Refinancing mortgage? Maybe you don’t need that appraisal after all

Editor’s Note:  The Fed is doing everything in its power to maintain the real estate bubble in order to maintain demand- by lowering credit score requirements, offering lower down payments (1 to 3%), and now removing the lender’s responsibility for home valuations.  What could go wrong?

http://www.miamiherald.com/news/business/real-estate-news/article157002859.html

Fannie Mae eases credit requirements boosting purchasing power by 22%

WOW! BIG Housing & Mortgage Easing News: This Changes Thing

https://mhanson.com/6-2-hanson-wow-big-housing-mortgage-easing-news-changes-things/

by

Fannie Mae pulls a 2006-style credit ease…this changes things.

 

QUESTION:  How do you know you that you are past mid-stage in a housing bubble? 

QUESTION:  How do you know that the overlords are worried about a housing market correction?

QUESTION:  How do you know the keepers-of-the-economy are worried that the mortgage-refi-capital-conveyor-belt coming to a halt will drag the US into recession?

 

ANSWERBecause Fannie Mae just eased credit guidelines to such a degree — specifically, ratcheted higher Debt-to-Income Ratio tolerances from 43% to 50% of GROSS INCOME – purchasing/refinancing power was increased over 20% instantly.

 

Remember, counter-cycle credit guidelines – loosening credit guidelines to fight a tightening credit cycle — is exactly what created BUBBLE 1.0 from 2003 to 2007.

 

Additionally, Fannie made it much easier for self-employed borrowers and ratcheted higher the LTV/CLTV/HCLTC allowances to 95% on all their loans (including interest only) to match the current 30-year fixed guidelines.

 

Bottom line:  This changes things at the margin;  INCREASES PUCHASE & REFINANCE POWER good credits by 22% and requires less down/equity, in order to compete with FHA. Put another way, somebody can suddenly buy 22% more house, or refinance a much larger loan, than they could previously on the same income with less down, or equity respectively.

 

Then, again, based on data I gather and watch daily it may be too late to keep house prices in the green. In fact, major, core metro regions will be printing NEGATIVE YY house prices this year;  he bubbliest parts of the San Fran Bay Area already are.

Think about it…when has .gov or the Fed ever acted truly proactively?  Perhaps Fannie’s models show house prices rolling over in the nearer-term and these changes are a hail-Mary to try to counter that.

 

BUT, this will also make it so the ultimate reversion to the mean is that much more destructive.

 

ITEM 1)  MY CHART SHOWS THAT GOING FROM 43% TO 50% DTI INCREASES PURCHASING POWER BY 22%.

43% vs 50% DTI MEANS A LOT

  1. The 1st column shows you could buy a $370k house with an income of $66k under the OLD, 43% DTI guidelines.
  2. NOW, (2nd column) you can buy a $450k house with the same income under the NEW, 50% DTI guidelines.  

Note, this assumes 20%, which is rare. At 5% down, purchase prices decline substantially but the 20% increase remains intact.

ITEM 2)  FANNIE MAE EASES GUIDELINES TO COUNTER RATE INCREASES (JUST LIKE DURING BUBBLE 1.0)

RED HIGHLIGHTS ARE MY EMPAHSIS. mH

New Fannie Mae DU Version Eases DTI Requirements

by: Jann Swanson

May 31 2017, 10:55AM

Fannie Mae has announced changes in underwriting for loans submitted to its Desktop Underwriter (DU), Version 10.1.  The new DU version will be implemented on or after the weekend of July 29. The changes are outlined in release notes issued on Tuesday and will apply to new loan casefiles submitted to DU on or after the weekend of July 29, 2017. Loan casefiles created in DU Version 10.0 and resubmitted after the weekend of July 29 will continue to be underwritten through DU Version 10.0.

Among the more significant changes accompanying the new version are the following.

