Danny Salas

Archive for the 'Loan Qualification' Category

Fannie Mae and FHA Announce New Automated Underwriting Criteria

Hey Realtor…What This Means To You!

Any change in underwriting criteria is a change to where, when, and how your escrow will close.  Probably the biggest change…FHA is moving to a conventional-type style of appraisal ordering…HVCC type requirements. 

Also, when a property is located in a declining area, the appraisal report must be accompanied by a form addressing this concern.  This, from Fannie Mae’s website concerning FHA:

“The Uniform Residential Appraisal Report (URAR) and the form HUD-92800.5B, Conditional Commitment/DE Statement of Appraised Value are required. Also, a Market Conditions Addendum is required (Fannie Mae Form 1004MC/ Freddie Mac Form 71).”

DO/DU/TOTAL Mortgage Scorecard…Uh…What’s That?

You really want to know?  DO is an abbreviation for Desktop Originator.  DU is an abbreviation for Delegated Underwriting.  Both are internet-based automated underwriting engines for Fannie Mae.   FHA TOTAL Mortgage Scorecard is FHA’s Interent-Based Automated Underwriting Engine.  Here’s how it works:

First, an application is taken.  Second, a credit report is ordered.  A credit report is assigned a re-issue number.  Third, you combine the application and the credit report.  Fourth, you import your application into Fannie Mae’s Website, insert your re-issue number for your credit report (this enables you to use the same report, avoiding another inquiry on a client’s credit report), and submit to the website’s automated engine (DO or DU) to ask for an approval.  The website breaks down the information on the credit report and application and determines if the client is eligible for financing.  When running government loans like FHA or VA, an additional layer of underwriting criteria is applied (FHA TOTAL Mortgage Scorecard), to determine eligibility. 

Gift Funds

The source of the down payment will effect the type of approval that you receive from FHA TOTAL Mortgage Scorecard.  In the past, the website’s automated engine couldn’t determine the difference between a non-profit organiztion, a family member, an employer, or Government Assistance Program;  like a city’s Down Payment Assistance Program (DAP).  Now, FHA Total Mortgage Scorecard is able to determine these differences and apply them to the decision.

Less Than 10 Months On Installment Loans

In the past, whenever someone had less than ten payments left, on any installment debt, FHA would NOT calculate that payment against a borrower qualifying ratios (percentages of income going toward a borrower’s monthly obligations).  So, if someone owed $4,280 on a car loan, and their monthly payment was $430, the $430 would NOT hit their qualification requirements.  Now, since the payment is greater than $100 per month, the less than ten month rule would NOT apply.  This is a major change. 

Condo Conversions

FHA is removing the requirement that an apartment building, that has been converted to a condo project, be existing as a condo project for one year before an FHA application is taken to finance one of the condo units.  Nice…a good change!

Related Must Reads

FHA Update
Why You Can’t Close A Loan In Six Days Anymore

 

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Chico, CA Interest Rates Market Report – Economic Influences – September 25, 2009

Probably A Good Day To Lock

Here’s what we’re looking at, today.  We have managed to climb above the 200-Day Moving Average.  This is good for interest rates.  I do think, however, that to get any better, would prove difficult.  There are two levels, just above our current level of pricing, that kind of act like a signal to the markets.  What I mean is once we hit a certain level of pricing, investors see that level and realize that it might be a good time to cash in on their investment.  Just like stocks, when it reaches a certain price, there is always a good time to sell.  That’s what I see here.

Signs Of A Not So Good Recovery

Durable Goods Orders, for August, well…sucked.  Much worse than expectations at a 2.4% loss, when they estimated a 0.4% gain.  When stripping out transportation, they were unchanged, however, they expected a 0.1% increase.  Durable Goods Orders are household items that the consumer is expected to hold onto for more than three years.  Dishwashers, television sets, etc.  This is an important figure because, as we’ve been reading, things have been looking fairly rosy, however, this report shows that possibly, businesses have been re-ordering items recently, because they haven’t this past year, because of the recession.  So, are they just re-stalking their shelves becasue they’re out of supplies?  Hmm?

