The Temporary Payroll Tax Cut Continuation Act of 2001 has all investors and lenders going into a pricing tailspin. The response by investors to absorb the initial increase in guarantee fee was uniformly quick, but the impact on pricing and rate sheets is quite diverse because each investor has its own pricing model and structure. This has become clearly evident in our routine comparative analysis of our rates sheets against a select group of lenders. We anticipate that this will continue over the next 30 days as the April 1, 2012 effective date draws near.

Our rate sheet will be no exception to this turbulent trend. We thus encourage all our loan originators to pick up the phone and call Secondary Marketing, if any rate sheet pricing appears to be out of whack, or when a concession may be needed to make deals work.

CAPITAL MARKETS

January 2012
Fannie Mae and Freddie Mac Pricing Changes due to Guarantee Fee Increase

As you probably have gathered from the notices you have recently received from other wholesale lenders, investors have immediately implemented the increase in the Fannie Mae and Freddie Mac guarantee fee. We apologize and wish we could have given you more notice. The following schedule illustrates the timing of guarantee fee increase on 45, 30 and 15 day locks.

45 days                                         1/11/2012
30 days                                         1/18/2012
15 days                                          1/23/2012

In addition, we need to temporarily adjust our lock extension and relock fees. Again, this is temporary until the new guarantee fee is completely absorbed. The following schedule illustrates the cost and timing of the our temporary relock and extension policies;

Prior to 2/10/12 0                                                 0
After 2/10/12 50 bps                                         50 bps

As you will see, our pricing, relock and extension fee changes are consistent and in line with what you will see from other lenders.

The following are some FAQ’s that might help explain this:

Why is this occurring?
As directed by the Federal Housing Finance Agency (FHFA), pursuant to the Temporary Payroll Tax Cut continuation Act of 2001, Fannie Mae and Freddie Mac are required to increase the guarantee fee charged for all mortgages delivered on or after April 1, 2012 by 10 basis points. In the next few months, FHFA will further analyze whether additional guarantee fee increases are appropriate to ensure the new requirements of the law are being met.

What is a guarantee fee?
It is a fee charged by mortgage-backed securities (MBS) providers such as Fannie Mae and Freddie Mac, to lenders for bundling, servicing, selling and reporting MBS to investors. The main component of the guarantee fee is charged to protect against credit-related losses in the mortgage portfolio. Think of it as insurance. Commonly known in the mortgage industry as “g-fee”, this is a deduction in relation to the interest rate.

How does a 10 basis points increase in guarantee fee impact my borrower?
A 10 bp increase in g-fee effectively raises the interest rate to the borrower by 12.5 basis points. A 12.5 bp increase in rate generally translates to a 50 bp increase in fee or a 50 bp reduction in rebate. Since all investors have already implemented this increase in their respective pricing structures, you will be seeing the effect of this increase in the rate sheets published by all lenders.

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In other recent real estate news, on January 3, 2012, Fannie Mae will be releasing updated Version 8.3 of Desktop Underwriter® (DU®) to implement enhancements to DU Refi Plus during the weekend of March 17, 2012.

Fannie Mae Desktop Originator/Underwriter Release Notes Update 

PDF Used from Fannie Mae

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Home Affordable Refinance Program (HARP)

Listen to Real Estate Today Radio with Daniel Salas on the new guideline changes for these loans and how it affects borrowers.

Local Market Segments with Daniel Salas. Sundays from 11am to 1pm.

Read the article: http://accessloans.net/2011/11/22/clearing-up-confusion-on-harp-loans/

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FEDERAL HOUSING FINANCE AGENCY News Release: 10/24/11

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While I was never much of a proponent of the Subprime lending world, there were still loans that Fannie Mae and Freddie Mac were purchasing that should have never been in the repertoire of the major lending bank institutions and the sale to the Guaranteed Security Enterprises (Fannie & Freddie).  To be clear, the 90% Financing Loans with Stated Income, State Assets, and Stated Employment Guidelines (with credit scores as low as 680) were the mastermind of the big banks, not Fannie & Freddie.  In essence, the banks told the GSE’s what they would buy.  The market simply supported the sale of these loans because values were supporting the investments.  So subprime lenders, in order to compete, had 100% financing loans with similar requirements, yet much lower credit risk score thresholds. A recipe for disaster.  In hindsight, an easy statement to write; but the lesson was learned…all over the world. 

