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Category Archive: ‘Mortgage Qualifying’

FHA to the Rescue

herewegoagain

Do you buy anything that’s cheap(er), figuring that the demand will become unglued and prices continue racing towards the sky – or sit this one out? P.S. Three offers are in on Cherokee, and more expected.

https://www.washingtonpost.com/business/economy/obama-administration-pushes-banks-to-make-home-loans-to-people-with-weaker-credit/2013/04/02/a8b4370c-9aef-11e2-a941-a19bce7af755_story.html

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.

Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery, but critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.

“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.

Posted by on Apr 4, 2016 in Frenzy, Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 3 comments

Australia Real Estate

aussie auctions

Our cruise around the world looking for similar real estate markets has to include a stop Down Under, where the auction format to sell homes and the lack of capital-gains tax on seller proceeds from the sale of their primary residence has to add extra juice.  Add in some mortgage funny business….and well, these guys think there’s a bubble:

LINK to article.

An excerpt:

Bronte Capital’s chief investment officer John Hempton and economist Jonathan Tepper (founder of research house Variant Perception) toured suburbs across north-west and south-west Sydney to view housing developments and met with 20 mortgage brokers three weeks ago.

They discovered that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income, the Australian Financial Review (AFR) reported.

Mr Tepper has also used charts to support his housing bubble theory.

When the pair asked banks to call their employer, ‘both reputable and disreputable brokers said banks rarely verified payslips,’ Mr Tepper wrote in a report.

They also encountered developers lying about units and houses being sold in the west, the ‘epicentre’ of the housing bubble.

To Mr Tepper’s surprise, some of Sydney’s poorest suburbs, such as Blacktown, Rooty Hill and Mount Druitt in Sydney’s west had properties selling from $500,000 to $700,000 – prices at least eight times the income of local workers.

‘The further west I went, the more irrational it felt. Lots and lots of supply and prices that bore no resemblance to construction cost and income of people around there,’ Mr Hempton told AFR.

There were more advertisements for deposit guarantees, where rather than putting a deposit down on a house you can take out an insurance contract that will pay the deposit if you default.

Another shocking revelation was that the verification of documents was sometimes done by Indian call centres, according to Mr Hempton.

On loan applications low-income earners were often offered discounts on the advertised mortgage rate of up to a one percentage point, increasing the vulnerability of the banks if there were a correction.

Mr Hempton claims they were ‘coached on how to get things through banks’ as opposed to banks having high quality underwritings.

In Mr Tepper’s report, he warns of sharp fall in Australian bank stocks and predicts falls in the Australian housing market of up to 50 per cent in Sydney and Melbourne and of about 80 per cent in mining towns.

 

Posted by on Feb 26, 2016 in Jim's Take on the Market, Market Conditions, Mortgage News, Mortgage Qualifying | 1 comment

Non-Profit 3% Mortgages

bofa

We saw how crowdfunding could be a new (and bubblicious) way to finance home purchases.  Here’s one of the old ways – non-profits getting involved that are well-funded today, but…..Hat tip to Susie for sending in this story:

http://www.nasdaq.com/article/bank-of-americas-newest-mortgage-low-down-payment-no-fha-20160222-00020

An excerpt:

Bank of America Corp. is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans.

The new mortgage program, which the Charlotte, N.C.-based lender plans to unveil on Monday, will let borrowers avoid private mortgage insurance, a product to protect mortgage lenders and investors that is usually required for low- down-payment loans.

Bank of America’s new mortgage cuts the FHA out of the process. Instead, the new loans are backed in a partnership with mortgage-finance giant Freddie Mac and the Self-Help Ventures Fund, a Durham, N.C.-based nonprofit.

Bank of America agreed to pay $800 million to settle claims of making errors on FHA-backed loans in 2014. This month, Wells Fargo & Co. said it would pay $1.2 billion to settle similar claims, joining J.P. Morgan Chase & Co., which settled in 2014, and other big lenders which have settled over the past few years. Nonbank lender Quicken Loans Inc. is currently fighting such claims.

Many big banks have pulled back sharply from FHA-insured lending in the past few years, citing the risk of being hit with penalties for minor errors. A raft of nonbank lenders have rushed in, but the banks’ retreat from the program has made it more difficult for low-income borrowers to get home loans.

“We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time,” said Bank of America managing director D. Steve Boland, who noted that “We think there are still a lot of uncertainties out there in working with FHA.”

After making a mortgage under the new program, Bank of America will sell it to Self-Help, which then sells it to Freddie Mac. If a mortgage defaults, and Self-Help isn’t able to recover the full amount owed, Self-Help takes a big chunk of the losses before Freddie Mac starts to take a loss, which lets borrowers avoid paying mortgage insurance.

