Archive for the ‘Mortgage News’ Category

A patch for the QM patch

July 14, 2020

Back in February 2020 BC (before Covid), the Qualified Mortgage Patch (QM patch) situation made headlines in the mortgage industry. And a month later, Covid took over all headlines.

The Consumer Financial Protection Bureau (CFPB) provided an update to the QM patch. For those of you who like reading, check out my previous posts on the proposed changes to QM loans and the history of how we got to QM loans.

The TL;DR version is simply… there is a debt to income exemption for those applying for a mortgage backed by Fannie Mae, Freddie Mac, FHA, VA and USDA loans. The CFPB wrote in 2014 the debt to income ratio could not exceed 43%, yet allowed a temporary “patch” to allow the loan programs listed above time to transition.

Eliminating the patch would be shattering for the mortgage industry. Conventional loans (Fannie/Freddie) allow for a debt to income ratio up to 50%, and FHA can go as high as 55%.

I know what some readers may be thinking… “someone should not be able to purchase a home with a debt load that high.” While I get the sentiment, it isn’t always straight forward as “too much debt.” Here are some examples:

  • self employed borrower writing off a lot of their gross income. This lowers what appears to be their income on paper through the “magic of accounting,” yet their real income is higher.
  • joint applicants deciding to apply with only one person. Let’s say two people are buying a home. One has great credit. The other does not. The person with great credit qualifies (barely) on their own, so on paper the debt to income ratio is high. But without the other applicant, we are not seeing the true house hold income (because the other person’s income is not on the loan).
  • Often student loans allow for income-based repayment, yet many loan programs require student loan payments to be either 1% of the balance OR an amortized payment. The higher debt to income ratio allows the higher student loan payments to be absorbed when the client actually won’t be making that high of a student loan payment.

Almost all of my clients with high debt to income ratios fit in these boxes. Meaning the real household cash flow is better than what loan guidelines allow. By requiring a maximum 43% debt to income ratio, it will really hurt many buyers out there (especially those with student loan debt).

The proposed change by the CFPB – eliminate debt to income qualification entirely (Really?ok.), and use a price based approach (measuring the loans APR to an average prime rate of a comparable transaction) as a more reasonable indication of someone’s ability to repay.

Who knows exactly what that means… how it will be implemented… or what loan guidelines will look like for documenting it… the takeaway is this… with the January 2021 deadline approaching, the CFPB is going to find a way to prevent the mortgage/housing industry from being impacted by the implementation of a hard cap of 43% on the debt to income ratio.

Who knows what the final result will be, but it appears we are going to get some sort of change to keep the industry going. If nothing else, perhaps a several year extension of the QM Patch. The last thing anyone wants right now is the slowing of the housing market during a recession!

Updated News Regarding Mortgage Forbearance….

June 3, 2020

In late April, the Mortgage Blog reported on mortgage forbearance impacts to home owners.  But policies change quickly in our 2020 pandemic world, so it is now time for a forbearance policy update.

The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, recently announced that borrowers who have opted for forbearance can now refinance or buy a new home much sooner than previously thought.  On May 19, FHFA stated that borrowers can obtain a new conventional mortgage after making three straight months of payments following the end of their forbearance period.  Before this announcement, the policy was unclear and many experts thought that homeowners would not be able to obtain a new conventional loan for 12 months after exiting forbearance.

Fannie Mae clarified two other policy details:

  • Borrowers who missed payments due to a COVID-19 financial hardship but have repaid the full amount of the missed payments will have no waiting period to obtain a new mortgage.
  • Borrowers who requested forbearance but did not actually miss a payment will also have no waiting period.

FHFA Director Mark Calabria said, “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”

Ultimately, these announcements are positive for the industry, but they do not make me change my recommendations from the prior forbearance post.  Those are: (1) If a borrower cannot make a mortgage payment, forbearance is a better option than a late payment or default, and (2) Forbearance is not a wise move for someone who still earns enough to make timely mortgage payments.  Using forbearance to skip payments to save for something else such as a down payment on an investment property will still cause the borrower to wait before obtaining a new mortgage.  Only now, the wait will not be as long as previously thought.

Do you have a friend who keeps talking about the current historically low interest rates but hasn’t taken action yet?  Connect your friend with me and I’ll help them navigate our pandemic-minded guidelines to close a new mortgage and realize potentially great monthly savings with a low rate.

Pandemic Impacts to Self-Employed Borrowers

May 19, 2020

In the world of mortgage origination and underwriting, the greatest focus is limiting risk.  COVID-19 has caused underwriting guidelines to get a little tighter as millions are unemployed, furloughed, and going into a forbearance status on mortgage payments. Today, I’ll focus on the tighter guidelines for self-employed buyers.

The guidelines can change depending on the lender you use. For example:

  • One lender now requires that self-employed borrowers asset statements show 6 months of “reserves” to cover mortgage payments after closing.  That means that the borrower’s bank statements must show enough available cash, after closing, to cover 6 months of mortgage payments.
  • One lender now requires an audited profit and loss statement from the most recent month to verify recent business performance (The word “audited” got my attention and I don’t believe I’ll be working with them on self employed buyers anytime soon).
  • Another lender now requires the following for self-employed borrowers:
    • Year to date profit and loss statement showing income consistent with previously filed tax returns.
    • Most recent three months of bank statements showing deposits consistent with sales / gross receipts specified on the P&L statement.
    • If the monthly statements show declining deposits, the underwriter will determine if the revenue decline results from an interruption from COVID or some other reason.  Ultimately, the underwriter will want to determine that the income is “stable and likely to continue” before approving the loan.

 

In this economy, it is wise for self-employed home buyers to review their filed tax returns and recent business performance and bank statements with their loan officer before searching for new homes.  A loan originator who understands new underwriting guidelines and will take the time to review details up front can save borrowers time, money, and potential disappointment.

Working at Dunwoody Mortgage, I represent some national mortgage companies that have not implemented stricter standards for the self-employed.  If you know a self-employed person who wants to buy a home in Georgia, please connect that person with me.  I will invest the time needed to best position the self-employed for underwriting approval in this changing and challenging mortgage world.

 

Mortgage Forbearance in the Covid-19 World

April 28, 2020

Many aspects of our daily lives continue to be impacted by Covid-19. From social distancing, no going out to eat, job furloughs, job layoffs, to the Paycheck Protection Program, I could go on and on.  Here at The Mortgage Blog, let’s continue to focus on Covid’s impact in the mortgage world. One important topic right is now mortgage loan forbearance.  In this post, we will explain what forbearance means and its potential implications for homeowners.

A recent Wall Street Journal article defined forbearance as follows, “The stimulus package that Congress passed in March allows homeowners with federally-backed loans to suspend monthly payments for up to a year without penalty, if they face financial hardship.”  Forbearance is when the mortgage servicer allows the borrower to pause or reduce monthly payments for a specific time period.  Forbearance does not erase the payments owed.  The borrower must repay the missed or reduced payments at a future date.  Ultimately, forbearance is not a grant with no strings attached like other stimulus components.

As the article also notes, the law does not specify how loan servicers must handle loans when forbearance ends.  Some borrowers are hearing that their loan servicers may require a balloon payment when forbearance ends.  Other loan servicers have proposed adding the delayed payments (and accrued interest) to the loan balance, thus requiring full repayment when the loan is eventually paid in full.  At this point, the federal government has not issued guidelines, so homeowners are hearing different solutions from different servicers.

Here are some important thoughts about forbearance.  First of all, if a homeowner cannot make a mortgage payment due to a job loss or income reduction, forbearance is a better option than a late payment or default.  It would be wise for homeowners who cannot pay to contact their loan servicer about forbearance.  But know that forbearance may impact the borrower’s credit.  Forbearance is better than late or missed mortgage payments, but the forbearance status is noted on a credit report.  Lenders may consider forbearance status when applying for a home loan. For example, a potential borrower must be current on their mortgage payments to apply for a conventional loan. While the CARES Act states a credit score should not be negatively impacted by forbearance, being in forbearance could still be considered in evaluating the overall credit risk of the borrower.

In other words, forbearance is not a wise move for someone who still earns enough to pay the mortgage.  Borrowers with the ability to pay should not see this as an opportunity to skip payments. For those considering using forbearance to skip mortgage payments and save money for a down payment, this is not a wise strategy. Those doing something along these lines may be sad to learn they may not be approved for a mortgage on the new home.