Another Sign Of Higher Rates

This is very important to talk with your buyers about.  Or, Buyers…this is why it’s so important to start being very serious about buying now.  I expect rates to be O.K. through the rest of the year.  However, they will start to climb, into 2010, maybe a little sooner.  The New York Federal Reserve purchased about $23 Billion of Mortgage-Backed Securities this week.  Of interest…they bought at around the 5.5% Coupon (Rate).  So, when those rates “hit the street,” so to speak, to the consumer, there is a cost.  To service the loan, to pool it or bundle it up for sale to Fannie Mae or Freddie Mac, even Wall Street wants a piece of the action.  That cost is approxmiately .75% on top of the 5.5%.  So, when those funds are sold “on the street,” the rate equates to 6.25%.  Hence, higher rates!

Other Economic Stuff

Consumer Sentiment was higher than expected.  This may come down after third quarter earnings reports are realeased from corporations.  I’ve been talking about this, and its effects on intrest rates, in other articles.  New Homes Sales were lower than expected.  Interestly enough, homes only sat an average of 7.3 months, on the market, as opposed to 7.5 months, last month.  This is the best reading since January of 2007.  Good news for housing, however, is it the tax credit, or the lack of construction, causing this?  We’ll have to wait and see

Locking In

So, the graph shows a sliding down of rates, however, I think we have an opportunity here.  Once we get into October, things may change, a little, but I like today’s feeling.  See ya next week!

Chico, CA Interest Rates Market Report – Economic Influences – September 18, 2009

Probably A Good Day To Lock

Ben Bernanke Bobble-Heads

That’s right!  I’m mass producing and selling them for only $11.50 per bobble head!  Just touch his head and the “up, down, up down” movment is an indicator of where interest rates are…up, down, up, down.  Order forms hidden in “Industry Updates.”  Keep Looking!

Where The Market Is Headed

So, we bounced off of the 25-Day Moving Average, and we keep toying with the 200-Day Moving Average.  As I write this, we’re sitting above that 200-Day trend line, but Stocks are up, and that scares me.  Generally, when Stocks are up, Bonds are down…and when Bonds are down, rates move up!  I might consider locking, here!  Another concern is that it’s Quadruple Witching Day, and Rosh Hashanah.  That may mean a light day of trading for certain parts of the world. 

$8,000 Tax Credit or $15,000 Tax Credit?

White House Spokesman Robert Gibbs, announced this morning that government officials are considering either extending the $8,000 Tax Credit, or even increasing that amount to $15,000 for qualified First Time Home Buyers.  There is legislation in the House and Senate, AND there’s talk of removing the income limit restrictions.  It’s just talk, right now, but this may be a huge opportunity for some.  Keep your mouse posted on this blog for more information.

FHA Update

FHA announces credit policy changes

Fri, 2009-09-18 09:10 —

HUD’s Logo

Federal Housing Administration (FHA) Commissioner David H. Stevens has announced plans to implement a set of credit policy changes that will enhance the agency’s risk management functions. Stevens also announced his intention to hire a chief risk officer for the first time in the FHA’s 75-year history. Both actions come as the agency’s annual independent actuarial study is being completed. The study will be sent to Congress in November and is expected to show the capital reserve ratio dropping below the congressionally-mandated threshold of two percent. The changes announced today will strengthen the FHA’s reserves and better manage risk.

No Taxpayer Assistance

“To be clear, the fund’s reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action,” said Commissioner Stevens. “That said, given the size and scope of the FHA and its importance to today’s market, these risk management and credit policy changes are important steps in strengthening the FHA fund, by ensuring that lenders have proper and sufficient protections.”

“By keeping affordable loans flowing, particularly to the growing ranks of first-time homebuyers, the FHA has been critical to our nation’s economic and housing market recovery,” said U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan. “As we begin to move from recession to recovery, these changes will not only ensure FHA’s financial strength but they will also help to further strengthen our nation’s economy.”

FHA’s congressionally mandated capital reserve ratio, which is determined by the independent actuarial study, measures excess reserves above and beyond projected losses over the next 30 years. FHA continues to hold more than $30 billion in its total reserves today, or more than 4.4 percent of its insurance in force. Additionally, FHA’s full faith and credit insurance means that there is no risk to homeowners or bondholders, even in the event that the capital reserve ratio drops below the two percent threshold mandated by Congress. With the FHA’s higher average credit scores and tighter credit policies announced today, the FHA fund is expected to produce revenue for the U.S. Treasury.

