Changes coming on December 12th by Fannie Mae

On December 12th Fannie Mae will be making major changes to their automated engine Desktop Underwriter. DU findings are the basis for most of the loans that are funded today. Once a file is assessed in the DU underwriting engine and receives Approve/Eligible findings this loan can be done. The only thing that would keep this particular loan from closing is not being able to provide the documentation requested or the Loan Officer miscalculating or inputting incorrect information into the system. (this does happen by the way so it is imperative that your loan officer understand several important criteria)

So what changes can we prepare for or expect from Fannie Mae? Highlights of these changes include but may not be limited to the following:

• An Update to the DU Credit Risk Assessment
• An update to the Maximum Total allowable expense ratio (Debt to Income) to 45% with flexibilities to 50% for certain loan case files with strong compensating factors.
• Retirement of expanded level approvals EA II and EA III recommendations
• Minimum 620 fico score for delivery eligibility
• MI Updates
• o    A new minimum MI coverage option; a loan-level price adjustment (LLPA) will apply
  o    Streamlining of other MI coverage requirements
  o    Retirement of Reduced and Lower-Cost MI options
• Implementation of High Balance Mortgage Loan Eligibility Guidelines specified in a previous announcement
• Retirement of Homestyle construction to Permanent Financing
• Implementations from three previous announcements.

The focus of these changes should go to Debt to Income. For too long we have been allowing a total back end Debt to Income to 56.99% for FHA and in some cases exceeding that for conventional financing. For all intensive purposes this means that your Housing Payment plus debt that reports to the credit bureaus minimum monthly payments added together represent 56% of your total gross income.

If you are in a 30% tax Bracket and take home 70% of the gross it leaves you 14% of your gross for all other expenses. Other expenses that include food for a family of five which is at minimum $800 dollars a month. We have set people up for failure of home-ownership.

Why you might ask? California leaves very little option for new buyers. The Housing affordability based on average income and price for the area is still high. It is very difficult to get a home that would meet the needs of a family of five in a location, near to schools on the average household budget. This would be significantly easier if we were taught about finances more accurately growing up and did not have the worldly pressures to keep up with the Joneses.

See it as good news – This may change the amount that you qualify for and that is not a bad thing. You have to see it for what it is. It is an attempt by the banks to save their own butt by forcing you to buy well within your means. It is a good thing to keep you well within your budget. Please check with your Broker and Realtor and make sure that these changes will not affect your closing. Ask them what your back end debt to income is. It should be less than 43% in my eyes.

As always thank you for Reading.

Risk Assessment Tools: DU and LP Automated Underwriting Definitions

In today’s market, the need for an automated underwriting approval prior to submitting an offer has become common practice. To be competitive the Listing agent or the bank that owns the property would like to know that you have been ran through our automated underwriting engines. Yes, they are computer programs that assess the risk of the file and determine the viability of the loan. It is only as good as the inputter and that is why in most cases brokers and loan officers are asking that you provide a backpack of information. In continuing our trend of Mortgage Definition Monday I have defined these terms below:

Hud has defined Automated Underwriting in their terms and glossary section as follows.

Automated Underwriting - loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

Additionally, I will add that the computer is assessing the total credit risk of the buyer. The loan can still be declined even if it receives an automated approval for multiple reasons. Some of which may include but are not limited to: unacceptable collateral, unacceptable income documentation, drop in the borrowers credit, unacceptable asset documentation and wholesaler overlays that would override the automated approval for the specific wholesaler.

Automated Underwriting Systems has been defined well on Mortgage Professor’s website.

This definition is as follows:

Automated Underwriting Systems -A particular computerized system for doing automated underwriting.  Mortgage insurers and some large lenders have developed such systems, but the most widely used are Fannie Mae’s “Desktop Underwriter” and Freddie Mac’s “Loan Prospector”.

I will add that the systems are very accurate however again each of the approvals will be reevaluated manually by an underwriter to determine the completeness of the documentation. The underwriting systems are constantly being tweaked to include the newest guidelines however it would be appropriate to double check prior to issuing an approval letter. DU Refi Plus is one of the new programs that took a minute before it was available in the system. When this is the case you make get feedback that is not consistent.

I will continue to bring Mortgage Definitions to you each and every Monday. Until then have a great week.

God Bless,

Matt Freeman

Definitions taken from the HUD glossary and Mortgage Professor glossary. I have added to these definitons and included links to their sites for further verifications.

HVCC rules and regulations start today!

One may start by asking what is HVCC? The term HVCC stands for the Home Valuation Code of Conduct. It has been designed so that the lender chooses the appraiser that values the collateral that the lender is lending against. It was felt that the Broker had undue influence on the appraiser that they worked with. In short, it was felt that we as Brokers could control the value of an appraisal simply by asking our appraiser to push. Certainly I do believe that there were cases that the appraiser may have been influenced by a Broker. I am not naive. However, in the end there were underwriters, desk reviews, and field reviews that were three points of quality control. Essentially the Underwriter or staff appraiser or the appraiser that performed the field review all had a chance to change the outcome. IN many cases they did change the outcome.

