We posted on May 1, 2009 about HVCC on Conventional loans which stated:

Up until now the loan officer had the control to select an appraiser they felt had the best ability to appraise the house that would be used for the collateral for the mortgage loan.  That was the idea.  The problem was that some lenders would influence or coerce appraisers to appraise a property at a certain value in order to make the transaction work.

We went on to explain and quote the Home Value Code of Conduct:

the Code of Conduct also states that all members of the lender’s loan production staff…shall be forbidden from:

selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work

having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment

Those changes only impacted Conventional Mortgages.  Effective February 15, 2010 FHA Mortgages have a similar ruling.  In HUD’s Mortgagee Letter 09-28 they implemented Appraiser Independence which states:

Prohibition of mortgage brokers and commission based lender staff from the appraisal process

Although this mortgagee letter explained this was to go into effect January 1, 2010 the effective date was extended out until February 15, 2010.

So What Impact Does this Have?

Minimal.  The reason the impact of this change will be minimal is because when the HVCC ruling went into place for Conventional Mortgages many lenders adopted a similar process for FHA Mortgages, even though it wasn’t required.  Most lenders, and customers are already having to deal with this change even though it has not “officially” been in place.

Lending A Hand

Scott Wynn

The Wynn Team

• Long term mortgage rates are at 20-30 year lows
  • According to Freddie Mac, in a press release yesterday, the average rate on a 30-year fixed mortgage was 5.01% this week, up from 4.98% last week.  Last year at this time, the average rate for a 30 year fixed mortgage was 5.25%.  Rates fell to a record low of 4.71% average in early December
• FHA allows 6% seller concessions (may decrease to 3% this summer)
• FHA up front mortgage insurance is currently only 1.75% (set to increase to 2.25% on April 5)
• FHA 90 day flipping rule waiver is in effect until February 1, 2011
• CHFA (Colorado Housing and Finance Authority) has financing for buyers with credit scores as low as 580
• CHFA has down payment assistance programs available
• CHFA can offer loans with market interest rates and down payment assistance with the FirstStep Program
• CHFA MCC (Mortgage Credit Certificates) are available
• Fannie Mae is offering 3.5% incentive to buyers purchasing Fannie Mae owned properties
• HomePath financing is available for Fannie Mae owned properties
• The First Time Home Buyer Tax Credit is available
• Move Up Buyers receive a $6,500 tax credit
• Home values expected to increase from November 2009-2010

If you were on the fence before reading this, we hope this spurs you into action and clears up any confusion or questions about the benefits of purchasing now.  If you have any questions, please contact us.

Lending A Hand

Marla Wynn

The Wynn Team

• 90 Day Flipping Rule Waiver (Feb 1)
• Up-front Mortgage Insurance Premium Increase from 1.75% to 2.25% (Apr 5)
• 10% Down Payment Required for Credit Scores < 580 (Summer)
• Max Seller Contributions Decreased from 6% to 3% (Summer)

Here are the details on each of these changes:

90 Day Flipping Rule Waiver (Feb 1)

Posted on Lending a Hand on January 15, the 90 Day Flipping Waiver allows sellers who have owned the home for less than 90 days to sell to qualified FHA buyers.  Prior to this waiver the seller was required to own the property for 90 days before selling to an FHA buyer.

Up-front Mortgage Insurance Premium Increase from 1.75% to 2.25% (Apr 5)

As a part of HUD’s interest in eliminating risk on their FHA mortgage loan product, they have increased the up-front mortgage insurance premium from 1.75% to 2.25%.  This was merely the first step in changing the mortgage insurance premiums.  The next step will be to take legislative action to increase the maximum monthly mortgage insurance premium which will allow a reduction of the up-front premium.  We will have to wait and see what happens on this.

To the average customer this means that instead of paying an additional, one time fee (paid at closing or financed over the term of your loan) of 1.75%, the fee will now be 2.25%.  In terms of numbers let’s look at an example.  On a $200,000 FHA mortgage that means the cost now (1.75%) would be $3,500.  With the change to 2.25% the new cost would be $4,500 or $1,000 more in this example.  For most FHA buyers, this will increase their payment about $5-7/mo since most opt to finance this cost into their mortgage.  Not a huge impact, but still an extra $1,000 on the loan that isn’t there now.

10% Down Payment Required for Credit Scores < 580 (Summer)

Although not yet passed, this is likely to go into effect early Summer after the required process completed by HUD.  The change will require any customer with a credit score less than 580 to put 10% down on FHA loans instead of the normal 3.5%.  Currently there are very few, if any, FHA lenders willing to approve a customer with a credit score below 580 so very few potential customers will be impacted by this change.  What may happen, however, is that more FHA lenders will allow for lower than 580 score since they will be putting 10% down.  Another one we will have to wait and see what happens.

Max Seller Contributions Decreased from 6% to 3% (Summer)

The same process required on the 10% down change must occur before this change can go into effect.  Currently sellers can contribute as much as 6% towards closing costs, prepaids and up-front mortgage insurance premiums on FHA mortgages.  This change will reduce that to 3%.  Conventional mortgage loans have been capped at 3% so this isn’t something that will likely impact most people.  Those that this will impact is the lower purchase price buyer.  Let me show you why in two examples:

FHA Mortgage, 30 Year Fixed, 5% Rate, $100,000 Purchase Price with 3.5% Minimum Down

• 1% Origination Fee = $965
• Typical Closing Costs (excluding origination fee) = $1,300
• Typical Prepaid Expenses = $1,000
• Typical 3rd Party Fees = $850
• TOTAL = $4,115 (4.12%)

FHA Mortgage, 30 Year Fixed, 5% Rate, $300,000 Purchase Price with 3.5% Minimum Down

• 1% Origination Fee = $2,895
• Typical Closing Costs (excluding origination fee) = $1,300
• Typical Prepaid Expenses = $2,960
• Typical 3rd Party Fees = $850
• TOTAL = $8,005 (2.67%)

In these two examples, one at a low price and the other at a higher price, the percentage of total closing costs is much higher on the lower purchase price (4.12%) compared to the higher purchase price (2.67%).  The reason this happens is because most closing costs stay the same.  The only things that change are the origination fee (because it is a percentage of the loan amount) and the prepaids (because it varies based on the value of the home).  Under this new rule, if you were the $100,000 buyer and wanted to ask the seller to pay for all of your closing costs and prepaids you would be limited to 3% or $3,000 leaving $1,115 left for you to pay.  If you were, however, the $300,000 buyer you could ask for the full 3% and have money left over (which, by the way, is not allowed on FHA).

Those are the changes that are already approved to go into effect or will likely be changed later on in 2010.

Lending a Hand

Scott Wynn

The Wynn Team

If you are a buyer looking to buy a home with FHA mortgage financing you must buy a home from a seller who has owned that home for 90+ days or from a seller who is exempt from the rule. Here are the sellers who are exempt:

• HUD
• Government Agencies
• Qualifying Non-Profits
• Banks
• Sale as a result of inheritance
• Relocation Companies
• Fannie Mae
• Freddie Mac
• Designated Disaster Areas

The Department of Housing and Urban Development (HUD) has issued a news release indicating they will put into place a waiver to be effective February 1, 2010 removing this flipping restriction.  This will be a temporary waiver good for one year.  In order for the property to be eligible for this waiver the following criteria must be met:

• Arms-length transactions only – no identity of interest between the buyer and seller or other parties participating in the sales transaction
• Seller sells for 120% of the price they purchased the home at or less (some exceptions may apply)
• Standard FHA mortgages only – no Home Equity Conversion Mortgages (HECM) This waiver is scheduled to go into place Feb 1, 2010 for one year

For additional details visit the HUD site for the official Press Release.

This is great news to help sales go quicker than they have since HUD implemented the flipping restriction.

Lending A Hand

Scott Wynn

The Wynn Team

Effective January 1, 2010

The idea behind the new good faith estimate (GFE) is that it will more easily allow consumers to shop for mortgage loans.  To do this the new GFE combines certain fees into buckets.  One of those buckets, bucket #1, is “Origination Charge”.  Unlike the old GFE which broke out all the fees for the consumer to review the new GFE just lumps a bunch of fees into these buckets.  The new “Origination Charge” bucket includes everything that is charged by the lender for originating the loan.  On the old GFE these fees may have included, but were not limited to:

• Origination Fee
• Processing Fee
• Underwriting Fee
• Doc Prep Fee
• Funding Fee
• Tax Service Fee
• Admin Fee

Depending on the lender you selected, the state you live in and the structure of your fees/rates these “origination charges” could easily exceed 1% of the mortgage loan amount.  With the old GFE the maximum “Origination FEE” was 1%.  Until this new announcement was made the new “Origination CHARGE“, to include all of the fees listed above, was still at 1%.  FHA realized that their rules were no longer suitable given the changes to the way in which lenders are now required to disclose the fees to the consumers.

How Does this Impact You?

At first glance this may seem a bad thing for consumers with FHA eliminating their maximum 1% “origination fee”.  But upon further investigation and understanding of this change, knowing it is in direct response to the new GFE and HUD which are are meant to better protect and inform consumers when obtaining a mortgage loan.  In addition, HUD further stated in their recent statement about removing the 1% max, that “FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged”.

The new HUD and GFE are meant to be simplified by lumping fees into these buckets so that you may easily obtain several GFE’s from competing lenders and just look at the overall cost of the buckets to see who comes out better.  If you are familiar with the creation of the Truth in Lending Act, its enactment was also meant to help consumers better understand the financing they are apply for and enable better comparison from one lender to another.  What it did create was one of the most misunderstood disclosures used on the mortgage financing package due to the APR shown on that disclosure.  For a better understanding of what APR is review my previous post on the topic.

All of these changes, although made with good intentions, will, in my opinion, just complicate the process by providing less transparency from the lender to the consumer.  Instead of allowing consumers to see a break-down of all the fees they are now only going to see the buckets these fees fall in.  I believe that consumers are smart enough to be able to see the fees and do the comparison on their own, but HUD doesn’t seem to think so.  When everything surrounding this issue has settled down, I believe there will be very minimal impact to the mortgage industry and to consumers.  Ultimately, it comes down to trust.  Do you trust the lender you are working with to provide you with a great mortgage loan, protect your interests and provide great service while doing so?  If not, I would suggest finding another lender.  If so, then an extra $250 in fees probably isn’t going to make that big of a difference, considering you will have a lot less stress and actually close that loan when you are ready to close on your home purchase.

Lending A Hand

Scott Wynn

The Wynn Team