Self-Help also gives counseling to borrowers who struggle to pay, which it believes will help more people avoid foreclosure.

“We believe the mortgage-lending sector is underserving families of modest means,” said Self-Help CEO Martin Eakes. Mr. Eakes said that his fund also is in talks with other large and small lenders to roll out similar programs.

Mr. Eakes said Self-Help didn’t need new funding for the Bank of America program, but in the past the organization has received funding for other loan programs from foundations, the government and companies.

Mr. Eakes is also CEO of the Center for Responsible Lending, a nonprofit advocacy group for borrowers that in the past has also asked the FHA to limit lenders’ damages for some errors.

To get the loans under Bank of America’s new program, borrowers must have a credit score of at least 660, which is higher than FHA’s requirement, and an income that is less than the area’s median.

Bank of America said that for now it is capping loan production at $500 million annually under the program and that it expects that three out of four mortgages in the new program would have otherwise been backed by the FHA.

Last year, Bank of America made $1.36 billion in FHA-backed loans, according to trade publication Inside Mortgage Finance, making it the 22nd biggest FHA lender. The bank used to be in the top 10.

Freddie and competitor Fannie Mae in 2014 said they would roll out mortgages with down payments of as low as 3% to improve mortgage availability for low-income borrowers. But because the mortgages often cost more than FHA-backed loans, the programs had little volume last year.

As lenders become more wary of the FHA program, lenders and Fannie and Freddie executives said that their programs’ volume could rise.

Read full article here:

http://www.nasdaq.com/article/bank-of-americas-newest-mortgage-low-down-payment-no-fha-20160222-00020

Posted by on Feb 22, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 0 comments

High-Income Jobs

high income jobs

With home prices still going up, people wonder how the real estate market can continue to grow.  From John Burns Real Estate Consulting:

Housing affordability has become a big problem in many major metros in the country. In fact, many middle-class buyers can no longer afford a new home. Consider the following:

  • Price/income. Home price to median income ratios exceed the historical average for all 20 of the largest housing markets in the country.
  • Payment/income. Payment to income ratios exceed the historical average in the majority of the 20 largest housing markets in the country.
  • New home prices. New home prices exceed resale home prices by record levels, and not just because new homes are larger and better located than usual.
  • Anticipation of rising rates. Bond markets currently assume that long-term rates will rise over the next few years, putting additional upward pressure on home prices.

Strong wage growth seems to be right around the corner, which will help affordability. Incomes should rise steadily over the next few years due to demand for high-income workers and a shortage of workers overall.

Job growth remains healthy in most markets, especially in high-income jobs. High-income job growth has recently emerged as a primary driver of new home demand, particularly in higher-priced markets. Nationwide, high-income jobs are up 2.6% year over year. However, growth in high-income sectors has played out very unevenly across the major metros.

Read full article here:

High-Income Job Growth to Determine New Home Demand

Posted by on Feb 18, 2016 in Jim's Take on the Market, Mortgage Qualifying | 2 comments

‘Non-Prime’

notprime

The old First-Franklin way of qualifying – and a better gauge of actual income and expenses. From HW:

http://www.housingwire.com/articles/36188-is-subprime-lending-ready-for-a-comeback?

An excerpt:

In fact, CSC does not use the term subprime. According to Will Fisher, SVP of sales and marketing, at CSC “Subprime is offensive.” CSC has coined a more apt descriptive word for of this part of the mortgage world, “non-prime.”

“People have been hesitant to make this kind of loan since 2008 and even wondered how we could even fund them,” said Fisher. “Even now people ask how we are making these loans. The truth is, subprime is not a four-letter word.  And non-prime is an even better description of what is occurring since 2011-12 in this loan type.”

CSC created a loan program four years ago that allows self-employed borrowers to document their income using bank statements instead of tax returns like 1040s or 1099s. The company requires two years of bank statements to validate cash flow and thus extrapolate income. This gives the company critical insight into a borrower’s ability-to-repay (ATR).

“We believe that 24 months of continuous bank statements are a very reliable look into what a person actually lives on per month when compared to tax returns or even a W-2s,” Fisher said. “Because these borrowers are self-employed, they want the benefits that come with the legal ability to write off expenses. That can make the use of tax returns as conventionally underwritten a poor barometer of ability to repay, but we’re able to document income in a different way. And we stay in the spirit of ATR and QM loans by requiring a two-year history.”

CSC offers up to 90% LTV for self-employed borrowers with a 700 credit score and up to 80% LTV for a credit score of 600 or higher (the typical threshold for subprime is 620). This program has huge potential for growth since many of the 14.6 million people who are self-employed may not qualify for a traditional QM loan, even with a high credit score and adequate income.

http://www.housingwire.com/articles/36188-is-subprime-lending-ready-for-a-comeback?