The FHA’s risk management functions are currently dispersed across a number of offices. The chief risk officer will oversee the coordination of FHA’s efforts to concentrate risk management in a single division devoted solely to managing and mitigating risk to the FHA’s insurance fund – across all FHA programs.

In addition to adding a chief risk officer, the FHA is proposing specific credit policy changes that are largely focused on ensuring responsible lending and risk management for FHA-approved lenders. These changes build on lessons learned in the credit crisis and seek to align the FHA with the Administration’s goal of regulatory reform. As the FHA’s stable of lenders grows, these lenders must have “skin in the game.” These credit changes will do that by ensuring they have long-term interest in the performance of the loans they originate.

Changes being pursued by Mortgagee Letter, effective Jan. 1

Require submission of audited financial statements by supervised mortgagees

Requires supervised mortgagees to submit audited annual financial statements to FHA. This new requirement is a prudent safeguard that permits FHA to ensure that those entities with which it does business are adequately capitalized to meet potential needs. FHA is aware that the majority of supervised and non-supervised mortgagees are already required to prepare audited financial statements for various regulatory bodies, Government Sponsored Enterprises (GSEs), and investors. Given these existing requirements, FHA’s new policy will help to reduce risk at limited new costs for approved mortgagees.

Modify procedures for streamline refinance transactions

Revises current procedures for streamline refinance transactions to establish new requirements for seasoning, payment history, income verification, and demonstration of net tangible benefit to the borrower; provide for collection of credit score information when available; and to cap maximum LTV at 125 percent. An appraisal will be required in all cases where a borrower wants to add closing costs to the transaction. These revisions bring documentation standards for streamline refinance transactions in line with other FHA loan origination guidelines, ensures the borrower’s capacity to repay the new mortgage, and prohibits the dangerous practice of loan churning, where borrowers raise cash through successive cash-out refinancings that put them further in debt.

Require appraiser independence in loan origination

Provides new guidelines on ordering appraisals for FHA-insured mortgages and reaffirms existing policy on FHA requirements regarding appraiser independence and geographic competence. Mortgage brokers and commission based lender staff are prohibited from ordering appraisals. FHA does not require the use of Appraisal Management Companies or other third party providers, but does require that lenders take responsibility to assure appraiser independence. While FHA’s existing policies regarding appraiser independence are consistent with the Home Valuation Code of Conduct (HVCC), FHA will adopt language from the Code to ensure full alignment of FHA and GSE standards.

Modify appraisal validity period

FHA’s appraisal validity period will be reduced to four months for all properties including existing, proposed and new construction. Previous validity periods were six months for existing properties and up to twelve months for proposed and under construction properties. This provides for more accurate home values used for underwriting FHA-insured mortgages during volatile housing market conditions.

Appraisal portability

Provides new guidelines that allow a second appraisal to be ordered under a limited set of circumstances when a borrower switches from one lender to another and restates the requirement that the first lender must transfer the appraisal to the second lender at the request of the borrower. This will prevent delays in closing that often occur when a loan is transferred to a new lender.

Changes being pursued by rule-making process

Modify mortgagee approval and participation in FHA loan origination

Lenders seeking approval to originate, underwrite, or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. Mortgagees with this approval status must assume liability for all the loans they originate and/or underwrite. Loan correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however they will no longer receive independent FHA approval for origination eligibility. These policy changes will require the FHA approved mortgagee to assume responsibility and liability for the FHA insured loan underwritten and closed by the approved mortgagee. These changes align FHA with the GSEs and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to originate FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees.

Increase net-worth requirements for mortgagees

The FHA plans to propose to increase the net-worth requirement for approved mortgagees to meet industry standards. The requirement is currently at $250,000 and has not been increased since 1993. HUD is proposing an initial increase of approximately $1 million that would be in place within one year of the enactment of this rule. To maintain consistency with industry standards, HUD may propose that the net worth requirements be increased further in future years to a level comparable to those required by GSEs and other market institutions. These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund.