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Are we safe with S.A.F.E.?
June 1, 2010
A good question, which we want to share with you because it is something you need to know. What we refer to as The SAFE Act involves vast changes within the lending industry. If you have been involved in any kind of mortgage financing activities in the last few months, you may have noticed your mortgage advisors being somewhat harried and possibly distracted by their workload. This could very well be due to the increased responsibilities imposed by the provisions of the Federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) adopted by each state within Title V of the Housing and Economic Recovery Act of 2008 (HERA), much of which came about because of abuses in lending.
For more information about this important topic, please read the five-part article from Roxanne Carr in the current Ask Roxanne section.
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FHA is Changing
March 12, 2010
Many changes have been announced by HUD recently, some of which are being considered at this time. Many of the changes are being made because of the mortgage storm that passed through the last two years, often affecting HUD’s bottom line dramatically.
HUD (the Department of Housing and Urban Development) will now systematically review all “Direct Endorsement” underwriting mortgagee’s defaults of loans 90 days or more delinquent. Direct Endorsement refers to the ability of lender’s underwriters to get approved to act on behalf of HUD in the approval of loan applications. It will exercise its authority to terminate this underwriting authority if there are excessive default rates.
Appraiser independence must now be certified by participating lenders, and appraisal reports for existing construction are now valid for 120 days rather than the previous 180 days.
For FHA loans registered on or after April 5, 2010, the upfront mortgage insurance premium, which is usually included in the new loan and financed, will change from what is generally 1.75% now to 2.25% for all standard purchases and refinances. HUD is also considering an increase to the annual mortgage insurance, currently at ½% per year.
Expected in the very near future, new borrowers will be required to have a minimum FICO score of 580 to qualify for the standard 3.5% down payment program (although many lenders now require higher FICO’s, each setting its own threshold). New borrowers with less than a 580 will be required to have a down payment at least 10%.
Other changes are in the works. If you are considering FHA financing, it is more important than ever that you work with an experienced mortgage advisor. FHA financing can be an excellent tool to help worthy homebuyers, but it is always best to have the counseling of knowledge, especially in this area of financing.
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What's the Latest About the New Good Faith Estimate Forms?
February 22, 2010
The new Good Faith Estimate can be complicated to understand, especially in today’s environment when the rules are changing constantly.
The Good Faith Estimate (“GFE”), which lenders are required to give, should include an estimate of your mortgage settlement charges and loan terms. To shop for the best loan, borrowers may compare all GFE’s obtained to find what they consider the best loan.
Under the revised rules, many lenders have adopted using worksheets in lieu of using the more complete and somewhat more complicated form required by the Department of Housing and Urban Development (“HUD”). The goal of requiring the use of the new GFE form was to make the information as accurate as possible with little room for variance. This practice is intended to minimize the ability of mortgage bankers and brokers to “bait and switch” -- by showing lower charges on GFE’s upfront than what they will actually charge at final signing. When borrowers get to the signing tables and fees have grown, sometimes considerably, it may be too late. They are often forced to proceed or lose their deposits and other associated costs (such as appraisals) and possibly suffer a higher interest rate.
There are six elements stated by HUD which constitute “an application” to the lender and require the issuance of a full GFE. They are: name of applicant, social security number, income of applicant, address of property, value of property and loan amount. If any of these elements are not available to the lender, they are allowed to issue a “loan scenario” or worksheet in lieu of a full GFE. The new HUD “Settlement Costs” booklet explains the new rules and requirements. You may order it through HUD by calling 1-800-552-9410 or get a copy through the HUD website, but every lender is required to give you one when you apply for a mortgage.
The form is now more seriously meant to be used as a potential borrower’s comparison tool. All lenders are required to use the same method, manner and terminology in presenting a loan scenario to a prospective borrower. In the past, lenders utilized different means when expressing charges to the borrower, and this was deemed to allow opportunities for misleading or confusing information. With the new GFE, it is expected the standardized form will allow borrowers to compare any quotes they receive and ensure there are no hidden fees or events to expect.
The new format was officially activated as of January 1, 2010. The changes went from a one-page to a three-page layout and are too numerous to list in a short article, but I do want to highlight the significant changes.
The new form requires any interest rate lock period of time be stated (rate can be locked or floating - this is material for a later discussion). Also, all the details must be available to the borrower for a minimum of ten days. The new form also tells the borrower whether the type of loan proposed has any sudden demand feature, such as a balloon payment or prepayment penalty. It must also declare whether the payments may rise in the future even if payments are made in accordance with an original contract.
Loan charges and additional services to obtain the loan must be itemized. These may include appraisal fees, title insurance, escrow or legal fees, as well as any expected fees for termite inspection, roof, well or septic certifications. There are many other line items for listing other fees in the event they are needed for the completion of the loan. If any of these charges vary during the loan processing after the initial disclosure, the lender is now required to re-disclose. If the new disclosure results in a variance of the APR (Annual Percentage Rate) by even 1/8 point, it will also cause a delay for signing final loan documents by six business days.
