Dennis' Mortgage Blog

December 12th, 2014 1:38 PM

Question of the week:  When we closed on our home this summer you said our taxes would be around $6500 a year and our tax bill shows we only owe $2000 for the first installment, which is it?


Answer: One of the more challenging aspects of purchasing a home to explain, and for home buyers to retain amongst the massive amount of information put to them in the process, is the supplemental property tax.


With so many new home buyers this past year here is a recap of how supplemental taxes work.


Property taxes are based upon the purchase price of a property with the value of the property being split into the land value and the value of improvements on the land, i.e. you house. In California the tax year is from July 1st to June 30th and property tax bills are mailed in October with the first installment being due by December 10th and the second installment being due April 10th. The first installment (due December 10th) covers taxes from July 1st to December 31st and the second installment (due Aril 10th) covers from January 1st to June 30th.


Depending on when you purchased your home the tax bill prepared and mailed in October may not be reflective of what your actual property taxes are but instead show the taxes due based upon the previous owner’s tax obligation.


In the instance for our question of the week the client purchased the home and closed at the end of August on a $525,000 home. The prior owner had purchased the property in 1998 for closer to $300,000, which is the $4000 tax bill our client received in the mail—the obligation based on the prior owner’s taxable value.


Sometime in January you will receive a supplemental tax bill that will be broken into two installments (due the last day in February and June 30th) that will cover the difference between the amount owed in taxes based upon your purchase price and the amount billed based on the prior owner’s tax basis. The bill will be prorated based on when you purchased the home and the new tax rate is to apply; for instance if closing was August 31st then the supplemental bill will cover ten months of differential between the old and new tax rates (September through June).


The total of the supplemental tax bill our client will receive and the tax bill received in October will be near the initial estimate of $6500 per year.


It is important to note if your taxes are being impounded, i.e. collected every month by the lender as part of your monthly mortgage payment, the lender will not pay the supplemental bill. The lender will pay the taxes based on the bill mailed in October by the county, any supplemental taxes are your responsibility to pay.


Taxes can get a bit complicated, if you have any questions on your tax bill please do not hesitate to contact me.  If you want to have a tax bill next year, which means you will have to purchase a new home to receive that tax bill, please call me so we can begin the process of getting you preapproved and ready to purchase your new home in 2015.


Have a question? Ask me!  


Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.


Topsy-turvy economic news to end the week. Yesterday the Census Bureau released retail sales figures for November which showed a big leap from October to November with sales rising 0.7% for the month, stripping out auto and gas sales and the increase was 0.6%. This news caused Mortgage Backed Securities to drop on the news (higher rates) as investors saw the news as support for the Fed raising interest rates in the nearer term rather than the further term.


If yesterday was topsy today was turvy as the November Producer Price Index data was released that showed prices in the month declined 0.2%, led by cheaper energy costs to run plants and power vehicles. Taking out energy costs and the PPI number was flat month over month. Year over year the PPI increase is up only 1.4%. This news is rate friendly as it shows an absence of inflation, with little to no inflation there is less pressure for the Fed to raise interest rates.


Topsy-turvy, one set of data points to higher rates and the other set of data points to rates remaining at current levels. With data such as GDP growth, higher consumer sentiment, improving employment and growing retail sales and very importantly the Fed having stopped printing money to purchase mortgages in October we should be seeing rates on the rise. Instead for the past month we have seen Mortgage Backed Securities prices slowly climb to recent peak levels in mid-November and previously seen in the spring of 2013. Counter-intuitive to most economic theory, a growing and strengthening economy should have higher rates not lower, our recent rate market seems to be less concerned with domestic issues than global and that is a primary cause for our continuing low rates.


Rates for Friday December 12, 2014: After last week’s little bounce in interest rates this week we see them drift back down their lows last seen in May 2013 (and two weeks ago). The environment is for rates to remain very low, this low for long I’m not sure but surely below 4.00% on the conforming rates for perhaps another quarter.




30 year conforming                               3.625%             Down 0.125%

30 year high-balance conforming           3.75%               Down 0.168%

30 year FHA                                         3.25%***         Flat

30 year FHA high-balance                     3.625%***       Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs.


