Fannie/Freddie to charge more for high credit scores

 Residential Mortgage  Comments Off on Fannie/Freddie to charge more for high credit scores
Apr 232015

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By G. Steven Bray

Fannie Mae and Freddie Mac charge fees when you get a mortgage based on the loan characteristics, such as your credit score and the size of your down payment. You usually don’t see these fees because they’re built into your interest rate. However, in some cases, the fees can push up your rate as much as half a point.

Fannie and Freddie’s regulator is directing them to change these fees. For all borrowers, gone is the “adverse market” fee instituted to recapitalize Fannie and Freddie after the financial crisis. For a $200k loan, that will save you $500. They’re increasing fees slightly for rental property and cash-out loans based on the higher perceived risk. They also are increasing the fee for borrowers who use a second-lien to avoid mortgage insurance for the same reason. The changes add $250 and $750, respectively, for a $200k loan.

The higher fees may make sense for these loans because they are considered risker. What doesn’t make sense is the fee increase for borrowers with high credit scores or who make larger down payments. The regulator also failed to preserve the adverse market fee for East Coast states that have ridiculously high foreclosure costs as it had previously indicated it would do. Both of these changes make me wonder whether politics hasn’t trumped economics as both seem disassociated from market realities.

The changes take effect Sep 1st.

Act quickly if you want a reverse mortgage

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on Act quickly if you want a reverse mortgage
Apr 222015

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By G. Steven Bray

FHA-insured reverse mortgages have been a fairly painless way for seniors to tap into their home equity. FHA has not evaluated applicants’ income, credit, and assets under the assumption that because the borrowers are receiving money that their financial situation is unimportant.

But with the housing downturn, FHA took a bath on reverse mortgages, and it ran into problems with seniors failing to pay property taxes and insurance. As a result, FHA has decided that starting Apr 27th it will only offer the program to seniors who can demonstrate an ability to maintain their homes. FHA calls it a financial assessment, and the evaluation criteria mean that applying for a reverse mortgage will be a lot like applying for a standard forward mortgage. Prepare to provide tax returns, account statements, and other documentation of your financial situation. In addition, now the lender will review a credit report.

If the financial assessment indicates you may have difficulty paying your property taxes and insurance, you’ll be required to set aside part of the mortgage proceeds, similar to way borrowers escrow for taxes and insurance with a forward mortgage.

It appears the changes will disqualify weaker borrowers regardless of how much equity they have in their homes. And given the losses FHA incurred on the program, that probably was the plan. To beat the changes you need to apply before Apr 27th.

Rate update: Quiet may be coming to an end

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Quiet may be coming to an end
Apr 212015

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By G. Steven Bray

The past couple weeks have been an unusually quiet period for mortgage rates, but why? US Economic data hasn’t missed expectations enough to warrant attention. Other economies, while still demonstrating weakness, haven’t provided any surprising headlines. World hot spots aren’t bubbling over. While the quiet represents a pleasant change, based on history, it probably won’t last much longer.

Later this week, the Greek debt drama may come to a head. It seems likely Greece will default of required debt payments, but it may make no difference to interest rates. The Greek drama seems old news to markets now.

Of greater import is next week’s Federal Reserve meeting. April was the earliest month mentioned for the Fed to start raising short-term interest rates, but very few analysts expect that to happen. Most expect the Fed will wait until later in the year. However, markets will watch the Fed’s commentary very carefully for its assessment of the strength of the economy and hints of a firm start date for rate hikes. Any deviation from expectations will affect rates, although I think the risk is greater for rates to rise. Should the Fed indicate the economy is strengthening, rates could rise quickly to levels we haven’t seen since late last year.

Recovering from damaged credit – Part 2

 Credit Scoring  Comments Off on Recovering from damaged credit – Part 2
Apr 162015

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By G. Steven Bray

Yesterday, we discussed the need to reestablish lines of credit after financial hardship. You may have a tough time getting a major bank credit card with damaged credit, but there are other options.

If you have some savings, consider a secured credit card. This is a major credit card, like Visa or MasterCard, with the credit limit typically limited to the amount of your savings. That’s fine because the credit limit isn’t terribly important. What is important is that you use the card at least occasionally and keep the balance paid on time.

If you’re planning an appliance or furniture purchase, ask if the store has a credit program. Typically, these loans allow you to pay off the purchase over a fixed term.

If you need a car, a number of creditors specialize in car loans to folks with damaged credit.

Finally, even if you can’t get a major credit card, you might qualify for a department store or gas company credit card.

To qualify you for a mortgage, I want to see at least two or three accounts that have been active for at least 12 months.

And, here’s the most important advice I can give you. Make all your payments on time if you want your credit scores to improve.