After the Mortgage Credit Crisis, the real estate loan industry went through a transition like no other.  The Federal Government came in a took over the GSE’s in a receivership-like fashion, printed money in record amounts to give lending institutions the ability to stay in business, and kept the housing industry moving.  Loan Guidelines went through their own transition.  Processing a loan transaction became a specialty as experts in the industry fought to keep up with the current requirements, change the paperwork that was initially required, understand the differences regarding how to order an appraisal, and keep real estate agents and clients happy.  A daunting task!  My office changed the “Needs Checklist.”  Our list was now foreshadowing underwriting requirements and asking clients to do things we’ve never had to in the past: an example was the inquiry letter.  In the days of Pre-Mortgage Credit Crisis Lending, most of the time an inquiry letter wasn’t even asked for through the funding of the loan. 

However afterward, banks were pooling up their loans to sell to the GSE’s, selling those loans, and months later (and even a year or more, in some instances), the GSE’s were calling clients and asking if they wrote the inquiry letter explaining any inquiries on their credit report.  “Well, no, my loan officer wrote that letter for me, and we just signed it,” may have been a common response.  The GSE’s were making the originating office (the office in which the loan officer that took that initial application was working) buy that loan back.  So, our office learned that we would put on our “Needs Checklist,” ‘Write an explanation into each inquiry on your credit report (attached)’.  We would send a letter with the inquiries on it, with space after each inquiry for the client to write a little statement regarding those inquiries, and if there was any new debt associated with those particular inquiries…in their own handwriting!   Another major change was the processing of the 4506-T form, and NOT having the ability to close a loan until that form was processed.  The 4506-T form is a Federal Tax Return Processing form.  It allows lenders to receive an electronic print-out of a client’s 1040 Federal Tax Returns.  Line-by-line, each tax return must be processed and MATCHED with the tax returns supplied for the loan approval.  Every line may not be off - by even one dollar - or the loan cannot move forward.  A positive spin to the state income loans of yester-year however, a time-consuming and tedious aspect of closing a loan. 

Now, we’re starting to see the GSE’s relax on some of their lending guidelines.  The first example, I’ll share, is regarding the ability to only use one year of 1040 tax returns, as opposed to two.  This obviously, can be helpful to the self-employed borrower, which has been suffering over the 2008 and 2009 tax seasons; however, in 2010, they started to recover from the recession.  If their net income has increased substantially in 2010, and lenders only need one year of returns, you don’t have to average 2009’s income with 2010’s income to qualify - therefore opening the door to many more buyers.  The determining factors are an automated approval that only asks for one year, and an investor that will fund that loan and sell it to a GSE.  Another very exciting change is the ability to use rental income to qualify a buyer buying an investment property for the first time.  Recently, we have HAD to have a buyer file a Schedule E on their federal tax returns, documenting that they have had rental properties for the past two years, in order to use ANY income on the subject property to purchase it, if it was an investment property.  Now we’re seeing that the GSE’s are allowing us to use the appraisers 1007 and 216 forms to qualify 75% of market rents, to offset the monthly payments on an investment purchase.  These forms are rental surveys and operating income statements, that accompany the Uniform Residential Appraisal Report, enabling more people to get out their and buy investment properties while rates and values are at record bargains. 

Keep in mind that there are many more exciting changes occurring, and many more right around the corner.  However, each bank has its own underwriting guideline, or overlay, that may or may not qualify a particular buyer to fit into each or every separating factor or changed qualifier.  Someone who’s automated approval may say only one year’s tax return is required, may have something interesting on their tax returns, which may require an underwriter to ask for another year’s returns to be sure it’s not something that could affect the files strength when the GSE’s go to purchase that loan.  So, even though we’re seeing some changes, we’re still going through tough times; and I’m telling you, when it comes to the labyrinth of loan closing requirements, particularly these days, it’s not over ’till it’s over!  But, know that there is a light at the end of this tunnel; and as long as we move forward responsibly, we’ll have more and more flexible underwriting guidelines, opening up the purchase market to more and more opportunities for all of us.