Ultimately, if a borrower still has their job, the wisest move is to keep making mortgage payments.  If someone finds themselves laid off or furloughed and cannot pay, forbearance is better than late or missed mortgage payments.

Do you know someone who wants to buy a home in Georgia?  If so, please refer them to me.  Dunwoody Mortgage will help home buyers navigate the new more stringent loan guidelines to successfully close on a house soon.

More changes due to Covid

April 21, 2020

I know… I know…. we’ve had our fill of Covid related news. I hear you! I know your head is probably spinning trying to keep up. Mine too! To compensate, let’s get straight to the point!

A post from earlier in April detailed changes in the mortgage industry. One of the changes focused on the increased scrutiny of continued employment due to many layoffs/furloughs throughout the country. Since the post, we’ve experienced more changes.

  • Year to Date Profit and Loss statements are often being required for self employed borrowers. This is to show stable income in the time of Covid.
  • Those getting temporary or permanent salary reductions can still qualify for a home loan. So long as we can show the updated income (pay stub reflecting the reduced pay), and the borrower still qualifies for the loan with the reduced pay, then we can proceed as normal.
  • Investment accounts had a mandatory manual reduction of 50% from the statement balance due to the losses in the stock market (if an investment account shows $200,000, then we could only use $100,000 toward the loan). With the rebound in stocks, the manual adjustment is now 30%.

While the entire experience right now can be frustrating, underwriting has shown some flexibility:

  • P&Ls: I had a client closing where half of their income is earned in the 4th quarter. If you took the first quarter earnings and multiplied by 4 to get a yearly total, the pace would be way off! I had my client compile a P&L from the first quarter in 2019 to compare it to year to date 2020 to show income is similar when compared to the same time last year. The loan was approved.
  • Normally when there is a reduction of income/hours, we need to show the reduction has been in place for a period of time (not just one pay period). Well, we have successfully closed clients after one pay period of the reduced pay so long as they still qualify for the loan with the reduced pay.
  • Updates are happening in relatively real time as the investment account requirement updated as market conditions improved.

I feel underwriting is trying to work with us during this tough time while still meeting the agency guidelines. I’ll work with my clients to present the best case for continued stability of income for those who are in the loan process and being impacted by the fallout from Covid.

Thinking of getting a home loan right now? Rates are still low for those looking to refinance… people are still out looking for homes to purchase. The housing market is still very active. Contact me today, and we can talk about how Covid will impact your ability to purchase a home (if any impact at all). If you are looking to get the loan on a property in the state of Georgia, I can gladly help you with the loan!

Covid-19 creating more changes in mortgage industry

April 2, 2020

Covid-19’s reach extends everywhere in the world. The scope of the impact is staggering. It seems like every day there is something new. Lets try and cover some of the impacts to the mortgage industry.

If you are tired of Covid coverage, then how about something completely unrelated. Who can resist watching hamsters eat burritos!

 Previous posts touched on how Covid impacts mortgage rates and changes for appraisals and foreclosures. Today, let’s touch on more changes.

  • Verification of Employment: there is no standard policy across the board right now. Just know with all of the furloughs and layoffs across the country, documenting continued paid employment is emphasized. This can range from providing additional pay stubs (even if the loan is already approved) to multiple verbal verifications of employment up to the closing date. One good thing is employers are allowed to be called on their mobile phones for these verbal verifications. This is a great change as many offices are closed and everyone is telecommuting.
  • Government loans experienced a change to qualifying credit scores. Most banks increased the minimum credit score for government loans (FHA, VA, USDA) from 580 to 660.
  • Some banks have put caps on the amount of equity that can be taken out during a cash out refinance. Not everyone has made this change. Those who implemented the cap set a limit of $50,000 maximum cash out.
  • Many banks stopped offering Jumbo loans (a Jumbo loan is a loan amount over $510,400).
  • Almost all banks offering non-Qualified Mortgages (non-QM) have stopped funding closings altogether. A non-QM loan is any loan not backed by Fannie Mae, Freddie Mac, or Ginnie Mae (FHA/VA/USDA loans).
  • The CARES Act contained language and the option for home owners impacted by Covid to request loan forbearance on their mortgage payments from their loan servicers.

