Nov 302017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Your mortgage credit score is based on a credit model developed almost 20 years ago, and Federal Housing Finance Agency (FHFA) Director Watt says that’s not going to change anytime soon.

Many in the credit industry acknowledge that the FICO 4 model, the use of which is required by Fannie Mae and Freddie Mac, is deficient. It doesn’t differentiate between paid and unpaid collections. Nor is it able to distinguish medical collections, which seem to have little predictive value of credit risk. It also poorly models student loan debt, which has ballooned in the last 10 years, and only incorporates negative information for rent and utility payments.

Congress is trying to force a change through The Credit Score Competition Act, which would encourage Fannie and Freddie to consider other credit scoring models, including the newer FICO 9 and VantageScore models.

Watt contends that Fannie and Freddie already consider the same or greater levels of credit data in their computer models that determine whether a borrower qualifies. He also notes the change would be quite expensive. He prefers to wait until after Fannie and Freddie merge their investment security platforms, slated for 2019.

However, Watt fails to mention that Fannie and Freddie impose a minimum credit score, which prevents folks from qualifying regardless of how Fannie and Freddie tune their computer models. Fannie and Freddie also use credit score for determining interest rates and mortgage insurance coverage.

Qualifying with rental income from Airbnb

 Loan Guidelines, Residential Mortgage  Comments Off on Qualifying with rental income from Airbnb
Nov 202017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

With the growing popularity of Airbnb and other short term rental options, Freddie Mac has updated its conventional loan guidelines to allow you to use that rental income to qualify for a mortgage. However, the conditions for inclusion are rather tight.

To use short-term rental income for qualifying, you must have a two-year history of receiving it as documented on Schedule E of your tax return. Freddie contends that short-term rental income tends to fluctuate, so a historical view is needed. You can expect Freddie to take the lower amount or an average of the two years as qualifying income. Also note that short-term rental income for your primary residence, like renting out your home during SWSX, will not count as qualifying income even if you do it every year.

Freddie announced one other significant change to its guidelines for rental income. If you don’t have at least one year of investment property experience, Freddie will limit the amount of rental income that can count as qualifying income to 30% of the net rental income from your investment property. Freddie says the limit addresses the risk that rental income is a new type of income for the borrower.

Freddie says the changes are effective Feb 9th of next year, but some lenders may implement them earlier.

The death of down payment assistance?

 Loan Guidelines, Residential Mortgage  Comments Off on The death of down payment assistance?
Nov 032017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Recent surveys indicate that saving for a down payment is one the biggest hurdles to homeownership. With rising home prices, that hurdle may seem like a moving target. Some homebuyers are turning to down payment assistance programs for help.

Well, Freddie Mac just threw cold water on one popular method of funding these programs. It’s called differential rate pricing or premium pricing. The lender provides assistance equal to 3 to 5% of the loan amount in exchange for a substantially higher interest rate. As Freddie correctly discerned, the result is a no down payment, higher-rate mortgage, which violates current conventional loan guidelines. As of 11/1, Freddie will disallow its use with low down payment loan programs.

I have not heard if Fannie Mae is planning a similar prohibition, but given that both agencies are owned by the government, one has to wonder. FHA officials have been squabbling among themselves for over a year about the legality of premium priced programs. For now, they are permitted.

If you’re struggling to find the funds for a down payment, I suggest you check out my Can I Qualify with limited savings videos for ideas. You also may want to check with your city or county for down payment assistance that doesn’t use premium pricing. Keep in mind that most of these programs have income and purchase price limits, and you may have to repay some or all of the assistance if you don’t stay in the home for 5 to 10 years.

Waive the appraisal to save some money

 Loan Guidelines, Residential Mortgage  Comments Off on Waive the appraisal to save some money
Sep 212017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Fannie Mae and Freddie Mac for a while now have allowed some borrowers who refinance their mortgages to forego an appraisal. Each has internal, computer-based valuation models, and if they feel sufficiently confident in a homeowner’s estimated value, they will accept it in lieu of an appraised value.

This month, both Fannie and Freddie announced they will start waiving appraisal requirements for some purchase transactions. The change could save a homebuyer $500 and shorten the mortgage process by a week or two.

Neither has released its formula for deciding when to offer the waiver; however, it’s expected that most waivers will go to homebuyers making large down payments, and that waivers will be offered on only 5% to 10% of transactions. Your mortgage lender will notify you of the waiver option after plugging your transaction into Fannie’s or Freddie’s computer-based underwriting system.

Even if you receive a waiver offer, you still can choose to get an appraisal. I suspect a significant number of homebuyers will waive the waiver and order an appraisal to make sure they’re not paying too much for their homes.