Posted by on Feb 3, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 5 comments

Alternative Qualifying

nuts

Braoden mortgage access to those who don’t have a credit score?  Counting income from those not on the loan?  Traditionally, the term ‘family member’ has been a loosely-defined concept in mortgage qualifying. From the wsj.com:

http://www.wsj.com/articles/need-a-home-mortgage-fannie-says-forget-the-pay-stubs-1445333580

Excerpts:

Collecting pay stubs for a home-mortgage application has been a time-honored tradition, barring a few ill-fated years running up to the financial crisis. But if changes announced by mortgage-finance company Fannie Mae catch on, that process could go the way of the dodo.

Fannie Mae on Monday said it would allow lenders to use employment and income information from a database maintained by credit bureau Equifax to verify borrowers’ ability to handle a loan, rather than relying on the traditional documentation process of collecting physical copies of pay stubs and tax data. The move is expected to make the mortgage process easier for borrowers and lenders alike.

Fannie announced other changes it said could broaden mortgage access for some borrowers.

The mortgage giant will ease the lender process for granting loans to borrowers who don’t have a credit score, a key issue for advocates for certain minority groups that are less likely to have traditional credit histories.

Likewise, Fannie in mid-2016 also will require lenders to begin collecting “trended” credit data from Equifax and TransUnion, which includes longer-term borrower credit histories.

In August, Fannie rolled out a new program that let lenders count income from nonborrowers within a household, such as extended family members, toward qualifying for a loan.

But for more than a year, some advocates and industry groups also have pushed the Federal Housing Finance Agency, which regulates Fannie and Freddie, to allow the companies to use alternative credit-score models that take into account utility or rent payments.

Read full article here:

http://www.wsj.com/articles/need-a-home-mortgage-fannie-says-forget-the-pay-stubs-1445333580

Posted by on Oct 21, 2015 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 3 comments

National Housing Policy

Embedded image permalink

I saw these questions from Ed DeMarco on Twitter. My answers:

1. Have the M.I.D. apply towards primary residence only (not second homes), and lower from $1,000,000 to $500,000.  Those buying in hopes of a bigger write off will still buy a house, and take the partial benefit – and be in it for the appreciation and to raise a family (make wifey happy).

2.  Have the mortgage interest deduction be in effect for the first ten years of ownership only.  It would encourage borrowers to pay off mortgages in the ten years, and not refinance every year.

3.  Require that only the buyers can pay for mortgage insurance (sellers can pay in full now).

4.  Redirect the disadvantaged folks to subsidized rentals until they aren’t disadvantaged. Only stable, secure, affluent people should buy a house – it’s too late for the rest, unless they drive to the suburbs/outer edge of town.

5.  There are several loan programs available to help the disadvantaged already.  NACA is still around, helping buyers purchase with no down payment and no closing costs (H/T daytrip):

https://www.naca.com/naca/purchase/purchase.aspx

6.  Lower the capital-gains tax for 1-2 years to incentivize those reluctant-but-motivated possible sellers to unload a rental property or two.  Cut federal rate to 10% for the first year (currently 20%), and then back to 15% in the second year.  The crotchety old guys still won’t sell, so there won’t be a flood.  But more inventory = more sales while stabilizing prices.

7.  Keep Fannie/Freddie the way they are for now. If they can keep operating in the black, let’s allow the mortgage industry to enjoy the fluidity. I attended a seminar today on the new loan disclosures coming on October 3rd, and it is clear that Fannie/Freddie will be extremely strict on compliance. It doesn’t mean tougher credit, it means the mortgage industry needs to submit the cleanest loan packages ever – which is good for the taxpayers.

8.  The new compliance crunch will virtually eliminate mortgage brokers – wholesale lenders won’t want to take a chance on them. Yes, we still have room for you over here to be a realtor – there’s only 11,000 of us chasing 3,500 sales each month.

9.  Encourage a private jumbo-MBS market without subsidizing it.  Eventually, a private MBS marketplace could help shift the burden from Fannie/Freddie.

10. Run a tight ship.  We can handle it.

The powers-that-be have made some great moves to get us this far, now bow out gracefully and let free enterprise take care of the rest.

Posted by on Aug 20, 2015 in Bailout, Housing Tax Credit, Interest Rates/Loan Limits, Loan Mods, Local Government, Mortgage News, Mortgage Qualifying | 0 comments

Off to the Races!

yippee

Fannie Mae announced that they have eliminated the Anti-Buy-and-Bail rule, the underwriting guideline that has held back so many move-up buyers.