A forbearance is pretty much like deferring a student loan payment. Payments do not need to be made, but interest accrues. For example, let’s say the monthly interest on a mortgage payment is $750, and six mortgage payments are deferred. This means the principal balance of the home loan is increased by $4,500.

Who qualifies? It is designed for home owners who have been directly impacted by Covid. The forbearance provision isn’t really designed for people in this category. Given the increase to one’s principal balance, forbearance also isn’t something one should use unless desperately needed.

Do you qualify? There is so much misinformation out there, be careful when investigating. I cannot stress this enough. To see if you qualify, contact your loan servicer (who you make your mortgage payment to each month). They will let you know more about applying/qualifying.

So… that is a lot!… and that is only this week. Stay tuned as The Mortgage Blog will put up more information as things unfold.

Still looking to buy a home? People are still buying and selling real estate. Looking to take advantage of historically low interest rates? If the property is in Georgia, contact me today. In a few minutes, I can get you qualified and ready for your new home loan.

Made it this far? Need a laugh? Enjoy…

The Mortgage World and COVID-19…

March 26, 2020

The Mortgage Blog has documented the recent rapid swings in mortgage interest rates based on COVID-19 economic impacts.  Now let’s look at some positive (non-interest rate) news from the mortgage world, specifically regulatory changes resulting from the massive disruption to the world economy.

First of all, Fannie Mae and Freddie Mac will ease their appraisal and employment verification standards, based on a Federal Housing Finance Agency directive.  The goal is to “facilitate liquidity in the mortgage market during the coronavirus national emergency.”  Appraisal management companies can now use “appraisal alternatives” that reduce the need for appraisers to enter homes “for eligible mortgages.”  Appraisers can use desktop appraisals and drive-by appraisals in certain circumstances.  Fannie Mae stated these alternatives may be used “when an interior inspection is not feasible because of COVID-19 concerns.”

The second source of good news is from financial regulators working to help borrowers avoid foreclosures.  On March 17, Fannie Mae, Freddie Mac, and HUD (FHA’s loan guarantor) announced that they will suspend foreclosures and evictions for 60 days to help borrowers stay in their homes while COVID-19 spreads.  The State of New York went further, as Gov. Andrew Cuomo announced that the state will enact a 90-day mortgage relief period.  Options for relief include forebearance, which allows borrowers to suspend mortgage payments for up to 12 months due to COVID-19 caused hardship.  Other options may include mortgage modifications and “other mortgage payment relief options available based on the borrower’s individual circumstances.”

I find this mortgage-market news encouraging, and hopefully it will reassure people considering a home purchase.  Just a reminder if you are thinking about a home purchase – interest rates are at very low levels historically.  From a mortgage perspective, now is still a good time to buy a home.  If you want to buy a home in the State of Georgia, reach out to me.  I promise that Dunwoody Mortgage will deliver outstanding service and will go the extra mile to close your purchase as quickly and with as little hassle as possible.

Proposed change to Qualified Mortgages

February 12, 2020

<<<For the history of Qualified Mortgages, see last week’s post.>>>

With 2021 right around the corner and no changes to Qualified Mortgages, the 43% maximum debt to income ratio cap is coming soon as the QM Patch provision is running out. The Consumer Financial Protection Bureau (CFPB) doesn’t want this to happen. What to do?

The CFPB definitely wants to keep Qualified Mortgages. The issue with the 43% debt to income cap is qualifying for a home. It is no secret housing values are continuing to rise – especially in metro areas. Also, student loan debt climbed unexpectedly since 2014. In fact, student loan debt is roughly 33% higher today than it was in 2014 (in terms of outstanding student loan debt).

Forcing the debt to income ration max to 43% (down from 50% on Conventional loans and 55% on FHA loans) would drastically impact those looking to qualify for a home loan. This is especially true of Millennials who carry the vast majority of the student loan debt.

To prevent this, the CFPB is proposing to eliminate the 43% hard cap requirement as they feel other measures can be introduced to take its place. The CFPB also proposes an extension to the QM Patch until the new provision gets implemented.

