mortgage originator.

2. Find a real estate agent.  I think step two should be to find a mortgage professional instead of the agent.  They have the cart before the horse with this step.  The last thing a home buyer needs is to be shown a bunch of home they may not qualify for.  Meeting with a mortgage originator first will help them narrow down what programs they qualify for that will suit their financial needs (I think this is HUD's Step 5).  Agents may debate me on this because they like to direct buyers to their preferred lender.

3. Find a home and negotiate the terms.  This is unbelievable!  HUD is recommending that you enter into a binding contract before knowing if you're approved for the mortgage.  Yes there are financing contingencies, but you do not tie up a seller's property when you don't even know that you can close on a transaction.  Plus, most real estate agents will not show you a home until you have been preapproved by a mortgage professional.

4. Shop for your loan -- compare multiple good faith estimates.  This is very flawed.  HUD's new good faith estimate carries RESPA reform which in a nutshell means that if a mortgage originator provides a borrower a good faith estimate, they are presumed by HUD to have obtained enough information from you to have created a loan application.  This creates a certain amount of liability for the mortgage originator that in this day and age, most will not accept.   Not to mention that rates change constantly, sometimes several times a day.  If anything, you should shop for the most qualified mortgage professional and not "the loan" or rate...this step should take place around Step 2.

5. Chose the loan that's best for you.  This should take place at step 2 or 3 (after you select your mortgage professional).  This is too late in the game to be determining your financing.

6. Loan originator processes the loan.  Your mortgage originator begins processing your loan at application for purposes of preparing your preapproval letter.  Your loan may actually go into processing and underwriting once you are proceeding with your transaction.

7.  Have house inspected.  This typically take place after you find your home and have negotiated your contract.  You're not going to want to be paying for an appraisal (which would take place at processing) if your potential home doesn't pass inspection.

8.  Shop for other service providers (title, attorney, escrow agent).  Is this a HUD after thought?  If you are going to shop for your title or escrow, you're going to need to do this prior to the contract being written as the purchase and sales agreement dictates who the providers will be (unless the agent writes "buyers choice").  Plus, HUD's new GFE dictates how much the title and escrow fees can change at closing based on if you shop or if you allow the lender to select these service providers.

9. Loan is approved.  There are different steps of loan approval.  This is most likely "final loan approval" meaning all conditions (documentation) have been provided and reviewed by underwriting.

10. Get insurances and do final walk through.  I recommend shopping and selecting your home owners insurance much earlier in the process.  Once you have a bona fide contract and your home has passed inspection, you can start shopping for your insurance agent. 

11. Go to settlement.  In Washington, you're probably going to your signing appointment at the escrow company a couple days before closing.   Sometimes signing will feel like it's at the eleventh hour!

12. Move in. 

Watch formy next post where I share how I think this purchasing time line should look.