Dennis' Mortgage Blog

Note: New Federal Legislation Effective 7/31/09 That Will Delay Closings For All Transactions, TIL Must Be Signed 3 Days Prior To Fundings. All Real Estate Professionals need to know about this—make sure escrow officers know about this new regulation!  Mortgage Disclosure Improvement Act

Question of the week:  Why are you so concerned about where my money is coming from for down payment and closing?

Answer:  A few months ago I covered this question but I want to cover it again because it has come up several times in the past few weeks and might be the number issue delaying approvals and closings.  Lending guidelines need to ensure all debts are accounted for to determine an applicant’s debt-to-income ratio (total monthly payments divided by gross monthly income). 

Acceptable sources of borrower’s funds:

·         Seasoned and sourced as borrower’s own—generally at least 2 months in account verified as borrowers.  Any large/unusual deposits need to be sourced.

·         Gift from parents or relatives (see below regarding gift funds policies)

·         Bonus from employer (see below)

·         Borrowed funds

GIFTS   FannieMae/FreddieMac (Conforming) and FHA treat gift funds differently.  FHA allows all of a borrower’s down payment and closing costs to be gift funds from a relative.  Conforming guidelines require the borrower to present to closing at least 5% of the purchase price in their own funds unless the amount of the gift is 20% or more of the purchase price.  All gift funds must be sourced with name, address, phone number and relationship of the donor(s), a gift letter from the donor, proof the donor has the funds to gift, proof the funds have been deposited into the borrower’s bank account or escrow account.  Sourcing and paper trails are important and more than a few escrows have been delayed because of improper trails.

BONUS  Bonus from employers must be documented on a “normal” paycheck, and needs to be “normal” for the employment and the history of employment.  If borrower works for a small company for 5 years with never receiving a bonus and then receives a $5,000 bonus with a handwritten check we will probably have an issue with underwriting and funds may be disallowed.

Borrowed Funds If money is borrowed for down payment or closing the underwriter needs to know to either disallow the funds if not borrowed from acceptable source (401k, other property, secured debt) or if allowed to count the monthly payment.  A paper trail is needed to show the source, the deposit of funds into borrower’s account and the terms of re-payment.

Note that retirement accounts are considered borrower’s own funds and can be drawn upon for the transaction.  As with all funds a paper trail is needed to show they funds are the borrower’s (statement) and the withdrawal of the funds (copy of check) and proof deposited into account.

Do Not Deposit Funds from any source other than employment or other accounts you hold in your name without checking in with me first to make sure we have a proper trail for the underwriter.

Finally, CASH ON HAND  is one of the major stumbling blocks for asset verification as it is extremely difficult, typically, to verify the funds as the borrower’s own funds.  FHA will only allow cash at home, or cash on hand, if “borrowers do not have bank accounts” the funds are allowed on a case-by-case basis and extremely difficult to get an approval.  Conventional guidelines state that cash on hand is not an acceptable source of funds. 

So before buying a home have your cash in a bank account, track all deposits and do not make any unusual or large deposits without fully tracking the source and transfer; call me for guidance.

I will keep this link on my “Question of the Week” section to assist new homeowners:

IRS Form 5405 for First Time Buyer Tax Credit for those eligible for the up to $8000 credit.

Have a question for me?  Ask me!   

Another wild week for bonds, with little major economic news this week stocks and bonds (which includes Mortgage Backed Securities—MBS) traded funds and both swung up and down.  MBS went crashing through resistance levels of 25/50/200 day moving averages on Wednesday after positive trading on Tuesday.  With the technicals of the market and the jobs report out on Thursday I put out an advice to lock on my Twitter feed Wednesday morning and it was prudent.  Mid-morning on Wednesday MBS market started to deteriorate and in the afternoon saw a lot of money flow into stocks creating a big drop in bonds before closing—remember drop in bond prices means hike in rates.  Yesterday the drop continued and MBS prices quickly dropped back through the supposed resistance of the moving averages. Up, down for bonds and the opposite, down, up, for stocks as the Dow closed over 9,000 for the first time since January.

Today everyone is gasping on the sidelines, very little movement in any investment markets through mid-day Pacific time.  Stocks are flat and bonds are flat.  As they catch their breaths, investors are waiting for the next round of economic news to decide if they should buy or sell, stocks or bonds.  We do know that the Treasury is dumping about $114 billion of bonds on the market next week which will create an over-supply in the market and probably push mortgage rates up.  Looking ahead if you purchase a home this weekend it will probably be a good idea to lock on Monday—but let’s talk and see how the market is doing.

Looking ahead, Fed Chairman Bernanke told Congress this week that he sees unemployment continuing to rise through the end of the year and inflation remaining moderate into 2010.  Last year around this time Bernanke told Congress he thought unemployment would rise to 4.6-4.9%.  Use the latter as a modifier for the former.  I stand by my statements for the past six, seven months:  economy should start to bottom out in the fall, inflation will start to take hold in our economy in late 2009, early 2010.

If  you have been waiting for “the bottom” to purchase a home you may find yourself there.

Rate flat from last Friday with all the up and down this week:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  5.25%                 FLAT

30 year conforming-jumbo 5.625%                   FLAT

30 year FHA    5.375%                                    FLAT

30 year FHA jumbo 5.875%                            FLAT

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.

Remember all owner occupied and second home applications taken next Thursday on are subject to the new MDIA regulations—there will be impact on many escrows so stay informed.

I’m around all weekend to help you, your clients, your friends and family with any mortgage needs and products.  You can always apply on-line at my website.

Have a great weekend,

Dennis

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