In other words, the CFPB agrees QM loans have been a good thing for the housing industry while also ensuring financially responsible loans that consumers must document they have the ability to repay. With foreclosure rates at a fraction of what they were during the crash and lower today than when QM loans were introduced, it is hard to argue.

As of this post, there is not a firm next step for the QM Patch expiration and the 43% debt to income ratio implementation. It is still set to start in 2021. This said, with the CFPB already proposing changes, it seems something will happen to ensure no harmful impacts happen to those looking to purchase a home.

Still concerned about the QM Patch expiring and how it could impact your ability to purchase a home? Contact me today. I’ll be happy to walk with you through the journey. If you are buying a home in the state of Georgia, I’m even happier to help you with the purchase!

The history of Qualified Mortgages

February 5, 2020

Six years have passed since the Consumer Financial Protection Bureau (CFPB) introduced Qualified Mortgages and the term “ability to repay.” For a loan product to be considered a Qualified Mortgage, it needs to:

  • not have excessive upfront points and fees
  • no “toxic” loan features (such as interest only, negative amortization, prepayment penalties, and balloon payments)
  • fully documented ability for the borrower to be able to repay the loan
  • maximum debt to income ratio of 43%.

The final item in the list drew the most attention. In 2014, the country was still recovering from the housing crash. Foreclosures rates were still high, and there were plenty of short sales. The CFPD didn’t want to introduce rules to hamper the housing recovery, yet standards needed to be set to ensure 2008 didn’t happen again.

The first three items in the list were obvious – especially the third item and the “ability to repay.” Loan products such as “stated income” and “no documentation” helped pave the way for the foreclosure crisis.

Making the maximum debt to income ratio at 43% also seemed logical too. The idea with the cap was to prevent home buyers from getting overextended with their debt. Again, logical as this was part of what led to the housing crash.

To prevent the debt to income provision from hampering the housing recovery, a “patch” was put into place for Fannie Mae, Freddie Mac, FHA, and VA loans allowing the 43% cap to be exceeded. The QM Patch would last seven years, and we’d see how Qualified Mortgages impacted the industry.

That was 2014… it is now 2020… so the QM Patch is coming to an end in 2021. How will this impact home buyers? Find out more next week.

Looking to buy a home in 2020? Concerned about how much home you could purchase? Think student loan debt will prevent you from owning a home? It probably won’t. If you are looking to buy a home in the state of Georgia, contact me today to find out exactly how much home you can afford!

Big VA Loan Changes for 2020!

December 12, 2019

Exciting new changes are coming for VA loans that close after January 1, 2020.  These two major changes will make it easier for military veterans to purchase a home.

The first change is that the threshold for VA jumbo loans will rise from $484,350 to $510,400.  This rise aligns with the increase in the conventional conforming loan limit.  This means that the higher VA jumbo interest rates will now apply only to loans exceeding $510,400.

The second change is expected to be 0% down payments on all VA loans.  The VA hasn’t officially released details on their max loans as of this post. Again, the expectation is no down payments will be required on VA loans in 2020.

Until now, veterans will full eligibility could obtain zero down loans on principal amounts only up to the VA jumbo threshold.  So the maximum zero down loan in 2019 is $484,350.  Loan amounts above this threshold have previously required down payments.  I won’t bore you with the complicated calculation now.  The key point is that veterans can now obtain 100% financing on homes priced up to $950,000.

This is a GREAT change for one of my current clients.  My client served for over 10 years, but the military doesn’t pay top dollar.  He and his wife were not able to save much money during his military days.  He recently started a very high paying job in Atlanta.  His credit score is over 800.  With his strong income, his debt to income ratio on a $750,000 home would fall well within VA underwriting guidelines.  He can make the monthly payments and he has a strong record of paying his bills on time.  He just has not been able to save for a significant down payment with his prior military pay.  Starting January 1, he will be able to buy that $750,000 home with zero down!  He is the “poster-child” for this VA loan change.

Do you know a military veteran here in Georgia?  Perhaps you see the Army, Navy, Air Force, or Marine Corps stickers on her car in the office parking lot.  When she complains about her commute, ask her how her life would change if she cut her commute by 30 minutes each way.  Then introduce her to me.  I’ll work to get her a great deal on a VA loan, taking advantages of the benefits she earned through her military service.  A new home closer to the office will make her life much better.