Mortgage Lending - Roundup of Important Changes Over the Last 45 Days

For those of you who follow our blog, you know we try very hard to keep you up to date with all the changes that are occurring in the mortgage lending industry on an ongoing basis. Unfortunately, since around the beginning of March, we have had our hands full trying to keep up with the overwhelming increase in our real estate business due to the fact it was the height of our "season" here in Southwest Florida and business is booming again. Our belief is that what has occurred for us here in our real estate markets this winter will also show up and spread across the rest of the country as we move into summer. At least we hope so!

So, in order to keep you up to date, we have decided to do a synopsis of what has occurred over the last 45 days that should be helpful for you to know.

• At the end of May, Fannie Mae will adopt higher minimum down payments and credit scores for borrowers with a past foreclosure. In addition, they have increased their time period for these borrowers to re-establish their credit. Such borrowers will not be able to get another mortgage through Fannie Mae for five years, unless there are “documented extenuating circumstances.” In that case, the prohibition is three years. Even after the prescribed time has elapsed, a borrower with a foreclosure in his file will have to make at least a 10 percent down payment and have a FICO credit score of at least 680 to qualify for a Fannie Mae loan. Freddie Mac, which also counts foreclosures as a major credit black mark, holds foreclosures against borrowers for seven years. (Wonder who this one is meant to hurt/help?)
   
• Many wholesalers, including most of the major mortgage players, have added minimum 580-600 FICO Scores to their guidelines for getting both FHA or VA loans. (If you think about it, this one sort of defeats the purpose and intent of the FHA program in the first place, doesn't it?)
   
• Another major change for FHA loans includes a new guideline for dealing with declining markets. Specifically, FHA now requires a second appraisal for loans on properties that exceed the $417,000 conforming loan limit and that are found to be in a declining market on the original appraisal report or through any of the other resources lenders are using for determining such markets locations. The agency is also limiting the LTV for cash out refinances. The new guidelines state a second appraisal will be required when - the loan amount, excluding the upfront mortgage insurance premium exceeds $417K; the loan-to-value excluding the upfront mortgage insurance premium equals or exceeds 95%; or the property is determined as being in a declining market. (This one is typical government overkill.)
   
• The Florida legislature has passed a new law that increases the penalty for mortgage fraud on home loans for more than $100,000 to a second-degree felony, rather than a third-degree felony, punishable by up to 15 years in prison and up to $10,000 in fines. It also requires foreclosure rescue companies to provide disclosures in all their contracts, including the fact that a homeowner may be selling his or her property and that homeowners also get a "mandatory" day to consider the contract before signing it, as well as three days to back out of the agreement once it has been signed. (We applaud these moves.)
   
• An FHA Reform Bill that includes realistic and permanent increases to the new loan limits included in the recently passed Economic Stimulus package and set to expire at the end of 2008 is working its way through congress. NAR and the MBAA support this new bill and recommended their members contact their representatives to push for its passage. (Definitely needed and should be passed.)

Perhaps the biggest news though that has hit the lending industry during the past 45 days are the new proposals from HUD regarding changes to RESPA and the New Rule the Federal Reserve has proposed for the lending industry as a whole. Both include many controversial issues and are likely to be amended before their final forms are released sometime later this year.

HUD's Proposed RESPA Changes include:

• Making the Good Faith Estimate a consumer education tool. It will now include a detailed explanation of how the particular loan program works, the maximum amount for which the loan payments can rise over time, any pre-payment penalties or fees for conversion of the interest rate and provide information about escrow items like taxes and insurance. (Good idea, been doing this type of thing for years.)
• Strict limits on how much the final settlement charges can depart from the original Good Faith Estimate. Total settlement charges cannot be more than 10 percent above the initial estimates, absent definite "unforeseen circumstances" limited to acts of God, war and disasters, along with a few others. (Another good one.)
• All fees paid to mortgage brokers by a wholesale lender in connection with the interest rate charged to the consumer must now be disclosed and listed on the Good Faith Estimate as a "credit to the borrower." (The NAMB opposes this rule strenuously, arguing that competing loan originators - such as retail bank and mortgage banking personnel - are not required to disclose these fees received in connection with their loans. Can anyone say double standard here?)
• All settlement agents will now be required to read a new "closing script" to all mortgage borrowers. The script covers the various charges on the HUD-1 settlement statement, and whether and why anything differs from the earlier estimates of costs. In addition, it requires the settlement agent to explain the loan terms and mechanics as stated in the mortgage note itself to the borrower prior to the signing of the documents. (What good lenders and escrow agents have been doing for years.)

The Federal Reserve's New Lending Rule Proposals include:

• A new category of 'higher-cost' loans, which will eliminate stated and no-doc loans under any circumstance. (What are self-employed folks, especially those working on commissions, supposed to do with this one?)
• New APR triggers of 3% for 1st mortgages and 5% for 2nd/subordinate mortgages above the 10-year U.S. Treasury. (This rule will essentially cause nearly every mortgage made in America to be classified as a 'higher cost' loan and will make financing as you've known it nearly impossible any longer.)
• A new disclosure for "Mortgage Brokers only" that will require them to disclose, before application, exactly what their mortgage brokerage fee - front end and back end fees - will be on the loan and this amount will not be allowed to change. (Because the back end fee amounts for rates change daily, brokers will have no choice but to lock loans at the time of application. As such, borrowers will no longer be able to "float" their interest rates to take advantage of a falling interest rate environment nor will brokers be able to give out pre-approvals without fully locked loans which will require executed sales contracts prior to loan commitments. Doesn't take a rocket scientist to figure out the problems ahead with this one.)
• Loan Originators are required to determine that the borrower has the ability to repay the mortgage for at least 7 years at the time of application. (This one is ridiculous too, because just exactly how is anyone going to be able to say for sure a borrower will definitely be allowed to keep their job for this set period of time?)

And so, as we always say in these types of posts "and so it goes with the mortgage lending industry, one step forward and two steps back." Perhaps someday in the future, realistic guidelines will be put in place and enforced by our federal and state governments that will prevent the problems we have seen in the last few years and stop all the constant knee jerk reactions to fix things that never should have been allowed to happen in the first place. However, we wouldn't bet on it.

Metro Mortgage Company is a federally regulated Mortgage Banker specializing in Conventional, Jumbo and FHA/VA mortgage loans throughout Florida.

• Rate this Post!

  Select Your Rating:

  • 5 Stars (Excellent!)
  • 4 Stars
  • 3 Stars
  • 2 Stars
  • 1 Stars (Poor)

• Share this Post

  Share With A Friend:

  Your Name Your Email

  Friend's Name Friend's Email

  Optional Message

  Send

• Print
• Social Bookmarking

  Add to Bookmarks: