The CFPB is giving transparency to the development of a new GFE and they are asking for our input.
Check out the 2 versions of the new GFE at www.consumerfinance.gov/knowbeforeyouowe

The Consumer Financial Protection Bureau has been tasked with creating new mortgage disclosures. They actually invited the mortgage industry to be a part of the creative process, hallelujah!
You can view the new disclosures and make comments by visiting this website, www.consumerfinance.gov/knowbeforeyouowe.

A Qualified Residential Mortgage (QRM) is defined as any loan with:
20% down payment
28/36% ratios
No late pay on credit report for 2 years
Exceptions are FHA/VA and Conventional loans, for now

Watch the video to learn how this will impact our business.

What is on the chopping block?

• Mortgage interest deduction for primary residences, second homes, second mortgages, and home equity lines of credit.
• Property tax write offs
• Capital gains exclusions when selling a home

What is the cost or savings in 2012?

• Mortgage interest projected to be $107 billion
• Property tax to be $31 billion
• Capital gains exclusion to be at $21 billion
• Total of $159 billion

After several months of speculation the Federal Housing Association (FHA) has finally revealed several changes to their housing program.  These changes are intended to secure the soundness of the mortgages insured by FHA.  Along with increasing the capital requirements for FHA lenders this is the first of many significant changes we will see this year.

1. FHA plans to bolster capital reserves by increasing the up front mortgage insurance premium from 1.75 basis points to 2.25, with plans later in the year to increase the monthly mortgage insurance premium.  The upfront and monthly mortgage insurance premiums are charged in lieu of putting a significant down payment.  A .5 basis point increase will have a minimal impact on a buyers payment structure and in my opinion is a smart and necessary move on FHA’s behalf. The increase in the upfront mortgage insurance premium was released in a mortgagee letter dated January 21st and will go into effect in the spring.

2. For the first time FHA has imposed a minimum credit score requirement of 580. I am glad to hear they imposed a minimum; however, lenders who buy and service FHA mortgages implemented 620 minimum credit score requirements a long time ago.  580 credit score is null and void unless lenders change their internal guidelines.

3. Seller contributions will be reduced from 6% to 3% bringing them in line with conventional loans secured by Fannie Mae and Freddie Mac. The 6% seller contribution limit has always been a positive differentiator for FHA; however, FHA has determined 6% seller contributions artificially inflates the value of a home . This will present a problem for buyers who have a limited amount of cash available for down payment, closing costs and prepaid items. Limiting seller contributions to 3% will force buyers to look for lower priced homes by redirecting cash to close to closing costs and prepaid items. Expect this change to take effect in early summer.

For the time being FHA let stand the minimum down payment of 3.5% .  The coming months are sure to bring more changes as the new FHA commissioner, David Stephens, begins to overhaul the agency.

Amidst all the great news surrounding the extension of the tax credit the higher loan limits for FNMA, FHLMC, and FHA  have also been extended.  The higher loan limit increases the number qualified buyers allowing more homes to be sold.  Also there is congressional support to change the current HVCC process, the article below does a great job of explaining the problems inherent with it (I could not have explained it better myself).  Mortgage Mike says; “since when does one state attorney General (Cuomo from New York) set the tone for the rest of the country?  It is about time congress stepped into the HVCC issue, considering we and the national government now own FNMA, FHLMC, and FHA.”

WASHINGTON - Could the controversial appraisal system imposed nationwide by mortgage giants Fannie Mae and Freddie Mac last May - and now tied to lowball property valuations, busted home sale transactions, and higher fees to consumers - be on its way out?

It just might be. Under a bipartisan amendment approved Oct. 22 by the House Financial Services Committee, the “Home Valuation Code of Conduct” would be terminated early in the existence of a proposed new Consumer Financial Protection Agency.

The amendment would require the agency’s director to replace the code with an improved set of rules developed through the regular administrative procedures and public comment periods used by all federal agencies. The valuation code, by contrast, was the product of a settlement among New York Attorney General Andrew Cuomo, Fannie Mae, Freddie Mac and the two quasi-private companies’ regulator, the Federal Housing Finance Agency.

Cuomo agreed to back off from an investigation of Fannie’s and Freddie’s appraisal practices in exchange for their adoption of a set of valuation rules. The code’s core purpose was to ensure “appraiser independence” from loan officers, lenders and brokers who wanted them to “hit the number” needed to get the mortgage funded, even if it meant inflating the actual value.

Though virtually no one disagrees with the goal of appraiser independence, critics say the code went overboard and created its own set of problems. According to homebuilders, real estate agents and consumers who signed protest petitions, the code has encouraged many lenders to use appraisal management companies, some of them owned by or affiliated with the lenders themselves.

Those management companies, in turn, often pay appraisers much less than their standard fees but hit homebuyers and refinancers with full charges or higher at closing. An appraisal management company, for example, might pay $175 or $200 for a valuation the appraiser previously received $375 or $400 to complete. The management company then would charge the consumer $400 or more at settlement, pocketing a large portion of the difference.