  1. The maximum allowable debt-to-income (DTI) ratio that can be submitted in DU will be 50%. For DTIs between 45 and 50 percent, certain additional compensating factors will no longer be required. Cases exceeding a 50 percent DTI will receive an “ineligible” recommendation.
  2. The criteria that determines the documentation required to verify a self-employed borrower’s income will be updated and the number of DU loan casefiles eligible for the one year of personal and business tax return documentation requirements will increase.
  3. The maximum allowable LTV, CLTV, and HCLTV ratios (LTV ratios) for adjustable-rate mortgages will be aligned with fixed-rate mortgage LTV ratios for all transaction, occupancy, and property types, up to a maximum of 95%. Additional information on the effective dates of this change will be available in the Selling Guide.
  4. A loan casefile with a disputed tradeline that is approved with that information will no longer require further action. If such a loan casefile does not receive an Approve recommendation, the lender must determine the accuracy and completeness of the tradeline information. If the borrower is responsible and the information accurately and completely reports the account, then the lender may manually underwrite the loan if it is eligible. Tradelines reported as medical debt will continue to be excluded from the disputed tradeline identification and lenders are not required to investigate disputes.
  5. DU is regularly reviewed to determine if its risk analysis is appropriate. Version 10.1 will include an update to this risk assessment and it is expected to increase the percentage of Approve/Eligible recommendations received by lenders, particularly those with DTI rations between 45 and 50 percent.

The new DU version will also contain changes in or will generate new messages about underwriting issues in the following areas:

  • Income and Employment Updates
  • Property Inspection Waivers
  • Student Loan Cash-Out Refinance
  • Employment Offers
  • Multiple Financed Properties
  • Site Condo Reviews
  • Timeshares
  • Homebuyer Education

Version 10.1 will also support the final Consumer Financial Protection Bureau rule implementing amendments to the Home Mortgage Disclosure Act (HMDA) which modified the reportable data requirements related to collection of information of borrower ethnicity, race, and gender.

Fannie Mae says that with the release of the DU Version 10.1, Version 9.3 will be retired.  Effective the weekend of July 29, resubmissions of loan casefiles to the old version will not be accepted although applications and Underwriting Findings reports will still be available for viewing. To obtain an updated underwriting recommendation after the retirement date customers must create a new loan casefile.

http://www.mortgagenewsdaily.com/05312017_fannie_mae_lending.asp

Fannie Mae to lower Consumer Financial requirements in July

It’s the No. 1 reason that mortgage applicants nationwide get rejected: They’re carrying too much debt relative to their monthly incomes. It’s especially a deal-killer for millennials early in their careers who have to stretch every month to pay the rent and other bills.But here’s some good news: The country’s largest source of mortgage money, Fannie Mae, soon plans to ease its debt-to-income (DTI) requirements, potentially opening the door to home-purchase mortgages for large numbers of new buyers. Fannie will be raising its DTI ceiling from the current 45 percent to 50 percent as of July 29.DTI is essentially a ratio that compares your gross monthly income with your monthly payment on all debt accounts — credit cards, auto loans, student loans, etc., plus the projected payments on the new mortgage you are seeking. If you’ve got $7,000 in household monthly income and $3,000 in monthly debt payments, your DTI is 43 percent. If you’ve got the same income but $4,000 in debt payments, your DTI is 57 percent.

In the mortgage arena, the lower your DTI ratio, the better. The federal “qualified mortgage” rule sets the safe maximum at 43 percent, though Fannie Mae, Freddie Mac and the Federal Housing Administration all have exemptions allowing them to buy or insure loans with higher ratios.

Studies by the Federal Reserve and FICO, the credit-scoring company, have documented that high DTIs doom more mortgage applications — and are viewed more critically by lenders — than any other factor. And for good reason: If you are loaded down with monthly debts, you’re at a higher statistical risk of falling behind on your mortgage payments.

Using data spanning nearly a decade and a half, Fannie’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have good credit and are not prone to default.

“We feel very comfortable” with the increased DTI ceiling, Steve Holden, Fannie’s vice president of single family analytics, told me in an interview. “What we’re seeing is that a lot of borrowers have other factors” in their credit profiles that reduce the risks associated with slightly higher DTIs. They make significant down payments, for example, or they’ve got reserves of 12 months or more set aside to handle a financial emergency without missing a mortgage payment. As a result, analysts concluded that there’s some room to treat these applicants differently than before.

Lenders are welcoming the change. “It’s a big deal,” says Joe Petrowsky, owner of Right Trac Financial Group in the Hartford, Conn., area. “There are so many clients that end up above the 45 percent debt ratio threshold” who get rejected, he said. Now they’ve got a shot.

That doesn’t mean everybody with a DTI higher than 45 percent is going to get approved under the new policy. As an applicant, you’ll still need to be vetted by Fannie’s automated underwriting system, which examines the totality of your application, including the down payment, your income, credit scores, loan-to-value ratio and a slew of other indexes. The system weighs the good and the not-so-good in your application, and then decides whether you meet the company’s standards.

Fannie’s change may be most important to home buyers whose DTIs now limit them to just one option in the marketplace: an FHA loan. FHA traditionally has been generous when it comes to debt burdens: It allows DTIs well in excess of 50 percent for some borrowers.

But FHA has a major drawback, in Petrowsky’s view. It requires most borrowers to keep paying mortgage insurance premiums for the life of the loan — long after any real risk of financial loss to FHA has disappeared. Fannie Mae, on the other hand, uses private mortgage insurance on its low-down-payment loans, the premiums on which are canceled automatically when the principal balance drops to 78 percent of the original property value. Freddie Mac, another major player in the market, also uses private mortgage insurance and sometimes will accept loan applications with DTIs above 45 percent.

The big downside with both Fannie and Freddie: Their credit-score requirements tend to be more restrictive than FHA’s. So if you have a FICO score in the mid-600s and high debt burdens, FHA may still be your main mortgage option, even with Fannie’s new, friendlier approach on DTI.

New products could increase the number of investors shorting U.S. home loans

A sluggish mortgage-bond market could be jump-started by a new service that allows investors to short home loans.

Skeptics say the rise of derivatives on credit-risk transfer notes sold by Fannie Mae and Freddie Mac has echoes of the 2008 credit crisis, when the market plunged under the weight of collapsing subprime securities.

Fannie and Freddie – the biggest guarantors of U.S. home loans –  started transferring mortgage-default risk to bond funds and other investors in 2013 to help reduce risks to taxpayers according to Bloomberg. But the program has been generating more traction in recent months, after New York-based Vista Capital Advisors rolled out a pilot program that would eventually allow investors to bet on U.S. homeowner defaults.

Craig Phillips, a former BlackRock executive serving as head of financial markets advisory and client solutions for the Treasury Department, said credit-risk transfers will be core to U.S. housing policy.

The madness begins again with creative new derivatives and credit risk transfers that put the risk on the taxpayer.

Fannie, Freddie cut mortgage modification interest rate for first time in 2017

After four months of leaving the benchmark interest rate for standard mortgage modifications (not including HAMP mods) at an 18-month high, Fannie Mae and Freddie Mac recently announced that they are cutting the benchmark rate.

Back in January, Fannie and Freddie increased the standard mortgage modification benchmark rate from 3.875% to 4.25%. That level is the highest the benchmark rate has been since July 2015.

Now, Fannie and Freddie are cutting the benchmark rate slightly, but leaving it above 4%. The government-sponsored enterprises announced last week that they are cutting the benchmark rate to 4.125%.

The January hike marked the second straight month of an increase, after Fannie and Freddie dropped the benchmark rate throughout 2016, progressively decreasing it below 4%.

The increases also came after the GSEs dropped the standard mortgage modification benchmark interest rate to the lowest level ever, 3.5%, in August 2016.

Then, the GSEs increased the benchmark rate from 3.5% to 3.875% in December, before hiking it well above 4% in January.

And now, they’re cutting it back a bit.

The benchmark rate tracks with prevailing market rates, and the most recent data from Freddie Mac shows that interest rates have generally been the decline (with some slight modulation) over the last several months.

The standard modification program is “designed to help those borrowers who are ineligible for the Home Affordable Modification Program.”

According to the GSEs, the standard modification program is “designed to help those borrowers who are ineligible for the Home Affordable Modification Program.

Therefore, the new rate does not extend to HAMP borrowers.

The new 4.125% interest rate took effect on May 12, 2017.

CitiBank Whisteblower Richard Bowen: They’re Back! Fannie and Freddie Ride Again

By Richard Bowen

http://www.richardmbowen.com/theyre-back-fannie-and-freddie-ride-again/

It looks as if Fannie Mae and Freddie Mac have not learned from their previous enabling of banks leading to the financial crisis. In fact, it looks as if the two are still using the same business model; they are lowering even further their underwriting standards to allow loans to be underwritten, ignoring student, credit card and auto loans supposedly “paid by others.” Didn’t this kind of tactic fail before? 

Their creativity now extends to former college students who are so heavily burdened with student and other debt, so why not excuse the debt? Why not change the rules and allow mortgage lenders to ignore the debt that would prevent many students out of school to not be able to buy homes, cars, etc? Why not put them into more debt, not less and oh, by the way, maybe cripple the economy as they helped do before?!

