Underwriting guidelines are tightening.

The data comes from the Federal Reserve’s quarterly survey to its member banks.  The Fed asks senior bank loan officers around the country to report on “prime” residential mortgage guidelines over the most recent 3 months and whether they’ve tightened.

For the period October-December 2009:

• Roughly 1 in 4 banks said guidelines tightened
• Roughly 3 in 4 banks said guidelines were “basically unchanged”

Just 2 of 53 banks said its guidelines had loosened.

Combine the Fed’s survey with recent underwriting updates from the FHA and generally tougher standards for conventional loans and it’s clear that lenders are much more cautious about their loans than they were, say, in 2007.

Today’s home buyers and would-be refinancers face a bevy of new borrowing hurdles including:

• Higher minimum FICO scores
• Larger downpayment requirements for purchases
• Larger equity positions for refinances
• Lower debt-to-income ratios

So, if you’re on the fence about whether now is a good time to buy a home, or make that refi, consider acting sooner rather than later.  It doesn’t necessarily matter that mortgage rates are low, or that there’s an up-to-$8,000 home purchase tax credit for households that qualify.  With each passing quarter, fewer and fewer applicants are eligible to take advantage.

Posted by Bring the Blog on February 09, 2010 | Comments (0)

Those VA non-allowable closing costs are not limited to but include:

• Underwriting Fee
• Processing Fee
• Mortgage Broker Fee
• Administration Fee
• Tax Service Fee
• Wire Fee
• Escrow Fee

If the VA won’t allow the veteran to pay those fees but lender’s charge them, how do they get paid?

Sellers can pay those costs, real estate agents can pay them or the loan originator can absorb them.  I recommend that buyers and their agents ask the lender for a  good faith estimate for a “no junk fee” VA home loan prior to presenting an offer to the seller.

On a $400,000 VA home loan, the non-allowable closing costs could be as much as $4000 in California.  That equals approximately 1% of the loan amount.  If a wholesale VA mortgage rate were 5% today, the lender has two options:

• charge a $4,000 discount fee, in addition to the normal 1% loan origination fee, to absorb the VA non-allowable closing costs OR

• the buyer might elect to accept a higher mortgage rate (about .25%) so that the yield spread premium can absorb those VA non-allowable closing costs

Some real estate brokerages, like Redfin, offer a commission rebate.  That rebate can be used to pay some or all of the VA non-allowable closing costs.

Finally, the seller can but is not required to pay up to 4% of the loan amount of the buyer’s closing costs.

• The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25 percent
• The minimum down payment will climb from 3.5% to 10% if your Fico score is below 580
• Allowable seller concessions will be reduced from 6% to 3%

The FHA also plans to request legislative authority to increase the maximum annual mortgage insurance premium so it can reduce upfront costs for prospective home buyers.

The proposed changes, which apply to all FHA loans, are expected to go into effect in either spring or summer, so you may want to get that FHA loan application in sooner rather than later.

Additionally, the agency will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

• The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25 percent
• The minimum down payment will climb from 3.5% to 10% if your Fico score is below 580
• Allowable seller concessions will be reduced from 6% to 3%

The FHA also plans to request legislative authority to increase the maximum annual mortgage insurance premium so it can reduce upfront costs for prospective home buyers.

The proposed changes, which apply to all FHA loans, are expected to go into effect in either spring or summer, so you may want to get that FHA loan application in sooner rather than later.

Additionally, the agency will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

RESPA Background
The Real Estate Settlement Procedures Act, also known as RESPA, was passed by Congress in 1974 to give borrowers a clear estimate of fees that would be incurred during the mortgage process. RESPA is overseen by HUD. The purpose is to simplify forms for borrowers so they know what costs they can anticipate when they’re purchasing or refinancing.

Definition of “Application”
Even though the application process will stay the same, the definition of the actual “application” will change. HUD is now defining the application as the time at which the mortgage originator obtains 6 key pieces of information from a potential borrower:

1. Borrower’s name
2. Borrower’s SSN
3. Borrower’s gross monthly income
4. Subject property address
5. Estimated subject property value
6. Amount of mortgage loan sought

Good Faith Estimate
The mortgage originator will be required to disclose a Good Faith Estimate within 3 business days of receiving this information - but the Good Faith Estimate itself become less of an “estimate” and more of a “binding forecast” - effectively requiring the lender to cover any overages in charges incurred between application and closing.

HUD-approved “Changed Circumstances”
In some cases, HUD won’t require lenders to cover changes in fees that occur because of previously-approved circumstances beyond a lender’s control. These include Acts of God, disaster, emergencies, or if initial information is found to be inaccurate. Other circumstantial events (such as a last-minute out of town business trip requiring a Power of Attorney and new documents) would also fall under this category.

Effective Dates
These new guidelines went into effect on January 1, 2010. New Good Faith Estimate and HUD Settlement Statements will be used at the closing table. If there are any overages not covered through HUD-approved changed circumstances, the lender can “cure” these fees within a 30-day cure period if they’re not able to rectify overages at the closing.

For more details, please listen to our most recent podcast regarding the new RESPA changes.

“Probably about 30 days, but a lot of that depends on you getting the requested documentation the underwriter asks for quickly.”

There are many steps to the loan process, but as a general rule these are the highlights of the mortgage process:

1. You first complete and sign application, get initial documentation to your loan officer
2. Loan officer submits your file to the processor who then processes the file
3. Processor submits your file to the underwriter who then underwrites the file and issues an approval subject to certain conditions
4. Loan officer works with you to gather requested documentation to satisfy the conditions that the underwriter asked for
5. Once all conditions are satisfied, the final closing documents are prepared by the closing department and sent to the title company
6. You meet at the title company and sign the final closing paperwork

In 2009, as a general rule, it seems like many lenders are able to get a loan done in approximately 30-45 days - but times can vary greatly. I have heard of a few lenders closing loans in 10 days and a few that are taking 180 days.

I also expect that in 2010 it may take slightly longer as each lender figures out their internal processes to adhere to the new RESPA rules that go into effect on January 1, 2010.

Because of the large variation it takes to get your loan closed between lenders, if you are on a time schedule (if you are buying a house, you most likely have a deadline) you will want to make sure that you ask “how long will it take to close my loan?”

And don’t be surprised if your loan officer tells you 10 days.

Or 180.