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Also, Access Real Estate  Lending is a proud sponsor of CSU Chico’s Adopt-A-Class Program. This past Wednesday, lucky classes got to go see School House Rock! Live Jr. The show was put on by Playhouse Youth Theatre and was a great time. Here are some pictures from the field trip.

For more Chico Performances, check out http://www.csuchico.edu/upe/performance/index.html

Information on Adopt-A-Class: http://www.csuchico.edu/upe/performance/Kids/adopt.html

Retail sales continue to improve and reinforce that the economy is recovering.  In March Retail Sales increased a strong .4% which piggy backs on the prior two months of strong increases of 1.1% in February and .8% in January.  Consumers are definitely returning to the stores and buying items not considered necessities.

Industrial Production once again is fueling the recovery with another strong increase of .8% from the prior month.  This report exceeded analyst expectations.

One of the significant challenges facing consumers and the economy is the rapidly increasing gas prices.  With the national average for a gallon of regular gasoline at $3.85 per gallon, we are starting to see a change in consumers spending and driving habits which will most likely show up in the next round of economic reports next month.  Additionally, although the national average is $3.85 for a gallon of regular gas, the reality is that many major cities across the country are pricing gasoline $4.10 to $4.30 per gallon.

The Producer Price Index showed that prices on the wholesale level are rising rapidly.  In March we saw and increase of .7% which followed a very large 1.6% increase in February.  The rapidly rising prices of oil are the main contributor to the jump in wholesale prices.  On the retail side, the Consumer Price Index increased .5% which was in line with economist expectations.  However when you exclude volatile energy and food prices, the core inflation rate on the consumer level is only .1%.

It is this mixed message about inflation that is creating even more division within the Fed regarding monetary policy.  The stimulus plan currently in place and some members want to start rolling it back while others believe the economy is still too fragile to do so.

Well…now we have a mixed inflation report to make things worse.  Some Fed members believe that the gross wholesale and consumer prices are the figures that should be used to dictate monetary policy.  However other members believe that only the core inflation numbers matter because energy prices will always be very volatile. 

Reports due out next week are:

• Monday April 18^th – Housing Market Index
• Tuesday April 19^th – Housing Starts
• Wednesday April 20^th – MBA Mortgage Applications & Existing Home Sales
• Thursday April 21^st – First Time Jobless Claims and FHFA House Price Index
• Friday April 22^nd – Markets Closed for Good Friday

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Typically real estate agents would not know, or even care about how loan officers get compensated however this new legislation has a direct impact on you and your clients.

Without getting too technical about all the details of the new comp reform, it is critical that you at least understand some of the basics of the new rule, and most importantly, how it will impact you and your clients.

“Good news” in how compensation reform will positively benefit you and your clients.

To start, all loan officers, mortgage brokers, and bank loan officers will be required to have a set commission in dealing with borrowers.  What this means is that loan officers can no longer arbitrarily negotiate rates and points and must offer all of their customers the same pricing.  Additionally in the past, a loan officer could change their rates and points to attract a specific customer to do business with them.  THIS IS NOW ILLEGAL.

A loan officer has to decide on a set price and profit margin for their loans and must offer the same thing to ALL of their customers.  Once a loan officer decides on their commission structure, they cannot simply change it to accommodate a specific client.  They must treat all clients equally.  – This is the good news as it eliminates inconsistent pricing as well as discriminatory pricing by loan officers!

The major challenge with the new loan officer compensation rules is that the loan officer can no longer just change the pricing of a loan to appease an unhappy customer or to help them qualify.  The loan officer cannot cut his or her commission to make a deal work.

I am sure that you have had transactions where things started out fine and then something may have gone wrong.  Maybe the customer had more debt than was originally disclosed and it messed up the qualifying ratios.  Maybe the buyer was short on money to close.  The bottom line is that a transaction that started out fine, later on developed a problem.

In the past, a loan officer could simply adjust the rate, or change the points to make the deal work.  The new law forbids a loan officer from changing their commission which means they cannot change the rate or points without approval from the company – period.  The power of pricing choice has been eliminated from all loan officers.

Under the new rule, in order to make the deal work, the company, not the loan officer has to be willing to absorb the loss and that is not always a done deal.  Depending on the company, you now may be dealing with corporate hierarchy that can delay your transaction and put the contract and closing in jeopardy.