Drought or deluge seem to be the options for weather in Southern California, and we are definitely experiencing deluge the past few days. Thankfully we replaced our roof over the summer and no longer are worried about where to set the buckets up in our family room when it sprinkles, much less brings down the rain we had last night.


I love a great big storm and last night got up in the dark early morning to check on things, got to make sure the new roof is leak-proof, and loved looking out at the wind and rain coming down in torrents. Though my thoughts did run to when I would be able to get a Christmas tree and not have a big ball of wet mess to drag into the house.


Hoping everyone is able to safely navigate their way in the stormy weather.


Have a great week,



Posted in:General
Posted by Dennis C. Smith on December 12th, 2014 1:38 PMLeave a Comment

December 5th, 2014 2:57 PM

Question of the week:  If my wife is not on title to our home and I die does she have to pay off the mortgage?


Answer: This week’s question comes from Doug, one of our partners at Stratis Financial, who was double checking information for a client engaged in a refinance transaction. The scenario is our client was refinancing their mortgage as husband and wife, however the wife is not a U.S. citizen but a permanent resident and her green card had expired a few weeks ago.  The renewal process has been slow and she has not yet received her renewal card. As a result the lender cannot approve her for the mortgage application.


Fortunately the husband, who is a U.S. citizen, qualifies for the refinance on his own, as a result Doug set up the application package for the husband only to be on the loan and the husband and wife to remain on title. The husband brought forth our question of the week, if he were to pass away before the mortgage was paid off could the lender call the mortgage due.


Most mortgage notes have what is known as a due on sale clause, under this clause if there is a transfer of title from the current title holders to new title holders who are not currently on the title to the property the lender can call the note due, i.e. it must be paid off in full now. As an example, John and Jane are on title to their home as joint tenants and both are on the mortgage. The get divorced and John deeds his interest to Jane. In this instance the mortgage would not be callable on the due on sale clause as Jane is still on the title and mortgage. In two years Jane deeds the property to her brother Jack. At this point the mortgage company could call the loan due and demand it be paid in full as Jack is not on the mortgage, nor was he on the title when the mortgage was approved and funded.


Our client’s concern is that the last instance above may occur with his wife should he die with the loan outstanding, that the lender will enact the due on sale clause.


Our common experience in the industry is that we have never heard of a lender calling a loan due after one of our borrowers has passed away and while we thought that would be the case in this circumstance we were not certain enough to pass along the information to the client.


I reached out to friend and Long Beach attorney Greg Burnight with the question and his response put our client at ease and he is moving ahead with his refinance.


Greg provided us with information from the Garn-St. Germain Depository Institutions Act of 1982 that essentially allows a surviving spouse to continue to pay the mortgage left behind by a deceased spouse—whether on the loan or title to the property at the time of the spouse’s death under certain circumstances.


If the spouses own their home as joint tenants surviving spouses are free to assume the outstanding mortgage(s) at no costs (so don’t let a lender try to impose assumption fees) under the law. As well if a  home is inherited by relatives the mortgage may also be assumed and retain the mortgage in the deceased borrower’s name, provided they reside in the property.


This expands the right of retaining the mortgage to children of a deceased parent, so long as the child(ren) inheriting the property make the property their primary residence.


While I can be critical of many of the laws our state and federal governments pass, and often am, here is an instance where government intervention is for the well-being of all. Prior to the passing of the Garn-St Germain Act spouses whose were not on mortgages could be, and not infrequently were, forced to pay off mortgages with no ability to qualify for a new mortgage or having to take a mortgage with less favorable terms in order to retain their homes. This Act allows for grieving spouses to not have the added emotional burden of being forced to sell their homes in order to satisfy a clause in a mortgage note.


The circumstances above highlight another reason to have your property ownership within a family trust. And as always we strongly suggest obtaining your own legal and accounting counsel when needed for matters involving legal ownership, transfer and tax obligations.


Have a question? Ask me!  


Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.


Wow! That was the professional reaction when the Labor Department announced the employment data for November. With expectations of job growth in November to be somewhat in line with October’s job growth (initial 214,000 new jobs revised to 243,000) and a consensus of 230,000 new jobs being added in November to the economy everyone was shocked when actual number of new jobs in November to be 321,000 jobs. Not too great on the consensus estimates, only off by 40%. In fairness the number was completely unpredictable given the other data in the month of November including weekly unemployment claim filings.


Markets reacted quickly to the news with Mortgage Backed Securities (MBS) opening down significantly from yesterday’s close (lower price means higher rates) and stock markets opening higher. As the trading day has progressed there has been large swings in MBS prices with investors using the data to speculate on if the news pushes up the time frame for the Federal Reserve to raise interest rates.


Other factors are part of the decision by the Fed governors on raising short term rates, but for quite some time the commentary from the Fed has been that a key factor as to when to begin raising rates is the health of the employment markets in the economy. The sudden spike in new hirings in November seems to peel away a layer of two of resistance as to when the Federal Funds Rate will be increased by the Federal Reserve.


Other economic data for the week is pretty much a whisper in a storm compared to today’s announcement, but investors stay in business by moderating the shouts and hearing the whispers. And the whispers are that Europe is not doing well economically and that despite our slowly strengthening economy we are no longer number one. The International Monetary Fund’s recent data for the world economy shows that China is now the number one economy, the first time since Ulysses S. Grant occupied the White House that the United States has not had the world’s largest economy.


The Fed is generally not known for snap decisions or knee jerk reactions, well except for the Qualitative Easing policies of the past six years in my opinion. As such today’s employment data will certain be noticed but absent continued growth of an equal measure in the coming months the November numbers could be considered a one-off spike in hiring. We will know more in early January when December’s job report is released.


Rates for Friday December 5, 2014: After small gains through the week today’s market activity wiped out the gains from this and last week. Perhaps an over-reaction to today’s news, but once the momentum starts investors don’t want to be left behind. We should see a calmer market next week and perhaps a drift back down in rates. “Perhaps” being the key word and as always I recommend locking your rate through your escrow period.




30 year conforming                               3.75%               Up 0.125%

30 year high-balance conforming           3.918%             Up 0.168%

30 year FHA                                         3.25%***         Flat

30 year FHA high-balance                     3.625%***       Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs.


I hope everyone had a wonderful Thanksgiving, I finished the last of our leftover turkey yesterday…now confused what to do for lunch.


There are only three more Fridays in 2014, make the most of them!


Have a great week,



Posted in:General
Posted by Dennis C. Smith on December 5th, 2014 2:57 PMLeave a Comment

November 28th, 2014 11:07 AM

Question of the week:  No question this week as the Answer Man takes a break for Thanksgiving.


Have a question? Ask me!  


Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.


Quick economic data recap:


The first revision for 3rd quarter Gross Domestic Product was an upward revision, surprising those who make up the “consensus” who had predicted a downward revision. The initial estimate was 3.5% growth, the revised estimate was 3.9% growth in the economy and 1.4% increase in the price index. This data would create environment for higher rates.


Durable goods orders for October showed slight increase after dropping in September, however the “core” index (taking out orders for transportation orders) the index was negative. This data is favorable for lower rates.


Initial unemployment claims spiked last week with 313,000 filings, the highest number since September. This is favorable for lower rates.


Personal income and spending both saw slight increases in October, income up 0.2% and spending up the same amount. Year over year personal income is up 4.1% and spending up 3.6%. This data is slightly favorable to higher rates but somewhat muted vis-à-vis the overall economic growth numbers.


Rates for Friday November 28, 2014: While markets are open today trading tends to be light as the big decision makers are taking a long weekend and leaving the junior varsity in charge of trading with the orders “don’t do anything drastic.” Mortgage Backed Securities are higher than last Friday and rates are down for the week.




30 year conforming                               3.625%             Down 0.096%

30 year high-balance conforming           3.75%               Down 0.125%

30 year FHA                                         3.25%***         Flat

30 year FHA high-balance                     3.625%***       Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs.


I hope you all had a wonderful Thanksgiving, we sure did. Tonight is a big night as Long Beach Poly High ranked #5 in California and #18 in the nation takes on St. John Bosco, ranked #1 in the state, #5 in the nation and defending champions—of their CIF division, CIF Southern Section, California and national champions. The game has been described as the biggest matchup in America so far this year and we are excited to be going. Kickoff is at 7:30 at Cerritos College, but tickets may be scarce. Go Jackrabbits!