The previous rule meant that buyers who already owned a property had to have at least 30% equity in it; other wise they would have to qualify using both their existing payment and new proposed payment in the equation.

MND details the change here, along with a few others:

http://www.mortgagenewsdaily.com/07012015_fannie_mae_selling_guide.asp

Now a buyer can produce a rental agreement for their existing house, and not have that mortgage payment count in their qualifying equation!

This is the key element that spurred the last few years of the previous boom, as buyers would finance most (if not all) of their non-contingent purchase, and then go back and sell their old house later.

Now they might keep it as a rental, or sell it at some point after they move.

The Anti-Buy-and-Bail rule forced them to sell first, and was probably one of the main reasons we’ve had so many potential sellers be reluctant lately – they couldn’t qualify for both, which forces them to consider selling first and risk the double move!

In an unrelated event, I just re-upped my domain, www.doublebubbleinfo.com!

Posted by on Jul 6, 2015 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 2 comments

Mortgage for Self-Employed

2015-03-22 19.08.47

We haven’t been hearing much lately about how tight credit is choking off the housing recovery.  Once it was announced that the GSEs were going to purchase 97% loans for the first time is five years (which starts today), the tight-credit talk started to subside.

But you still have to qualify for a mortgage, which has always been difficult for self-employed folks who write off their expenses to lower their taxable income.  The obvious solution is to lower the write-offs and pay more taxes – but that goes over like a lead balloon with those who are used to creative accounting.

The common belief is that you need two years’ worth of tax returns to qualify.

But did you know that Freddie Mac will accept only one years’ tax return?

That’s right, and I just saw it happen.  I just had a self-employed buyer with excellent credit and a 20% down payment close escrow after qualifying by using their 2014 tax return only.  The Freddie Mac Loan Prospector (their automated-underwriting service) determines whether you need 1 or 2 tax returns – so as long as the computer approves, you’re in!

For the self-employed who had a strong 2014, you may want to bite the bullet and pay more tax now so you can qualify for a bigger loan.  The Freddie Mac maximum loan amount in San Diego is $563,350, which puts your payment around $2,700 per month, plus taxes and insurance.

Get Good Help!

Posted by on Mar 23, 2015 in Jim's Take on the Market, Market Buzz, Mortgage Qualifying | 4 comments

Best Mortgage?

best loan

Hat tip to both daytrip and just some guy for sending in this article from the latimes.com:

http://www.latimes.com/business/realestate/la-fi-equity-building-mortgage-20150103-story.html#page=1

All with no down payment, no closing costs and no mortgage insurance. The Ongs’ real estate agent, Jill Medley, called it “the best loan in the history of real estate.”

The key feature of the so-called wealth-building home loan is a sharply reduced interest rate on a 15-year term. Instead of requiring a down payment, banks allow borrowers to use their money to pay interest upfront, often called “buying down” the rate.

For their $400,000 house, the Ongs used what would have been a 4% down payment — $16,000 — to instead buy down their rate to 0.5%. In little more than three years of monthly payments, the couple will have more than 20% equity in the home, assuming the property value stays the same.

That more than doubles the equity they would build with the same amount down on a 30-year Federal Housing Administration loan at the going rate of 3.25%.

The Ongs pay only about $150 more each month than they would have paid under the longer-term loan, which would include a hefty mortgage insurance payment.

These are NACA deals, which are capped at a $400,000 purchase price.  Down payments are required but they come from grants, which is how they get around having to pay the PMI.

Buyers also have to live where they can find a house for $400,000 or under, and select a house that nobody else wants – because if there are multiple offers, these 100% financed deals that rely on multiple grants for the down payment will be the last deal chosen by the listing agent.

Buying down the interest rate is a great idea for buyers who are confident they will be in the home for years.  But the benefits diminish quickly for those buying higher than $400,000.

Here is a comparison:

$800,000 purchase price

$160,000 down payment

$640,000 loan amount

15-year loan with 2.0% rate (buydown would probably cost $15,000?)

$4,118.46 per month for 180 months.

30-year loan at today’s 3.75% jumbo rate:

$2,963.94 per month for 360 months.

Paying the loan off in 15 years saves you around $300,000 in interest, which is good.  But if you can live with a monthly payment of $4,118 per month, have an extra $65,000 for additional down payment and opt for a 30-year loan, you can buy a house for $1,125,000 and have the same payment as the $800,000 house.

Unfortunately $800,000 doesn’t buy you much around here any more, and if buyers happen to wonder into a house listed for $1,125,000, they may decide to forget the imposed monthly discipline of a 15-year loan, and instead pay down the loan voluntarily as time goes on.

Posted by on Jan 4, 2015 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 3 comments