FNMA and FHLMC also known as Fannie Mae and Freddie Mac entered into an agreement with the Federal Housing Finance Agency and the New York Attorney Generals office to follow certain procedures on all loans delivered to the agencies. The policy requires the lender to order the appraisal on all conventional 1-4 family properties effective as of 5/1/09.

Do FHA and VA adhere to the policy? As of now it is not required that either FHA insured loans or VA guaranteed loans follow the new policy. The Brokers will still order FHA appraisals and VA has always been controlled by the lender.

Who are the appraisal companies that are being used and what does this do to the appraisal profession? The Lenders are using approved appraisal management companies that have appraisers approved under their umbrella. The Lender orders from the management company and the management company selects one of the appraisers they have on staff. The Problem is that the appraiser have taken a large pay cut for the same amount of work. For an appraisal that they made $375 on they now will be limited to $200 or so dollars. How would you like to take a 50% pay cut? Also, business as you know it networking and such is partially out the door. Time to specialize as an FHA appraiser.

Payment – The management companies can be paid by the Broker or the consumer online. Many of them accept Visa, Mastercard or AMEX. This will have to be done prior to the order beginning to take place. It will be critical to get this done right away so that the timeline of your purchase is not thrown out of wack. Yes, I will need the three digit security code from you:( Another part of the payment that is completely annoying is that it will vary from management company to management company and by location. The lack of standard fee practice will get confusing and will lead to an apparent lack of professionalism when you have to say on the GFE.

Turn Times – They will be five business days in a perfect world. Want a rush give me some more money. No longer can you ask your appraiser to swap an appraisal so that you may meet a deadline. I am sorry in advance to my Real Estate partners. This will be another thorn in our side to overcome. The good news is we have gotten quite good at overcoming the thorns.

Appraisal Conditions – This will be something that will also slow down the process as it has to go through the lender as well. Tack on a few more days. Hopefully they will condition less since they chose the companies that we will have to work with.

Consumer and the Broker will get a copy – The consumer will get a copy three days prior to the close of escrow or sooner. The borker will have a copy available on the website for their file.

Assignment – Decide that you want to use another lender? Well the appraisal will only be assigned if the loan is declined. Therefore you will have to go through the process again. Yeah!!!!!!!!!!

These are only a few of the requirements of the HVCC regulations and I am sure they are not the last that we will have to abide by. The industry is changing and like all Metamorphosis it is a little painful. The punishment is a little tighter than necessary but for now this is what it is. Hang on for the ride and don’t be surprised when the lender still asks for an appraisal review.

As Always thank you for reading,

Matt Freeman

Breaking News: Fannie Mae and Freddie Mac to the Rescue?

This week in response to the Homeowner Affordability and Stability Plan (HARP) both Fannie Mae and Freddie Mac have released their own versions of Refinance programs. Fannie Mae’s DU Refi Plus and Freddie Mac’s Relief Refinance Mortgage. The programs are geared to help homeowners that are underwater on their house refinance. This will allow consumers to capitalize on the low rates that are available today.

The Program – Both programs will allow consumers to refinance their first mortgage up to 105% of the value of their home currently. Any second lien holder can be subordinated to an unlimited CLTV. The program is not restricted to a primary residence.  If your current loan does not have Mortgage Insurance it will not be required on the new loan. If you have Mortgage Insurance currently your Mortgage Insurance provider will have to agree to modify which they may not be willing to do. There are no minimum credit scores but there are adjustments for the lower scores on the Fannie Mae Program. So far each wholesaler is a little different in their offering of the product. This is due to their own internal risk tolerance. Some will offer the High Balance temporary loan limits and others have restricted it to 417K.

The Catch – Your loan has to be owned or serviced by Fannie Mae or Freddie Mac. To determine if you are eligible for the program you have to visit:

Freddie Mac at http://www.freddiemac.com/avoidforeclosure/ and click on “Does Freddie Mac Own Your Mortgage?”

Fannie Mae at http://www.fanniemae.com/index.jhtml and click on “does Fannie Mae own your Mortgage?”

With limited information they will tell you if they own or service your Mortgage. If they do then you have the first major step done on your journey.

The program itself is not very complicated but due to the fact that every institution will have their own overlays on the product it will be best to consult your Mortgage Professional for your individual situation.

All information in this post has been taken from a variety of my sources and from a variety of wholesale channels. Please keep in mind that this is a very new program and with that patience will be an extreme virtue.

As always I thank you for reading,

“You will always get the facts here!”