Have a great week,



Posted in:General
Posted by Dennis C. Smith on November 28th, 2014 11:07 AMLeave a Comment

November 21st, 2014 10:28 AM

Question of the week:  Why do I have to provide documentation on the $3000 birthday check my grandmother gave me?


Answer:  With all the new buyers entering the real estate market, and some old buyers purchasing for the first time in many years, it is time to revisit the issue of gift funds and unusual deposits on your bank statements.


As I have written in the past, and try to remind everyone a couple of times a year, for the past several years the number one issue that slows approvals, documents and fundings is verification of funds.  It used to be verifying funds to close, now it is verification of all funds in mortgage applicants’ bank accounts whether needed for closing or not.


More so than ever Fannie Mae, Freddie Mac and FHA have tightened down on asset verifications and have been sending loans back to lenders due to what they deem inappropriate verification of funds and assets, i.e. deposits.  Because of this lenders are tightening down even more so on what they require for asset verification.


Adding an extra layer of tightness for lenders are the anit-money laundering rules in place that require financial institutions, from stock brokers to credit unions to mortgage lenders, to report suspicious bank activity to FinCen, the Financial Crimes Enforcement Network of the Department of Treasury and to the Department of Homeland Security.


What is suspicious? It is a bit subjective but large and frequent cash deposits, routine deposits just under the IRS $10,000 reporting threshold or large deposits that seem out of character for the rest of the profile of the depositor. So mortgage lenders are not just worried about Fannie Mae or Freddie Mac kicking back a loan but also worried about an audit by the Federal government and possible penalties for violations of the anti-money laundering statutes.


As part of the approval process your loan application package will need to include verification of funds to close and/or reserves.  Verification requires two months bank statements (all pages please) or in some cases a Verification of Deposit (VOD) which has current balance and the two month average balance. 


Trouble arises when on the bank statements there are deposits that are “unusual” and exceed what are considered “significant” amounts by underwriters, in some cases as low as $500, in other cases deposits totaling one-third or more of your monthly employment income.  “Unusual” is a deposit that is not funds from your normal pay check or direct deposit from employer.  If using VODs if the average balance is below the current balance the underwriter may request a statement to see why, what deposits have been put into the bank to increase the current balance above the two month average.


So to prevent being delayed, or even in some cases unable to be approved, due to deposits into your bank account(s) that are above and beyond your normal income deposits:


  • For any checks deposited within two months of your transaction make a copy. 
    • Checks from friends to reimburse for a wedding shower gift
    • Birthday checks from Grammy
    • Reimbursement checks from supplies provided for the school musical
  • If you own rentals do not take cash out when you deposit tenants rent checks.  Copy checks and make the full deposit that matches the rental agreement.
  • Alimony and child support checks should be copied.  Often these payments are made twice per month, copy the checks to show the total for the month matches the divorce decree or judicial decree.
  • Self-employed.  Keep a separate business account to run your revenue and expenses from.  When you make a compensation payment to yourself be prepared to trace the check back to your business account.
    • If taking out a large sum from your business account that is more than what is seen as your “regular salary” be prepared to show that taking such a sum from your business will not harm the business with a letter from your CPA or CFO
  • Cash, best not to deposit cash if you can avoid it as it is untraceable and can cause issues.  We have seen deals almost come apart from large cash deposits from clients who got lucky in Vegas and deposited the cash into their account, which is wise to do but underwriters don’t like it.


Before depositing any check that is not from your employer copy it, source it and be prepared to explain it.  I repeat this again and again for clients and we get tripped up consistently on verification of funds and deposits into borrowers’ accounts.


One more time, if you are considering purchasing a home or refinancing at any time in the near future make sure you have copies and can source every deposit into your bank accounts.  If you cannot then you will run into headaches with your loan approval in the future. 


If you have any questions concerning depositing funds not derived from your regular employment please contact me to discuss how these funds may be properly documented and used for your mortgage transaction and not derail your transaction.


Have a question? Ask me!  


Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.


The week had plenty of significant economic data. Monday started off with Industrial production in October and it was down 0.1% from the prior month after a 1% increase in September. Industrial production is important economic indicator as it reflects into the job markets and overall economic growth, a low or negative growth number tends to create lower interest rates.