Get ready for larger conforming loans

 Loan Programs, Residential Mortgage  Comments Off on Get ready for larger conforming loans
Dec 012016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The maximum conforming loan limit is going up in 2017. This is the max loan size for a Fannie Mae or Freddie Mac mortgage, what we sometimes call a conventional loan. The new limit will be $424,100, up from $417k.

This is the first increase since before the financial crisis. The Housing and Economic Recovery Act of 2008 established $417k as a baseline and directed the Federal Housing Finance Agency to adjust the limit each year to account for changes in the national average home price. However, the Act required that the limit not rise until home prices had recovered to their pre-crisis level.

The FHFA set third quarter of 2007 as the official pre-crisis price level, and the price level in the third quarter of this year exceeded it by 1.7%. The increase in the loan limit matches that increase.

The new loan limit is effective Jan 1st.

Buying real estate using a trust

 Loan Guidelines, Residential Mortgage  Comments Off on Buying real estate using a trust
Sep 232015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

For financial planning purposes, homeowners occasionally choose to hold their property in a trust. I’ve had this situation arise several times recently, so it’s a good time to review some of the conventional loan guidelines concerning ownership in a trust.

Fannie Mae and Freddie Mac are in the business of lending money secured by real estate. Thus, they must be able to foreclose on the real estate in case the borrower defaults. Thus, a trust used in connection with a conventional loan must be a revocable trust, also known as a family trust. This guideline, revocable as opposed to irrevocable trust, probably stops more loans involving trusts than any other.

Also of consequence is that the grantor of the trust must be a natural person and must be a trustee, and the primary beneficiary must be the grantor. The income and assets of the grantor are used to qualify for the mortgage, and the grantor is liable for repayment of the mortgage.

Finally, it’s important to remember that Fannie and Freddie still do not allow borrowers to title property in a corporation’s name, even a single-member LLC. This is true even if the borrower agrees to be personally liable for the mortgage.

Investors: Freddie raising number of homes you can own

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on Investors: Freddie raising number of homes you can own
Aug 122015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

After the financial meltdown, Fannie Mae and Freddie Mac decided they would limit their loan programs to folks who had no more than 4 mortgaged properties. Freddie finally is raising its limit to 6. The change becomes effective 10/26.

Over at Fannie Mae, it has created a special loan program that allows up to 10 mortgaged properties, but not all lenders offer the program, and it comes with slightly higher interest rates. Freddie’s change is to its conventional loan program, so a borrower who uses the program won’t face higher rates or other hurdles.

Freddie also is removing its requirement that an investment homebuyer have a two-year history of managing investment properties and is removing the requirement that the homebuyer maintain rent loss insurance in order to qualify.

These are huge changes that should make it easier for investment property buyers to qualify for conventional financing.

Changes to conforming mortgage loan limits?

 Loan Guidelines, Residential Mortgage  Comments Off on Changes to conforming mortgage loan limits?
Aug 072015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Could the conforming loan limit change this year? The Wall Street Journal seems to think so. If it’s right, this would be the first time in a decade.

The conforming loan limit is the maximum amount you can borrow on a loan financed by Fannie Mae or Freddie Mac. In all areas of TX, that limit is $417k. (In the early 1970’s, the limit was $33k.) A loan amount above the limit is called a jumbo loan, and those loans typically have stricter qualifying criteria, such as higher down payment requirements, and traditionally have carried higher rates. By contrast, the minimum down payment for a conforming loan is 3%.

The limit is based on median home-sale prices reported by the Federal Housing Finance Agency (FHFA) with some wiggle room for higher-priced areas. The Journal notes that home prices in many housing markets have climbed back to pre-recession levels.

We’ll know this fall if FHFA makes a change, which would become effective on Jan 1st.

HARP refinance program extended again

 Loan Programs, Residential Mortgage  Comments Off on HARP refinance program extended again
May 192015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The Home Affordable Refinance Program or HARP has been a boon for homeowners wanting to refinance. The program targets underwater mortgages, but its reduced documentation requirements and favorable interest rates make it attractive to all homeowners.

The Federal Housing Finance Admin reports the program has helped 3.3 million homeowners refinance their mortgages since its inception in 2009, and it was scheduled to end at the end of this year. However, Mel Watt, Director of the FHFA recently announced a one year extension through 2016. Watt claims an additional 600,000 homeowners still could benefit from a HARP refinance.

Keep in mind the two most important restrictions of the program. To be eligible:

– Your mortgage must be owned by Fannie Mae or Freddie Mac. (Fannie and Freddie have a tool on their Web sites to help you determine that or give me a call for help.)

– And, your mortgage must have closed prior to June 1st, 2009.

If you still haven’t been able to refinance, you may want to give this program one more look. The expanded eligibility requirements might allow you to qualify even if you’ve run off the road a couple times in your financial past.

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
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

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.