Danny Salas

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 2, 2009

Rates in the Mid-4's???

Rates Keep Sliding

ADP is a payroll company that monitors employment statistics, because they’re such a huge corporation.  They estimated that jobs numbers would be worse than expectations, when they come out on Friday.  Now, ADP has been wrong on numerous occasions, however, they still have an influence on the market. 

MCGE

No, this is not a new electric lightbulb from General Electric, it’s an introduction by The Mortgage Bankers Association called Mortgage Credit Guarantor Entities.  Essentially, these would be smaller corporations that would take over management of the GSE’s (Fannie Mae & Freddie Mac), trade Mortgage-Backed Securities, but with a government guarantee, of course.  Don’t know if this will go very far, but it’s an interesting proposal.

Oil Prices Dipping

Yes, the gooey stuff is down to $68 per barrel on fears that the world economic crisis is not as close to being finished, as some thought. 

To Lock Or Not To Lock

Tomorrow morning might be a good time to lock, on a short escrow.  Otherwise, if you have about three weeks or more, I’d float into the month.  September Stock Values generally plunge, putting more money into Mortgage Backed Securities (Bonds), and therefore lower interest rates.

Chico, CA Interest Rates Market Report – Economic Influences – January 13th, 2009

What’s In Store For Rates?

I’d like to take a look at the past year, and what 2009 may have in store for interest rates. 

My first article last year I mentioned, “The economy may be in more of a slump than some thought.”  I kept reporting, throughout the beginning of the year, that the unemployment claims were showing signs of a recession, about 10 months before the Federal Government formally announced that we were actually in a recession.   

How Volitile Will The Markets Be?

I mentioned numerous times that we would have a really bumpy ride and that the markets would be extremely volatile.  This would require a keen interest by your mortgage specialist to keep an eye on when a good time to lock would be.  That advice proved poignant throughout the year.  Also, I mentioned that S&P companies would take a 9.8% loss.  Well, the loss was even greater than I had imagined. 

2009 Answers

So, what’s up for 2009?  You know that the economy will struggle through the year, but hopefully pull out of its depressed state by this time, next year.  At least I feel as though there will be more of a feeling of optimism in the air, about the future.  It will be truly interesting to see how the new Receivership, structured by the Federal Government taking over FannieMae and FreddieMac, will pan out when the buy Mortgage-Backed Securities.  Will interest rates like the move?  Will rates move lower before the buying occurs, or after?  This will be an interesting new ideal, since it has never happened in history before.  Knowing investment markets, however, I think rates will lower, just before the buying occurs.  Then, the morning after, we’ll see lower rates, but by the day’s end, rates will adjust higher while investors cash in on their opportunities.  Then; the same thing every Thursday that the Fed plans on buying these securities.  That’s my take…but because it’s never happened before, we’ll have to see…

The job market, unfortunately, is going to get worse.  Hopefully, the new administration will have a new “green” concept of providing energy that will employ millions.  The only concern holding back newer “green” technologies is that the cost of oil has come down so much this past few months.  I hope it doesn’t cause blinders for the future of our children.  That’s where I see the future moving to, if there’s not too much resistance to the new ideas. 

Housing Prices To Come Down More

On the housing front, expect prices to continue to stay low, as the inventory of bank owned properties swells.  I think this will be one of the best times to purchase a home, in the history of real estate in the United States.  Values are out there, rates are down, The median priced home has come down significantly, in our area, but FHA loans are still up to $293,500.  The 3.5% down, and the seller (or bank being the seller) willing to pay closing costs to get rid of the property and get it off their books, opportunities are just too great to NOT take advantage of.  Purchasing a home and having the payment be just about the same as your rent payment, but with all of the benefits of home ownership has never been more opportune. 

Last, expect more volatility.  That, you can be assured, will continue through the year.  I hope 2009 brings many blessings to our community, our area, and our businesses and families.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – Nov 18th, 2008

Year In Review

Pardon last week’s brief hiatus, as the day was enjoyed by me and my family, as we celebrated Veteran’s Day together.

The Economic Stimulus Package

Let’s take a brief look at what has transpired over this past year.  First, with the Credit Crisis in full blown force, Congress enacted the Economic Stimulus Package.  Basically it raised conforming loan limits to 125% of the Median Priced Home for the area or kept them at $417,000, whichever was LESS.  So, our median priced home was $320,000.  125% of $320,000 is $400,000, so our conforming loan limits remained at $417,000 for Butte County.  However, HUD also increased the FHA loan limits to 125% of the area’s Median Priced Home.  So, FHA loan limits for this year were $400,000 after the Stimulus Package was approved.  As mentioned in a previous article, it also changed some of the mortgage insurance calculations depending upon a borrower’s credit risk score, down payment amount, where the down payment funds were coming from.  Conforming loans with also were categorized by a new type of risk based pricing.  This was also based upon credit risk score.  So, if a borrower had a score less than 740, unless you put 20% down or more, there were new add-ons to the cost of a loan, never seen before this stimulus package.

Then came HR 3221

The Housing and Economic Recovery Act of 2008.  Essentially, this got rid of most 100% down programs (however there is a new one that can still obtain 100% financing and the seller can pay 6% of the sales price toward your closing costs and paying the interest rate down).  It changed FHA down payment requirements to 3.5% as opposed to just 3%.  It changed the Economic Stimulus Package by lowering the HUD and Conforming loan limits to 115% of the area’s median priced home.  However, HUD determined the median priced home to be only $255,000.  That’s a 20.31% drop on values in one year.  So, that puts FHA loan amounts for the year 2009 at $293,250 for Butte County.

Gov’t Takeover of GSE’s

On September 6, the Government took over the Government Sponsored Enterprises FannieMae and FreddieMac.  With the turmoil of the Fed’s Bear Stearn’s Bail out, banks failing left and right, the formation of Term Auction Facilities, the announcement of PIMCO to stop buying bonds, the world following suit, nowhere to sell mortgages any more, congress set up a $200 Billion line of credit for banks to guarantee that banks could sell mortgages so that they had more money to lend for home buyers to keep an industry alive.

Today, Ben Bernanke and Henry Paulson are speaking to Congress about the effects of the $750 Billion bailout.  Apparently, their words are expected to be promising.  I’ll touch base on this in next week article.  Interesting note:  again, we see interest rates doing somewhat the opposite of what they’d normally do.  Core producer prices rose by 0.4% versus expectations of 0.1% which moved us to the highest 12 month gain since 1989.  It seems as though the markets are ignoring this, as they feel that the very high energy prices we were seeing mid-year are being felt today.  Since oil has come down and therefore energy prices, the scary reading is being somewhat shrugged off.

Also next week, the Producer Price Index and the release of the previous FOMC minutes.  Get out there and buy…values are down, as well as rates…it is time…Until next week…