Dennis' Mortgage Blog

Question of the week:  What is different for loan applications today than say four or five years ago?

Answer:  Co-worker David and I had a bit of a chuckle over this one yesterday.  For a complete loan package today we need at a minimum:

·         Driver’s license

·         Most recent paystub

·         Most recent W2, probably 2 years

·         If self-employed or file any additional schedules (Schedule C, K-1, unreimbursed business expenses, Schedule E-income property) most recent year’s, and probably two, Federal Tax Returns

·         Asset statement(s) verifying funds to close and reserves

·         Insurance agent information

·         If condominium HO6 insurance coverage

·         Appraisal

For many loan programs, including Fannie Mae and Freddie Mac, in 2006 we needed at a minimum:

·         Driver’s license

·         Insurance information

That’s right, for Fannie and Freddie loans, piggy-backs, we would just need a driver’s license.  Income was accepted as stated on the application, assets were accepted as stated on the application and often no appraisal was required because the Fannie or Freddie Automated Underwriting System (AUS) would validate the value entered for the property.  You just needed to prove who you were and that the collateral would be insured.  Congratulations, you’re a homeowner.

Any wonder at the foreclosure numbers the past few years?

Have a question for me?  Ask me!

Speaking of Fannie Mae tomorrow Fannie Mae 8.0 hits the streets and with it many guideline changes.  Debt to income limits get dropped to 45%.  Loan to value limits for income properties and second homes drop significantly.  FICO score requirements increase.  Loan to value limits on hi-balance loans drop on certain FICO scores.  This is the biggest revision to Fannie Mae guidelines since it began using the AUS approval system.  Look at the lists above and you’ll know why the new guidelines.

I do not know what to define this, stupid, idiotic, asinine, ridiculous, or just typical of our beloved Federal Government and its bureaucrats making regulations.  Effective January 1, 2010 HUD will implement new RESPA (Real Estate Settlement and Procedures Act) regulations that will require new forms and added paperwork for the borrower.  The previous one page Good Faith Estimate breaking down all costs was evidently not easy enough to understand so HUD is instituting a new 3 page form, we’ll need to keep the old form to be in compliance with the Federal Reserve.

The purpose of the new GFE is to provide clarity to borrowers, transparency for fees, and encourage borrowers to shop lenders.  Things that occurred in California with the combination of the GFE and the California specific Mortgage Loan Disclosure Statement.  Ultimately the new GFE 2010 is intended to eliminate surprises in closing costs at settlement, i.e. when loan documents are signed, and HUD feels the new GFE 2010 will get rid of unscrupulous mortgage originators who lie to borrowers to get a  loan application started and then at closing rates, programs, costs are significantly different.  This is a great purpose and one I support and wish HUD would pursue under existing laws.  But HUD feels overhauling RESPA will do the trick.

HUD ain’t bright as evidenced by the fact that no where on the new Good Faith Estimate, version 2010, is there a place for the borrower to sign and acknowledge receipt of the disclosure.  Seriously, HUD is making huge changes to our industry, setting up new regulations that are in conflict with existing regulations but not rescinding the old regulations all in an effort to prevent deceptive lending practices and they fail to include any form of acknowledgement that borrower received the disclosures!  Sure, that will stop unscrupulous and crooked originators from continuing their practices. Your Federal tax dollars at work once again.

Mortgage Backed Securities get hammered this week.  Treasury auctions have gone poorly, retail sales better than anticipated, and other factors have pushed MBS to their lowest levels since November 12^th.  There is a lot of room for the prices to drop further, which means more room for rates to increase as well.  After the lows on November 11^th, MBS went on an eleven day run of mostly increases in pricing, peaking last Monday.  Since then it has been down, down, down.

There is a lot of uncertainty and negative pressure on bonds.  Uncertainty by corporations over future business costs and rules with changing regulations that may result from health care reform, banking regulations being debated in Congress and environmental issues has them holding back from expending funds and investing; basically preserving cash.  Banks are hording as well to ensure they are not put on a Fed watch list, are able to meet higher premiums (and 3 year pre-paid premiums) from FDIC.  International investors are not certain which way our economy is going yet, nor their own.  These factors lead to lack of investing in bonds and mortgages.

The biggest drag however is the national debt.  This number is growing and growing, just yesterday Congress passed a $1.1 Trillion spending bill.  President Obama is talking about taking about $225 billion unspent TARP funds and re-allocating to spend it somewhere.  Members of a certain party in Congress and Obama are discussing spending an additional $250-300 billion in Stimulus II, although they won’t call it that because of the negative association.  And on top of all that is the possibility of another Trillion dollars or more as a result of any health care bill that  may come out of Congress.

As I discussed before rates hate inflation, as inflation increases, or the hint of inflation appears, interest rates rise.  Our government is behaving as if its purpose is to fuel and feed inflation in our economy, racking up huge deficits which pumps excessive money into the economy and borrowing massive amounts of money which pulls money out of private investments and drives up rates.

Proceed with caution.  Volatile and fluctuating markets require education, communication and preparation.  Make sure you are.

Despite the dump in mortgage backed securities market this week rates have held their own vis-à-vis last Friday.   

Rates for Friday December 11, 2009:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.75%                              FLAT

30 year conforming-jumbo 5.00%                     FLAT

30 year FHA    4.75%                                      FLAT

30 year FHA jumbo 5.00%                              FLAT

Remember we have true, honest to goodness quality Jumbo rates again! Call for quotes as they vary depending on LTV, FICO and loan amount. 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Anyone going to the big Dog Show in Long Beach this weekend?  It was from watching the Eukanuba Dog Show on Animal Planet (Discovery?) last year after our beloved Cooper died that spurred us to finding a new pet.  Watching the show led me to investigate several breeds and finally settling on the Collie, smooth coated Collie to be specific.  That led to our bringing Harrison home in February.  A perfect match for the Smiths!

Have a great weekend,

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.

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