Monday, May 17, 2010

Would You Pay to Make a Lender Suffer?

Would you pay to make a lender suffer?
What if it was tax deductible?

On June 6, I’ll be running in the San Diego Marathon to raise funds for Free Food 4 Families, a Denver non-profit that provides free food deliveries to Denver families in need. This will be the second of four marathons I’ll be running this year and I’m already suffering horribly. If you sponsor me, you can rest easy knowing you are helping the less fortunate in our community. Your donation is also tax deductible to the fullest extent of the law. But best of all, you can sit back and smile knowing you are a part of the intense pain being inflicted upon a mortgage broker.

Here’s a link to the sponsor form:

The suggested donation is $1 per mile, for a total of $26.20. Free Food 4 Families can use any amount you choose to donate, though. Sign up today and help some needy families get nutritious food, get a tax deduction, and make a lender suffer!

Wednesday, May 12, 2010

Adjustable Rate Mortgages Will Soon be Harder to Get

Fannie Mae is changing the way they qualify borrowers who are getting adjustable rate mortgages (ARMs). For all ARMs with an initial fixed-rate period of five years or less that are submitted to underwriting on or after the weekend of June 19, 2010, lenders must use the greater of the note rate plus 2%, or the fully indexed rate to determine the debt-to-income ratio (DTI).

Here's an example. Assume a borrower is getting a 5-year ARM (fixed rate for the first 5 years and an adjustable rate after that). Let's say the note rate (the rate the borrower pays for the first 5 years) is 4%. Let's assume that the index is 3.5% and the margin is 2.25%.

The lender must calculate the note rate plus 2%. In this case it would be 4% + 2% = 6%.

The lender must also calculate the fully indexed rate, which is the index plus the margin. In this case it would be 3.5% + 2.25% = 5.75%.

The interest rate used to calculate the borrower's DTI is the greater of those two numbers. In our example, it would be 6%.

So even though the interest rate the borrower will pay for the first 5 years is only 4%, the borrower will be qualified for the loan as if the interest rate were 6%.

The reason for this change is to make sure borrowers don't run into trouble paying their mortgages when their interest rate increases after the 5-year fixed period.

Friday, May 7, 2010

3.5% HomePath Incentive is Extended

Fannie Mae has extended the incentive program they are offering to buyers of HomePath homes. A HomePath home is a house that Fannie Mae now owns because the previous owner went into foreclosure.

Fannie will pay 3.5% of the purchase price towards the buyer's closing costs. The 3.5% can also be used to buy appliances (refrigerator, stove, etc.). Fannie Mae buys the appliances from Whirlpool and installs them for the buyer.

The program was set to expire on April 30, but has been extended to June 30. As long as the sales contract was signed after January 28, 2010 and the deal closes by June 30, 2010, the 3.5% incentive is in effect.

The incentive is only available for people who intend to occupy the house. Second homes are included, as long as they are owner-occupied. No investment properties are allowed.

Monday, May 3, 2010

Yikes! No More Interest-Only Loans for Investors?

Beginning in the middle of June, there are some big changes to interest-only loans. The following types of interest-only loans will no longer be accepted by Fannie Mae:
• Cash-out refinances
• Flexible mortgages
MyCommunity mortgages
• Investment properties
• 2 -4 unit properties

Also, for the types of interest-only loans that are still available, the minimum credit score is going up to 720, and the borrower must have 24 months of reserves (2 full years of mortgage payments in a bank account, retirement account, etc.).

Fannie Mae is making these changes because they want to make sure that interest-only loans are only used by borrowers who are in a position to use them “as a financial management tool, rather than as an affordability tool”.

I’m sure a lot of people who own rental properties will see things quite differently, but Fannie Has Spoken!

Saturday, May 1, 2010

Lower Mortgage Insurance Rates in Effect

Mortgage insurance rates for conventional (non-government) loans just got cheaper. Effective May 1, 2010, private mortgage insurance companies are basing the rates for the insurance on credit scores, in addition to the size of the down payment. This is good news for borrowers.

Here's how the new rates break down:
  • If your score is 720 or above, you get the cheapest rates
  • If your score is between 680 and 719, your pay more than someone with better credit
  • If your score is below 680, you pay a lot more than someone with better credit

FHA mortgage insurance rates have not changed, and are still generally cheaper than private mortgage insurance rates. It's always best if your lender (that should be us) prices the loan both ways to see which is a better deal for you.

Mortgage insurance is an insurance policy that is required for most mortgages that are for more than 80% of the value (or the purchase price) of a house. If you put 20% down, you don't have to pay it. If you put less than 20% down, you generally have to pay it.

The insurance policy only pays out if a borrower stops paying their mortgage and the loan goes into foreclosure. Then the mortgage insurance company writes a check to the lender to cover their losses. The borrower has to pay for the policy, but doesn't get a dime. The theory behind mortgage insurance is that if the loan is insured, the lenders will be more likely to offer cheaper interest rates.