The new rules and regulations for the Good Faith Estimates allow very little (if any) room for error or variance. How borrowers will be impacted or lending practices improved is yet to be seen. Please talk with your mortgage advisor for more complete details.
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Homebuyer Tax Credit Extended!
December 1, 2009
Following Congress approval, President Obama signed off on the bill approving an extension of the $8,000 new home buyer tax credit until April 30, 2010. It is available till the end of 2010, but in a phased out fashion. Also, the new provisions in the extension are NOT retroactive. Here is a summary of the new and updated provisions and their impact on you if you have or are planning to buy a house:
First-time home buyers who bought after January 1, 2009 (the original date of credit start) and close before April 1, 2010, would get the full $8,000. For homes purchased after April 1, 2010, to December 31, 2010, the credit is still available, but it's value would be reduced by $2,000 in each successive quarter until expiry at the end of 2010. This is an update from the original November 30, 2009 deadline.
Current Homeowners looking for a replacement primary residence could also qualify for a $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased. This new provision also only applies to homes purchased after November 6, 2009.
Check back soon for a complete update on this exciting development!
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Home Valuation Code of Conduct (HVCC)
August 3, 2009
The “Home Valuation Code of Conduct” was put into effect with a beginning date of May 1, 2009 for any loans originated and then delivered to Fannie Mae. The intent was to “help enhance the integrity of the home appraisal process in the mortgage finance industry,” to quote a Fannie Mae bulletin.
Fannie Mae entered into an agreement with the Federal Housing Finance Agency and the New York State Attorney General’s office to adopt certain policies relating to appraisal reports. It covers all conventional, single-family loans (which include 1- to 4-unit properties) that might be delivered to Fannie Mae. Freddie Mac also agreed to adopt the Code; therefore, this policy would cover just about all conventional loans originated in the marketplace. The Code only applies to mortgage financing transactions (so a request to remove mortgage insurance from an existing loan would not apply).
Although approved in New York State, there is no geographic limitation. It applies to all Fannie Mae and Freddie Mac mortgage-related securities (FHA is not involved, nor are Federal Home Loan Banks). The Code requires an appraiser be licensed or certified by the state where the property is located. It also requires lenders to have written policies and procedures in place implementing the Code, including rules on appraiser independence and mechanisms to report and discipline as necessary.
As in the past, the borrower cannot pay for the appraisal directly; it must be done by the lender or authorized third party. “Loan production staff” (i.e., those responsible for loan volume or approval of loans, as well as their subordinates) cannot order appraisals. It must be done by administration staff. The intent of the Code is to keep mortgage originators from exerting any undue influence on appraisers and their property valuations.
A “correspondent lender” is a third party that originates, underwrites and closes a mortgage in its own name. Correspondent lenders may order appraisals through their staff personnel from their approved list of appraisers. Mortgage brokers may not order appraisals directly nor require use of their approved appraiser list. The Code prohibits lenders from relying on appraisals where brokers had a role in selecting, retaining or providing compensation for them.
Some people complain because the procedure can now take longer and involve an appraiser sometimes unfamiliar with the subject area. This is only a very brief overview of the HVCC, which was initiated to help eliminate fraud in the mortgage industry. Watch for further details in future columns on this very important subject.
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Latest Reverse Mortgage Changes
April 1, 2009
There have been many changes to Reverse Mortgage opportunities and guidelines, just as there have been to standard mortgages.
One of the biggest changes to the FHA HECM (Home Equity Conversion Mortgage) is the increase in the maximum mortgage amount for this year. It is now the same for all states at $625,500, including Alaska, Hawaii, Guam and the Virgin Islands which generally had a 50% higher limit. This will be in effect for all new mortgages of this class closed by 12/31/2009. The maximum amount available to you will be determined by your ages and the value of your property.
Borrowers with current FHA HECMs also have the opportunity to refinance into the higher amount (and possibly even obtain a lower interest rate in addition to more cash).
Another new, very dramatic, change has been authorized by FHA for the purchase of a principal residence with the use of a Reverse Mortgage. An applicant uses 100% seller financing or other funds to close, then signs the HECM application the next day and meets all eligibility criteria for obtaining the new Reverse Mortgage, which closes and pays off the temporary financing. Of course, the applicants would be working with an experienced lender to have everything in place, ready to go immediately.
This allows many adults 62 years of age or older the chance to either sell their current home or use other savings to buy the other residence they prefer, maybe nearer to family or to obtain something that might better serve their needs (handrails, ramps, one-levels, etc.). They do not have to reinvest all the proceeds from the sale of a home. The maximum new mortgage will be determined by the lesser of the appraised value, sale price or FHA limit determined by age and property value.
Eligible properties include existing one to four units. The only ineligible properties would be coops, houses under construction, bed and breakfasts, boarding houses, manufactured homes built before 6/15/1976 or those that do not conform to current requirements, such as without permanent foundation.
The FHA HECM is an exciting program!
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