Prices are always important. Tuesday the Producer Price Index (PPI) for October was released showing a 0.2% increase in prices wholesalers pay for goods and services, year over year PPI is up 1.5%. Take out volatile energy and food prices and the growth was 0.4% for the month reflecting the drop in petroleum prices around the globe. Thursday the Consumer Price Index (CPI) was released reflecting what you and I pay for goods and services and it showed no change in prices from September, taking out energy and food costs and CPI rose 0.2%, again showing the impact that lower gasoline prices have in our basket of goods we buy each month. Low and flat numbers for CPI and PPI tend to push rates down as it delays increases in rates from the Federal Reserve and can indicate a sluggish economy.


Of importance to most readers are existing home sales. For October sales showed another month of increases in sales gaining 1.5% after a 2.6% boost in September. Sales in October 2014 of existing homes were up 2.5% from last October, the first time this year sales have topped 2013 sales. The median price shrank in the month indicating some slack in demand with the median price dropping 0.4% for the month following a 4.3% drop in the median price in September, year over year the median price is up 5.5% from October 2013. Regionally the West saw a decline of sales of 5% from September and 3.4% from last October. Improving home sales puts upward pressure on interest rates as they reflect stronger consumer confidence and stronger economic activity.


Rates for Friday November 21, 2014: Technical trading information kept rates from dropping a bit further than they maybe should have this week but drop slightly they did from last Friday after a bit of an increase on late Tuesday and into Wednesday. Next week is a short week which should make it a bit volatile as traders move positions ahead of spending the Thanksgiving holidays in the Hamptons.




30 year conforming                               3.721%             Down 0.029%

30 year high-balance conforming           3.875%             Down 0.125%

30 year FHA                                         3.25%***         Flat

30 year FHA high-balance                     3.625%***       Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs.


The question of the moment this time of year is, of course, “are you staying home or going somewhere?” We will continue our tradition of staying home for Thanksgiving and I will be spending the day in the kitchen with old movies on as I prepare our Thanksgiving meal, the menu for which has changed only slightly over the years—and that is on the dessert side. Barbecued turkey, homemade rolls, sausage cornbread dressing, green beans and mashed potatoes for dinner and typically pumpkin cheesecake and apple pie for dessert (note not “or” but “and,” it is Thanksgiving afterall). This year we have guests from abroad, Sweden and Scotland, and our Scottish visitor will be substituting trifle for our cheesecake.


Whether you are going somewhere or staying home my families—the Smith family and the Stratis family—wish you a wonderful Thanksgiving, knowing it will be spent with those you love and enjoy and are thankful are in your lives; as I am thankful you are in mine.


Have a great week and happy Thanksgiving,



Posted in:General
Posted by Dennis C. Smith on November 21st, 2014 10:28 AMLeave a Comment

November 14th, 2014 12:25 PM

Question of the week:  What do you think of the news that the government wants to loosen home mortgage standards to increase the number of people who can qualify to purchase a home?


Answer:  I think government officials pushing for the changes and their supporters either have very short memories or are more concerned with scoring political points than the economic impact on the mortgage and housing industries and the overall economy of their proposals.


The question arose from news that Melvin Watt, former Congressman who was appointed by President Obama earlier this year to head the Federal Housing Finance Agency  (FHFA)—the entity that regulates Fannie Mae, Freddie Mac and the Federal Housing Authority (FHA)—wants to expand homeownership opportunities by relaxing many policies put into place following the housing and mortgage markets crisis.  There are many facets to the overall objective of expanding opportunities of homeownership, some of which I do not object to and several that I do.


Whenever anyone addresses the tighter lending standards in our current market the fingers can be pointed directly at the entities controlled by FHFA. Fannie and Freddie, who determine our conventional mortgage guidelines and purchase mortgages qualified mortgages from lenders, have significantly increased their repurchase demands from lenders over the past several years, which in turn has resulted in lenders tightening their underwriting guidelines to be stricter than those required by Fannie and Freddie. A “repurchase” is when Fannie or Freddie purchases a mortgage from a lender and then after reviewing the mortgage finds some aspect they feel is not up to their guideline and requires the lender to buy the loan back. This is very expensive to the lender who cannot recirculate those funds for other mortgages. As repurchase requests increase lenders get tighter and tighter. (At end of this section I have an example of repurchase for those interested.) FHA has tightened lending but jacking up, a technical term used in the  industry, the mortgage insurance fees for borrowers to the extent that FHA loans are almost subprime in cost and used by many lenders as a last resort if we cannot find a way to qualify the borrowers with a conventional mortgage.


