Category Archive: ‘Mortgage Qualifying’

Mortgage Rates Drop

Home sellers – if you aren’t getting offers this week, you are missing out on what will be the closest thing we will see to frenzy conditions the rest of the year!  Lower your price a little to get in the game!

California 30-year fixed mortgage rates go down to 3.22%

Saturday, July 30, 2016

The current average 30-year fixed mortgage rate in California decreased 1 basis point from 3.23% to 3.22%. State mortgage rates today ranged from the lowest rate of 3.20% (VT) to the highest rate of 3.34% (AK, NE). California mortgage rates today are 3 basis points lower than the national average rate of 3.25%.

The California mortgage interest rate on July 30, 2016 is down 11 basis points from last week’s average California rate of 3.33%.

The current average 15-year fixed mortgage rate in California remained stable at 2.54% and the current average 5/1 ARM rate is equal to 2.62%.

https://www.zillow.com/mortgage-rates/ca/

Skimpy-Doc Gets Higher Rate

Hat tip to eddieironmaiden89 for sending this in:

http://www.ocregister.com/articles/percent-714878-credit-mortgage.html

There was no such animal as a credit score for mortgages backed by Fannie Mae or Freddie Mac until about 1995. Well, it’s back to the future. Good going Fannie Mae.

On June 25, Fannie Mae will be rolling out the automation of a manual process for mortgage applicants without credit scores, according to Mindy Armstrong, senior product manager at Fannie Mae.

Here’s how it will work: A loan officer takes your application and runs your credit, but the credit bureaus Equifax, Transunion and Experian have no credit scores for you. This usually happens because you don’t have any or don’t have enough traditional credit (credit cards or auto financing, for example).

In the past, that meant that we loan officers were unable to qualify you for a loan backed by Fannie Mae. But in seven weeks, you will qualify, opening up a vast new array of borrowing options.

You are eligible for purchase as well for a no cash-out refinance loan if the lender can gather at least two pieces of credit information that covers the last 12 months. One must be a verification of rent. The other can be anything from a utility bill to on-time payments to your local gym.

You must put a minimum of 10 percent down (or have 10 percent equity when refinancing), all of which can be a gift. It has to be a single unit primary residence and, for Orange County, your loan amount cannot exceed $417,000.

Call me cynical, but I think credit scoring is just a “gotcha” way for creditors in general to upcharge borrowers that don’t have the very best credit scores.

“Thirty percent of bureau data is inaccurate,” said Stan Baldwin, chief operating officer at Garden Grove-based credit report seller Informative Research.

Where Fannie’s no-score gets ugly is the pricing. Fannie Mae is going to assume that your credit score is in its lowest allowable FICO score bucket of 620. That adds 0.625 percent to your mortgage rate for well-qualified borrowers.

“We price for the risk,” said Andrew Wilson, Fannie Mae spokesman.

Out of all seven mortgage insurance companies, so far only Radian and Arch told me they are willing to insure these loans.

Radian’s pricing looks very competitive compared to other standard mortgage insurance rates, adding 1.10 percent to your base interest rate. They also assume a 620 middle FICO score. Arch pricing was not available.

Assume you buy a $450,000 home and get a $405,000, zero-point 30-year fixed-rate mortgage at 4 percent, with a homeowner’s association fee of $350 a month. Your total payment with impounds would be about $3,159.

None of my piggy-back lenders (avoiding mortgage insurance by providing a 10 percent second behind an 80 percent first mortgage) will go behind a no-score loan. At a minimum, a 680 middle score is required.

Fannie needs to rethink their one size fits all pricing. They assume all no-score borrowers are high risk, just like the “before score” olden days.

They should consider job stability, cash reserves, and payment shock (industry jargon for how much your house payment will go up from your current rent).

Better risk borrowers deserve better pricing, score or not.

Non-Profit 3% Mortgages

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

‘Non-Prime’

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?

Alternative Qualifying

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