Recovering from damaged credit

 Credit Scoring  Comments Off on Recovering from damaged credit
Apr 152015

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By G. Steven Bray

You don’t have to let financial hardship define your credit future. Too often, I see folks who experience a bankruptcy, foreclosure, or just financial hard times give up on credit because the hardship trashes their credit scores. I will grant you that it can be difficult to qualify for a home purchase after one of these credit disasters, but if you’re proactive, you can qualify in only a couple years.

First, understand that the bad credit isn’t going to magically disappear. Yes, there are companies that specialize in cleaning up bad credit for a fee, but they can’t make legitimate negative information go away. If you’ve experienced a bankruptcy or foreclosure, it’s improbable anyone can unring that bell.

Instead of trying to rewrite history, your job is to offset the bad credit with good credit. To that end, it’s important that you reestablish lines of credit. You may have a tough time getting a major bank credit card, but there are other options.

We’ll discuss those in tomorrow’s Star Bits.

Rate update: Rates stuck in neutral

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates stuck in neutral
Apr 142015

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By G. Steven Bray

After some volatility following the jobs report at the beginning of the month, mortgage rates have moved very little. The jobs report got tongues wagging about whether the Federal Reserve would delay raising interest rates, but it seems markets want further proof before they allow rates to trend lower again. At the same time, recent weak economic numbers are negating any pressure for rates to move higher.

So, what could change that? The biggest economic report this week is Retail Sales on Tues. Consumer spending makes up a huge portion of the US economy. Analysts have been predicting an acceleration in spending due to lower gas prices, but so far consumers have disappointed them. Should that change, rates could trend higher.

But even if US economic data starts to trend up again, overseas situations will continue to counterbalance any upward pressure on rates. It also seems more likely one of those situations will cause the next big move in rates.

If you really hate your bank…

 Residential Mortgage  Comments Off on If you really hate your bank…
Apr 102015

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By G. Steven Bray

The Consumer Financial Protection Bureau (CFPB) has launched a new Web site to solicit complaints about creditors. Handling consumer complaints isn’t new for the CFPB. What is new is you can gripe anonymously, and the CFPB won’t attempt to verify your story regardless of how outlandish it may be.

Think your lender screwed you on that late payment? Flame them with a post on the CFPB site for the whole world to see.

The CFPB readily admits that most consumer complaints it receives are baseless, and only 7% last year resulted in monetary relief, but the CFPB thinks it’s important to support victimhood.

The CFPB says it launched the site at the urging of consumer advocacy groups, and those groups are most likely to benefit from it. Recent history suggests the groups use consumer complaints to shake down banks for operating funds. It’s cheaper to toss half a million dollars at ACORN than to battle them in court, and it’s easier on the reputation. Consumers will view the stories as credible because they appear on a government Web site, and the press has a poor record of correcting the story when complaints turn out to be bogus.

It’s a shame the CFPB continues to make creditors the pariahs of the economy. It just makes it that much harder for an economic recovery to take hold.

Living off the grid with a mortgage

 Loan Guidelines, Residential Mortgage  Comments Off on Living off the grid with a mortgage
Apr 082015

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By G. Steven Bray

I realize it sounds a little silly to live off the grid yet rely on a mortgage to buy a home, but let’s investigate the possibilities of producing your own electricity. Solar panels are becoming more commonplace and more economically practical. How do they affect your ability to qualify for a mortgage?

If the home seller owns the panels, your only issue should be one of value. It’s not clear the market (or appraisers) believes solar panels are worth as much as it costs to install them. If the home’s appraised value is low, you will have to come up with some cash to cover the shortfall if you want the home.

If the seller leases the panels, we have a lot more issues. Among them are:

– the lease payment will be added to your debts when determining if you qualify. If you’re pushing the debt limit on qualifying, this could put you past the limit;

– and, the company that leased the panels must take responsibility for any damage they might cause while installed or when removed.

Finally, whether the panels are leased or owned, the home must remain connected to traditional electrical lines. Even if the panels generate enough power for 3 homes, you still have to be connected to the grid.

Rate update: Weak jobs report helps keep rates low

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Weak jobs report helps keep rates low
Apr 072015

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By G. Steven Bray

As I mentioned last week, an underwhelming jobs report could tip market sentiment in favor of lower mortgage rates, and the initial reaction to the report did just that. But a change in sentiment should have staying power, and this week’s market rebound is testing that.

The media message is the weak report may give the Federal Reserve reason to hold off raising interest rates until later in the year, but I think those reporters missed an important element of the report. While the rate of job growth slowed, the rate of wage growth increased. That’s been the missing piece of the jobs recovery, and now we’ve seen wage growth in 2 of the first 3 months of this year. I’d bet the Fed is eyeing this data point more closely than the jobs number.

I throw that out as a caution. Should economic data continue to disappoint, rates are more likely to respond to events overseas than data at home, and overseas continues to be a scary place. That’s good for low rates.