Fannie Mae has just released new rules allowing millennial borrowers to exclude student loans, credit cards and auto loans that are “paid by someone else” when they are applying for a new mortgage. To further incent, taxpayer subsidized mortgage loans can also now be used to repay student debt.

According to Jonathan Lawless, Vice President of Customer Solutions, Fannie Mae, ”We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution, …. These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers.”

And, ironically, the person in charge of cleaning up these Wall Street rules is Craig S. Phillips, a former top executive on Morgan Stanley’s trading desk, who is now in charge to head up the effort to reform the Government-Sponsored Entities, Fannie Mae and Freddie Mac. At Morgan Stanley, Mr. Phillips headed a division that sold billions of dollars of toxic mortgages and mortgage-backed securities to Fannie, Freddie, and others.

Just this last April, Gretchen Morgenson of the New York Times wrote in an article that Mr. Phillips, then  leader of Morgan Stanley’s mortgage desk during the peak mortgage-mania years of 2004 and 2005, ran the operation that bundled loans and sold them to the two government-sponsored enterprises and many others. The loans blew up, the government sued Morgan Stanley and Mr. Phillips was a named defendant in the initial case — a case that resulted in the firm paying a $1.25 billion settlement. 

Discussing the financial crisis in December 2008 at the National Press Club, Phillips said he felt terrible about the level of government support of the financial system at that time, but government actions such as injecting capital were “critical because we can’t have systematic failure and a breakdown in all markets.” 

As I commented in a recent article, before the 2008 debacle the push was on to make housing affordable for everyone, and Congress gave directives to loosen the underwriting standards. And, although this was certainly one of the reasons Fannie and Freddie had such catastrophic losses, I strongly believe that the primary reason Fannie and Freddie had the huge losses was that they purchased many, many mortgages which did not even meet that lowered bar of creditworthiness. That is, they did not review the individual mortgages purchased but relied almost solely upon false certifications by the large bank sellers that the mortgages sold met the published standards. 

It was a perfect storm: a lack of controls, the implicit guarantee the government would stand by the loan, and the assumption that the institutions doing the lending wouldn’t go under and were providing true certifications. No one was checking. It was a circus! And still continues to be one!

The more mortgages were purchased, the more incentives went straight to Fannie and Freddie and their executives, until their collapse, when they were bailed out and placed into conservatorshipThen, in a move some have described as nationalizing the entities, the US Treasury started taking all of their profits, thus ensuring they would never be able to rebuild a capital base.

Our country is now faced with the dilemma of what to do with Fannie and Freddie. Should they be recapitalized and returned to private ownership, or should another path more favorable to the large banks be followed?

What to do with Fannie and Freddie is a huge decision now facing President Trump’s administration. Bad enough we’re encouraging – read enabling, those who may not be able to afford more debt to do so. Yet to appoint someone with Mr. Phillips’ less than clean hands to make this decision is a travesty.

H.R. 1694 Passes: Fannie and Freddie Open Records Act of 2017

Homeowners start preparing your Fannie and Freddie FOIA requests.  A brief window to submit your request may occur prior to the GSEs being privatized again.

Last week H.R. 1694  passed in the House of Representatives.

This bill will make Fannie Mae and Freddie Mac subject to the requirements of the Freedom of Information Act, which would make their records available to the public on request.

The Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) are government-sponsored enterprises (private corporations with federal charters that confer special privileges) that buy mortgages from lenders and either hold those mortgages in their portfolios or package the loans into mortgage-backed securities that may be sold.

To stabilize the housing market in the aftershock of the financial crisis, the Federal Housing Finance Agency (FHFA) used its authority in 2008 to place Fannie Mae and Freddie Mac into its conservatorship. In conservatorship, the government takes control of a failing financial institution with the goal of returning it to financial health and stockholder control. Well into their eighth year in conservatorship, they have operated under government control for longer than initially expected.

The Freedom of Information Act (FOIA; 5 U.S.C. §552) allows any person—individual or corporate, citizen or not—to request and obtain existing, identifiable, and unpublished agency records on any topic. Pursuant to FOIA, the public has presumptive access to agency records unless the material falls within any of FOIA’s nine categories of exception. Disputes over the release of records requested pursuant to FOIA can be appealed administratively, resolved through mediation, or heard in court.

Source: Republican Policy Committee

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