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Government to step in with new refinance options?

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Minneapolis, MN: Many reports have surfaced recently that the government is seriously considering a wide range of ideas to assist consumers in refinancing their homes loans owned by Fannie Mae and Freddie Mac to take advantage of today’s amazing low interest rates. For a variety of reason, mostly to due to negative equity or current tighter credit underwriting guidelines, large numbers of these homeowners have been left to the sidelines.

As a Loan Officer, I have never fully understood some of the silliness in some underwriting guidelines, and have a few suggestions.

If Fannie Mae or Freddie Mac (you and I since the government took the over during the peek of the credit crunch) already “own your loan”, you are current with your payments, and your basic financial position is OK, what does it matter if your home is underwater? They already own the the loan, and have all the risk. Wouldn’t lowering their payment reduce the risk and simply make sense?

While allowing these people to refinance, I would add one rule…  That being that you couldn’t “go backwards”. In other words, if the homeowner currently has a 30-yr fixed mortgage with 26-year remaining, they would not be allowed to have a new loan longer than 26-years.

While it is little know, and even less used as most people select a very traditional 15-yr, 20-yr, or 30-year mortgage, many mortgage lenders (including us) allow you to select any number of years you wish. If you want a 17-yr fixed, or the aforementioned 26-yr fixed, no problem. We can do that.

For FHA loan holders, a quick, immediate fix is possible to help those people refinance by simply changing a mortgage insurance rule. Allow people with existing FHA loans to refinance with their current mortgage insurance rate.

Everyday I speak with homeowners with FHA loans, where I could easily lower their interest rate by 1% – 1.5%, but it makes no financial sense for them to do it.

FHA loans all have mortgage insurance. Up until recently, the cost of the insurance, which is included in their monthly payment, was just 0.55% of their loan amount. A simple way to understand the cost, is on a $200,000 mortgage loan, the insurance costs $110 per month.

Last year, FHA increased the insurance to 1.15%. So on the same $200,000 loan, the monthly cost is now $230! YIKES. The higher insurance cost eats up most, if not all of their potential monthly savings, leaving many FHA homeowners unable to take advantage of today’s low mortgage rates.

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New Appraisal Rules starting in Sept 2011

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Appraisals are changing again.

Fannie Mae and and Freddie Mae have decided to change the way appraisers describe the quality and condition of homes.

Appraisers have always described properties as being: Good, Average, Fair or Poor – sometimes adding “very good” or “excellent” or fudging with “low-average” or “average-” – knowing that a lower condition or quality review of the home as fair or poor – you probably killed the deal.

Going forward, appraisers will need to define condition on a C1 – to – C6 scale and quality on a Q1 to Q6 scale.  1 is considered the best – for condition a new or unlived in dwelling.  A C6 condition is a property with substantial damage or other major maintenance issues.

For views, appraisers will need to use the following codes: A, B or N — what do they mean: A = adverse (hurts value or marketability); B = Beneficial (that’s good) and N = Neutral.  and if it is a view lot – how about B;MTn;Wtr — what?  Are you confused yet?

Now if you have 2 and 1/2 baths the correct way to show the count will be 2.1 and if the house has 2 1/2 baths = 2.2

For Kitchens and baths we will need to report if they have been “updated” “not updated” or “remodeled” and if the work was done in less than 1-year; 1-5 years, 6-10 years, 11-15 years ago or unknown.  An updated bath might have a new toilet, and remodeled bath an all new shower.

The change is designed to give more specific information. By using numbers, and not wiggle words like “average”, will help in underwriting loans.

The worse news is, homes rated Q5 and Q6 will NOT be allowed to be sold on the secondary market.  So if an appraisal comes back as a Q5 or Q6 (something few of us will know in advance), the loan likely will be denied by your lender.

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The newest NEW Good Faith Estimate for 2011

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On January 1, 2010, the government came out with a new Good Faith Estimate document for home buyers. The new document, supposedly designed to help consumers better shop for a mortgage, was and is a complete flop.

A year later, they are testing a new, new Good Faith Estimate from the new Consumer Financial Protection Bureau. You can give your input to the CFPB… Watch to learn how.

What do YOU think? Is this one a flop too? Post below!

Buy New Construction or Existing Homes and Foreclosures?

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St Paul, MN: New construction is suffering.

The lowest NEW housing construction numbers since 1963 when the USA had 120  million LESS people have just been reported. There are many reasons for this, but the fact remains, right now is one of the best times to buy a house, and first time home buyers are missing the boat standing on the sidelines. Builders are fighting back, and we all should be concerned as new construction is a major economic backbone in this country.

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