Dennis' Mortgage Blog

I sent the following today to my Congressional representatives, please contact your representatives as well, the more voices from voters and constituents the greater the chance our message will be heard.

March 10, 2009

Dear Congresswoman Richardson, Senator Boxer and Senator Feinstein, 

As your constituent, and a member of the National Association of Mortgage Brokers (NAMB), I am writing to you concerning the recent announcement by Fannie Mae to increase fees for purchasing and securitizing mortgages.  The increases, announced in Fannie Mae Announcement 08-38 on December 29, 2008, will undoubtedly force new and higher costs on current and future homebuyers searching for affordable mortgage financing.  Imposing these fee increases on consumers during a time when mortgage affordability is needed most fails to protect the consumer and will hinder any efforts made to stimulate the housing market. 

I have sent the following to real estate agents and clients in my database, many of whom are also your constituents in Long Beach, as well am posting on my websites for others to actively oppose these moves by the GSEs, I urge you to use your influence to help our housing market recovery in California to continue.

Here is some important information for real estate professionals in California that impacts our housing markets.  Our professional associations, California Association of Mortgage Brokers (CAMB) and the National Association of Mortgage Brokers (NAMB) are very active in meeting with Congressional Representatives and Senators to rein in the burdensome requirements and fees Fannie Mae and Freddie Mac (GSEs) are imposing that are shutting down many markets just as they begin to heal.

• Home Valuation Code of Conduct HVCC -This Agreement will shift mortgage business primarily, if not exclusively, to banks, harming consumers by severely limiting competition. Increased appraisal costs will be charged, even though independent and staff appraisers will be paid less. Consumers will see borrowing options curtailed because they receive appraisals that are lower in quality and a less accurate valuation of their housing.  The HVCC will require all appraisals be ordered through “national home valuation companies” starting May 1, 2009.  I have personally had several transactions where a lender has required an HVCC and our client has been ill served each time.  Currently the HVCC companies list of appraisers are those willing to work for 50% or less than what a professional fee for service appraiser charges in the market—you get what you pay for.  As well the assignments are made from other areas of the country, so for Long Beach we can get an appraiser from Hacienda Heights or Pomona assigned to us—someone with no knowledge of the area. 
• Fannie Mae and Freddie Mac are charging unnecessary and excessive adverse market fees in certain areas of the country—including California.  In addition, these federal government agencies are also charging additional risk-based pricing fees, which are freezing the mortgage market and preventing much-needed recovery.  These fees negatively impact small business mortgage professionals and their consumers by increasing the overall costs of most loans.  With these fees lenders are being penalized for having over 10% of their mortgages be for conforming loans over $417,000—in California the fees charged by the GSEs to certain lenders is limiting rate competition and driving down prices.
• Another barrier created by the GSEs to a housing recovery are higher fees for investor-owned properties.  The GSEs should encourage investor purchases, not punish them for helping to remove non-performing loans from the balance sheets of banks and lenders.  In addition, the GSE’s are limiting how many properties they will finance for an investor.  Such an arbitrary calculation is not justified and each mortgage should be addressed on its merits.
• As you can see in the Fannie Mae Announcement a borrower with a 680 FICO, higher than the national average, buying a condo with 20% down will have an additional 2.25 points added to their loan fees; for a $350,000 condo this will add $6300 to their closing costs—not total but add to.  This lessens demand and drops prices further, as well for most buyers in this price range will require the seller to pay the costs as part of the closing transaction, limiting individual sellers, as opposed to institutional sellers like banks, from having those funds for purchasing a new home.  The new fees dampen prices and restrict move up buyers.

Here are the bullet points outlined by NAMB on the issues they are addressing with members of Congress in trying to get them to have the GSEs guidelines changed:

• Consumers will ultimately bear the burden of these increased fees.
• Many first time buyers are excluded from home ownership, as these GSE fees make purchasing unaffordable.
• Homeowners with existing mortgages are prevented from refinancing into more affordable fixed rate loans.
• The GSEs did not provide adequate justification for these increases.
• How were the “representative credit scores” determined?
• How did the GSE’s determine the Loan-Level Price Adjustment Matrix (LLPA) used to calculate these increased fees?
• The increase in fees inhibits mortgage affordability, contradicting the core mission of both Fannie Mae and Freddie Mac.
• 100% loans were approved through the automated underwriting engines of both Fannie Mae & Freddie Mac with debt-to-income ratios as high as 65% based on gross monthly income before taxes.  Credit scores in the mid-500 range were also in the equation. These loans were then granted final loan approval by the mortgage lenders’ underwriters (not brokers) and then sold in the secondary market. 
• The existing obstacles hindering housing market stimulation compound the fees charged by the GSEs. These include the GSEs not purchasing bond loans, lack of sufficient first time homebuyer programs, no 100% loans available to well qualified buyers, investor loans that are priced our of reach, and no jumbo loans available with favorable terms (no 30 year fixed rate products). 
I urge everyone with a stake in homeownership and the recovery of the housing market to contact their member(s) of Congress with this message:  Make the GSEs reverse their HVCC requirement effective 5/1/09 and rescind the “Loan-Level Price Adjustments” that have either already been put into place or are scheduled to be implemented next month. 

As I have been writing for the past few months, our real estate market is seeing a flattening at the entry level, first time buyer level, which will provide the foundation for recovery from the bottom up.  The GSEs will kill this recovery with their proposals unless Congress does something about it.  Please be active and contact your Congressional representatives today.

Dennis C. Smith
Stratis Financial Corporation
562-243-6912
Dennis@StratisFinancial.com
www.DennisCSmith.com