Management companies argue that they bring significant value to the equation - assembling networks of appraisers, making assignments, and handling administrative tasks. But realty agents and homebuilders say the system often causes more harm than good. The appraisers who are willing to work for rock-bottom fees tend to be less experienced, and more likely to accept assignments far from their geographic areas of competence, they claim.

The National Association of Realtors and the National Association of Home Builders have conducted member surveys that found that the appraisal system often produces valuations below the agreed-upon price in sales contracts - causing delays and disputes among sellers and buyers - and that management company appraisers use inappropriate foreclosed and distressed-sale transactions as “comparables” in their valuations of houses in non-distressed situations.

Mortgage brokers complain that the code has cut them out of their traditional role of choosing qualified local appraisers, and has forced some loan applicants to pay for multiple appraisals. When applicants are quoted an unacceptable rate or fees by one lender, other lenders often won’t accept the original appraisal. In other words, appraisals under the code no longer are “portable” as they had been traditionally, when brokers could send consumers’ application files to multiple lenders using a single appraisal.

The net effect, said Roy DeLoach, executive vice president and CEO of the National Association of Mortgage Brokers, “is that we now have a dysfunctional system that’s holding back the housing recovery. Incompetent, low appraisals not only hurt individual sales, but depress property values in entire neighborhoods unfairly.”

The amendment that would terminate the Fannie-Freddie code still has a long way to go before becoming reality. It was co-sponsored by Reps. Gary Miller, R-Calif., and Travis Childers, D-Miss., and is an outgrowth of an earlier bill that would have clamped an immediate 18-month moratorium on the code. That larger legislative proposal currently has 118 co-sponsors and could still move in the House independently.

Legislation creating the new Consumer Financial Protection Agency itself faces an uphill battle. Though the House Financial Services Committee bill has the strong endorsement of President Obama, and could pass the full House as part of a larger regulatory reform package, its future is uncertain in the Senate, where big banks and mortgage companies are massing forces against it.

What happens if the consumer agency bill falters? DeLoach said housing groups will still lobby for the 18-month moratorium proposal. Equally important, however, he added, “a major committee of Congress has now sent a clear message” to Fannie and Freddie: “Your appraisal code is not acceptable.”

• Write to Ken Harney at P.O. Box 15281, Chevy Chase, MD 20815 or via e-mail at kenharney@earthlink.net.

© 2009, Washington Post Writers Group

Some headway is being made to extend the first time home buyer tax credit.  It would be nice to see an increase in the income caps if they are going to reduce the credit.  Mortgage Mike says if the government is going to give money away it is far better to put it the hands of tax payers to buy homes than to mega corporations so they can pay their executives lavish bonuses.

Dodd: Home Credit Deal ‘Done’
Investor’s Business Daily (10/28/09) P. A1
Key Democrats have reached a consensus on extending the first-time home buyer tax credit, due to expire on Nov. 30, announced Senate Banking Committee Chairman Chris Dodd, D-Conn. Bloomberg, meanwhile, reported that the chamber is close to an agreement that would extend the incentive to home transactions that are under contract — not closed — by April 30. Although the amount of the credit would fall 10 percent to $7,290, the tax break would be opened up to filers who have owned their current residence for a minimum of five years.

The credit crunch for mortgages has all but shut down the jumbo loan market, we need the higher loan limits to stay in place or we will see an even smaller pool of qualified buyers.  Let your representatives in congress know the importance of maintaining the higher loan limits for FNMA, FHLMC, and FHA.

MBA Trade Groups Press Congress on Higher Loan Limits

Sorohan, Mike
The Mortgage Bankers Association and other industry trade groups sent a letter this week to leadership of the House and Senate urging Congress to pass legislation “as soon as possible” to extend current higher loan limits for Fannie Mae, Freddie Mac and FHA.

The Oct. 26 letter, signed by MBA, the National Association of Home Builders and the National Association of Realtors, called the current $625,000 loan limits (nearly $730,000 in high-cost areas), set to expire on Dec. 31, a “key component of the economic recovery efforts because they help make affordable loans available for a broader spectrum of consumers who want to purchase a home or refinance an existing mortgage.”

“Even though the temporary limits do not expire until the end of this year, obtaining financing is already becoming more difficult and expensive for many borrowers,” the letter said. “Therefore, we request Congress extend the limits as soon as possible so as not to jeopardize the fragile recovery.”

The letter noted that uncertainty in the industry as to whether the loan limits would continue has had an effect on underwriting, inhibiting borrowers’ ability to obtain financing.

“Some lenders have stopped underwriting certain loans at the current interest rate because lenders are uncertain whether they will be able to sell the loans, and are unable or unwilling to retain them in their own portfolios,” the letter said. “The result is that borrowers are being unnecessarily denied financing because of uncertainty about expiring loan limits. Consumers cannot lock in current interest rates beyond 60 days for loans more than $625,500. As a result, loans that do not close before year-end will need to be re-underwritten and possibly then declined because of the higher interest rate and resulting mortgage payment.”

The letter also observes that an immediate extension of loan limits is necessary in order to provide sufficient time for FHA, the Federal Housing Finance Agency and the GSEs to conduct market assessments, provide guidance and implement them. “For example, the current loan limits, set by the American Recovery and Reinvestment Act of 2009, did not become fully operational until four months after the law was enacted,” it said.