Although there are many challenges that are being created for real estate agents and their clients relating to loan officer comp reform, the last major issue is that with the new rules, loan officers must have their commission built into their rate sheet up front.  This is both good news and bad news.

The good news is that now the borrower no longer has to even ask how much the loan officer is making because the loan officer has no ability to adjust his compensation anyway.  The price is the price!

The bad part about having rate sheets with profit margins already built in is that depending on the profit margin the loan officer built into his or her own rate sheet, you can have two different loan officers from the same company offering different rates and fees.  (Sounds crazy doesn’t it?)  Imagine how a customer will feel if they see different rates and fees coming from the same company?  This is where trust in a company can be compromised.

You must be weary of a loan officer that prices his or her loans at rock bottom pricing.  The reason for this is that you now know based upon the previous message that the loan officer who offers a mortgage with ridiculously low rates and points is absolutely getting paid less for his/her services.  This WILL ultimately have an impact on the service they provide to you and your buyers.

We have all heard you get what you pay for….The loan officer that works for a very small commission is the loan officer that is either going to be way too busy to provide you the communication and service your require, or they simply don’t put enough value on their time and energy to close a file.  Either way in the end their pricing will be a reflection of how they will treat you and your client.  In the end you can definitely expect that the lowest price loan officer will undoubtedly provide you and your clients a level of service far below your needs and expectations.

Think for a second about the level of service that low commission real estate agents offer.  They don’t offer the same level of service that you do.  It works exactly the same for loan officers.

I am not suggesting that the highest priced loan officer is the best.  In the end, you and your customers need to shop for the professional loan officer that has the right balance between offering competitive mortgage rates combined with offering you the highest level of communication, knowledge and expertise to get your deal closed quickly

Access Real Estate Lending:

Rest assured, after intense planning, testing and client feedback, we have come up with what we know to be the best solution for you and your clients.  We have created the perfect balance of all the variables to make sure that your transactions are closed quickly, at the most competitive pricing, with the highest level of service and communication that you and your clients deserve.

Our specialty is making sure that:

• Your customer is properly pre-approved up front so we never need to worry about having to attempt to change pricing or a mortgage program to get the deal done.  We do it right the first time.
• We offer very competitive pricing on our loan programs to make sure that your customer gets a mortgage that they can afford along with the communication and service that makes the loan process far less stressful for everyone.
• We close your loans on time so you get paid quickly.

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This past Valentine’s Day, HUD announced a new change for the real estate market. For FHA Loan case numbers on or after April 18, 2011 there will be an annual Mortgage Insurance Premium increase of 25 basis points. The upfront MIP will remain the same at 1%. Any case number that is uninsured by this date will also be cancelled by FHA, with some exceptions.

What This Means

Mortgage Insurance is accumulated contingent upon loans defaulting causing loss. 15 and 30 year loans for single family mortgages will have an insurance increase of a quarter of a percent (.25).  The higher the monthly costs, the lower the loan amounts and offers for buyers. However, this means a higher income is needed for buyers and it also means less for sellers.  As of right now, FHA mortgages are low down payments and therefore a prime option for families of low income, this increase is a strategy for the economy due to the National Housing Act’s MMIF. Here is a reason for the increase given 4 days after:

“We determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster our capital reserves and to help private capital return to the housing market…Raising the annual premium will enable FHA to increase revenues and have a positive effect on the ongoing stability of the MMI fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010…This quarter point increase in the annual MIP is a responsible step towards meeting the two percent threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.” – David H. Stevens, Assistant Secretary for Housing/Federal Housing Commissioner

→ At the same time, this move is expected to help FHA and therefore keep it from having intervention, which in a market full of tight guidelines is a good thing.

Check Your Pre Approvals

• 1.15 - 0.9 – = .25 point
• Per $100,000 x .25% = $250 divided by 12 months = $20.83 per month
• $20.83 a month using a 5% interest rate equals 3,880.87  per $100,000 less buying power on your loan amount.

 Illustrations of the Increase

Information From HUD

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf
http://portal.hud.gov/hudportal/documents/huddoc?id=fromthedeskof021811.pdf

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