Watt’s proposals to expand lending are to restrict the use of “over-lays” by lenders, over-lays are lender guidelines on a particular policy that are stricter than the policy of Fannie, Freddie or FHA, loosen the repurchase requirements by Fannie and Freddie and to ease the underwriting guidelines of Fannie and Freddie, primarily by having a minimum down payment of 3% instead of either 5% for regular conventional loans or 10% for high-balance loans.


By restricting over-lays by lenders while at the same time loosening Fannie/Freddie repurchase requirements Watt is saying that he wants lenders to loosen their lending standards and if they do they will not run afoul of Fannie/Freddie and risk having to repurchase the loans made with the looser standards. The risk to the lenders of course is the implementation of such agreements, afterall lenders have been underwriting to Fannie and Freddie standards for decades and after the mortgage crisis saw loans that had been performing for many years go into foreclosure only to have Fannie and Freddie require the lenders to buy back mortgages funded years ago under then current Fannie/Freddie standards only to have them apply new standards and require a repurchases. The mistrust is somewhat palpable and understandable given the past actions of Fannie and Freddie.


I support the loosening of the repurchase standards of Fannie and Freddie but disagree with the ability of individual lenders to have their own standards. If a lender wants to have tighter lending standards and reduce their risk, and the risk to taxpayers who back Fannie and Freddie mortgages, then that should be their right. It will reduce their loan volume and revenue but that is a decision any business should be able to make in an open market.


One restriction Watt would like to eliminate is lenders being able to have higher minimum FICO requirements than those allowed by Fannie and Freddie. This to me is walking down the path to trouble. Over the past few years the minimum credit score for conventional loans has dropped down to 620 (FHA has dropped to 580 for minimum down and as low as 500 for 10% down). In my opinion this is too low, and realizing there are individual circumstances due to one-time circumstances, I feel a minimum score of 660 or even 680 is more reflective of an applicant who is able to maintain a mortgage with timely payments while not adversely impacting other credit payments or obligations. If a lender wants to impose their own scores for their applicants at 660, 680 or even 700 or 720 that should not be Watt’s decision to disallow.


As for lowering the down payment requirement for Fannie and Freddie to expand homeownership for those that can afford monthly payments for a mortgage but are challenged to save a down payment, especially in higher cost areas like Southern California, if feel Watt would be better served to instead of changing the guideline for conventional loans to instead change the mortgage insurance requirements and payments for FHA mortgages which already allow for a 3.5% down payment. For decades the FHA mortgage program worked for those whom Watt is trying to include in the homeownership experience. Following the mortgage crisis FHA raised its mortgage insurance requirements to where they are today, for a $300,000 FHA mortgage the upfront mortgage insurance premium is 1.75% ($5250 usually added to the loan) and then a monthly payment for the life of the loan of 1.35% ( $337.50 per month, which is $4050 per year). These higher premiums have priced many otherwise qualified buyers out of homeownership.


Obviously given my longevity in the mortgage industry I am a huge proponent of homeownership. However as I have told thousands of clients over the years, I do not want to help someone get a mortgage that results in the part of their home they know best is the ceiling above their bed that at the end of the month they stare at in the middle of the night wondering how they are going to make their next mortgage payment.


I sense our government regulators and many politicians are slipping back into the mindset that homeownership is a right and not a privilege and as such as many accommodations as possible need to be made that results in many people buying homes they really cannot afford and/or should not be buying. There are many underwriting guidelines and policies that I find ridiculous and restrictive that can be loosened that will expand homeownership in a way that is responsible without jeopardizing the financial strength that Fannie and Freddie have come to have since their bailout from and repayment of the funds to the U.S. Treasury.


Unfortunately it seems to be the nature of our government officials to swing pendulums too far one way and then too far the other, often times the with very slight pressure on the pendulum from regulators the markets most often can control the swings to a much more measured degree and pace that benefits the vast majority of consumers.


Example of repurchase: Lender funds $400,000 mortgage to couple in Scottsdale for the purchase of a $500,000 home. Borrower is self-employed and receives income from his retirement account on a monthly basis, has a very good credit score and was a prior homeowner. The funds for the purchase come from sale of his prior residence in Minneapolis. The lender packages the loan with several others and sells a portfolio of $25 million mortgages to Fannie Mae. Upon receiving the package Fannie Mae reviews the Scottsdale buyer’s mortgage package and sees that there were several large deposits made into the retirement account that were not account for and that the retirement account does not show a year to date history of the borrower accessing the monthly amount put on the application. Fannie says the lack of fund documentation and proof of continuity of income on the retirement account fails to meet its criteria and sends the loan back to the lender to repurchase. At which point the lender must send $400,000 to Fannie Mae and set up to maintain and service the loan until it pays off.  In reality the borrower accumulated various retirement accounts he had acquired over a lifetime of working with different employers that rolled into different IRA accounts. All the funds came from similar accounts but the history of those accounts was not fully documents. On the income the borrower’s tax returns showed the amount of income from distributions from his retirement accounts as he took a little from each account, upon consolidating the accounts his income was consolidated as well to the one account. Perhaps some sloppy underwriting by the lender but the assets and income were present for a qualified borrower.


As a result of this repurchase, or buy-back, the lender may tighten its criteria for using retirement account assets for proof of income in a mortgage application.


Have a question? Ask me!  


Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.


Some interesting foreclosure data making the news this week. October saw a surge in foreclosure auctions and an increase in filings. Foreclosures have been climbing for the past couple of months and this article in Mortgage New Daily they will continue to increase mostly due to the lack of performance of mortgages that were modified under the government backed Home Affordable Modification Program (HAMP), Home Equity Lines of Credit set to be reset to fully amortized payments and millions of homeowners still underwater and/or behind on payments. The article is a good complement to those pondering the desire of the Administration to loosen lending standards. If the numbers continue this could push prices down, restricting or constricting economic growth and lead to lower rates.


Not a lot of data this week that impacts mortgages. Yesterday initial unemployment filings came in higher than the week before and at the highest level in seven weeks at 290,000 applicants for unemployment insurance, there are currently 2.4 million Americans receiving federal unemployment benefits. The data is somewhat neutral, while typically higher unemployment filings lead to lower rates investors shrugged off the news as an outlier in the recent trend.


Consumers are spending their savings on gasoline. Overall retail sales in October increased 0.3%, strip out auto and gas purchases and sales increased 0.6% for the month. After declining in September the higher numbers are making retailers happy heading into the holiday shopping season.  Further buoying spirits of retailers was another increase in consumer sentiment. Right now the data shows for more consumer spending which would lead to faster economic growth which would result in higher mortgage rates.


Rates for Friday November 14, 2014: With the off day on Tuesday for the markets we have in effect two Mondays and two Fridays. Not surprisingly the mortgage markets sold off on Monday ahead of the holiday (higher rates) and then bounced around the rest of the week with the end of each day’s bounce being slightly higher than the day before (lower rates). The net result from last week are rates are flat—always a positive in my book when rates are steady.




30 year conforming                               3.75%               Flat

30 year high-balance conforming           4.00%               Flat

30 year FHA                                         3.25%***         Flat

30 year FHA high-balance                     3.625%***       Flat


Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs.


High school football playoffs start this week in  California and I’m excited to experience them for the first time this  year. Our daughter is in the marching band for Long Beach Poly High School which is a perennial football power in the region. Having attended most of the games this season I look forward to watching the team try to advance through some of the toughest competition in the country as they seek another state title.


Having gone to a small high school in Brussels, Belgium for sophomore through senior years that had a football team (school was about 75-80% American) this is my first experience of big time football with large crowds and expectations. And I have been enjoying it very much.


Go Jackrabbits!


Have a great week,



Posted in:General
Posted by Dennis C. Smith on November 14th, 2014 12:25 PMLeave a Comment



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