Sen. Patty Murray, D-Wash., reportedly has drafted an amendment that would extend the loan limits. An aide to Murray told Dow Jones this week that Murray would attach the legislation to a stop-gap funding measure that could be considered by the Senate this week.

“We believe these temporary limits have benefited the mortgage industry and consumers during what has been a turbulent period for our nation’s economy,” the trades letter said. “In light of the continuing weakness in the secondary market, we urge Congress to take action so that the GSEs and FHA can be permitted to continue providing capital to support loans to families across America.”

The letter went to House Speaker Nancy Pelosi, D-Calif.; House Minority Leader John Boehner, R-Ohio; Senate Majority Leader Harry Reid, D-Nev.; and Senate Minority Leader Mitch McConnell, R-Ky.

Here is some great news to report as we step into and the end of the year.  Low mortgage rates and the potential expansion of the home buying tax credit.  Now is a great to buy a home and get a low interest rate mortgage.  See excerpts below.

Long-Term Mortgages Nearly Hit Record Low
Chicago Sun-Times (10/09/09) Knowles, Francine

Thirty-year, fixed mortgages moved closer to the all-time low of 4.82 percent reached in May, falling to 4.87 percent this week from 4.94 percent a week ago, according to Freddie Mac. Homeowners who refinance have an opportunity to reduce their payment on a 30-year, fixed loan for $200,000 by nearly $134 a month from a year ago, when long-term rates averaged 5.94 percent. Also, 15-year loans fell to 4.33 percent, and five-year adjustable-rate mortgages dropped to 4.35 percent; but one-year ARMs rose to 4.53 percent.

The Chairman of the Mortgage Bankers Association of America, David Kittle, was on capitol hill yesterday testifying before congress on several key issues.  One of the issues being the expansion of the home buying tax credit.

Kittle also called on Congress to extend and expand the $8,000 first-time home buyer tax credit, which he said has helped to moderate the decline in home prices by stimulating demand.

“Allowing the credit to expire would put in jeopardy the recent signs of recovery we are beginning to see in the housing market,” Kittle said. “Congress should act quickly in order to avoid a potential rush of borrowers overwhelming lenders and settlement service vendors by demanding to close before the tax credit expires on November 30, 2009. In fact, not only should the credit be extended, it should be expanded. Congress should extend it to all home buyers and increase the credit up to $15,000. In addition, Congress should make it available immediately, so that a borrower does not need to wait until his or her next tax return, but instead can use it to help make a downpayment on the house or pay closing costs.”

Congress and the regulating bodies of real estate finance are working overtime to make the home buying and financing process easier for consumers.  All of the points below are introduced bills or pending changes to regulations, nothing is set in stone…yet.

1.  Real Estate Settlement and Procedures Act changes, the new Good Faith Estimate and HUD1 Settlement Statement forms and requirements.

Proposed effective date January 1st 2010.  HUD has finally come up an “easier” way for consumers to shop for mortgages.  I commend the effort but it I think it will actually make it difficult and more confusing.  Here is a link to see the revised FAQ document created by HUD  http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf .  It is a 43 page document so brace yourself.  All changes are proposed and some good ones are getting attention .  The original new settlement statement eliminated the separate line item for tax deductible points paid by the borrower, effectively eliminating the ability to write off points paid for a mortgage on tax returns.  HUD has agreed to put the separate line item reporting back on the settlement statement.

2.  Bill to Solve FHA Finance Issue

or Mike’s new title “How to Ensure a Stagnant Economy by Restricting the Last Common Sense Home Finance Option“

National Mortgage News (10/05/09) P. 3; Collins, Brian
Rep. Scott Garrett, R-N.J., has rolled out a bill that would increase the down payment requirement of the FHA to 5 percent from 3.5 percent and bar closing costs from being rolled into loans insured by the agency. “As we have learned repeatedly throughout the mortgage crisis, the amount of equity a homeowner has in their home directly correlates to the credit risk associated to their mortgage,” said Garrett, who sits on the House Financial Services Committee. He also hopes to address financial issues at FHA by having the General Accountability Office determine the appropriate capital and leverage ratios for the agency’s single-family program.

Mike’s opinion:

As quoted above “The amount of equity a homeowner has in their home directly correlates to the credit risk associated to their mortgage”.  How about increasing the mortgage insurance premium for loans that are less than 5% but more than 3.5%?  FHA is a government insured program.  Insurance is a trade off between risk and premium dollars charged, price the insurance accordingly.  Also, housing is the back bone of our economy.  Increasing the down payment to 5% will eliminate a large population of the first time home buyer market which in turn will hamper the recovery.

3.  HR 3590, introduced to extend the the first time home buyer tax credit for an additional 12 months to thousands of military, Foreign Service, and intelligence agency personnel who have been posted abroad since 2009.

Mike’s opinion:

Fantastic!  Now lets really stimulate the economy by extending it to all home buyers and increasing the credit to $15,000.

A penny for your thoughts….