Joseph Metzler MMS UMB

FHA Changes Streamline Refinance Rules - makes it harder!

FHA streamline refinance has always been a great tool for home owners. In the most simple format, a person who currently has an FHA loan could fill out some paperwork, and close a new loan shortly thereafter with a new lower rate (payment), and with no out of pocket closing costs.

As long as the person had made their past 12 FHA loan payments on time, and had a job, you were approved. There was no appraisal, no credit score requirement, and no income or asset documents required. The client still has normal closing costs, but they could be rolled into the new loan.

The new rule revises current procedures for streamline refinance transactions to establish new requirements for loan seasoning, payment history, income verification, and demonstration of net tangible benefit to the borrower. It also provide for collection of credit score information; and to cap maximum loan-to-value at 125 percent.

A BIG CHANGE IN THE RULES will be that in order to roll in the closing costs, an appraisal will now be REQUIRED. If the loan-to-value is UNDER 125%, this shouldn't be an issue other than they now have the added cost of an appraisal. If the customer wishes to pay closing costs out-of-pocket with cash at the closing, then an appraisal will NOT be required. This rule alone will effectively kill FHA streamline refinances as we know them today as EVERYONE rolls closing costs into their new loan.

These revisions also bring NEW documentation standards for streamline refinance transactions in line with other FHA loan origination guidelines, ensures the borrower's capacity to repay the new mortgage, and prohibits the dangerous practice of loan churning, where borrowers raise cash through successive cash-out refinancing that put them further in debt.

These new rules are in part due to the increasing level of FHA foreclosures. FHA doesn't actually provide loans, rather, it guarantees loans for lenders in exchange for lenders taking on higher risk, lower credit score, and small down payment home buyers according to FHA guidelines. FHA foreclosures have increased steadily recently as the mortgage industry no longer offers sub-prime and exotic loans, leaving many potential home buyers with no other option BUT FHA.

Worried about the changes? APPLY NOW, and get your FHA streamline refinance done BEFORE the new rules take effect!

Mortgages Unlimited and the Joe Metzler Team provide FHA home loan financing

Minnesota and Wisconsin ONLY.

The FHA plans to propose to increase the net worth requirement for approved mortgagees to meet industry standards.

The requirement is currently at $250,000 and has not been increased since 1993. HUD is proposing an initial increase of approximately $1,000,000 that would be in place within one year of the enactment of this rule.

To maintain consistency with industry standards, HUD may propose that the net worth requirements be increased further in future years to a level comparable to those required by GSEs (Fannie Mae and Freddie Mac) and other market institutions.

These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund.

As with anything the government does, this proposed networth requirement is both good and bad.

GOOD: It potentially eliminates many small lenders who lack the proper knowledge, experience, and oversight.

BAD: It eliminated many small lenders who do a great job, and gives more power and control to the BIG BANK lenders. As the big banks continue to gain more control, the consumer options drop, competion drops, and ultimately, the consumer will end up paying more and get less as they deal with the application takers versus knowledgable mortgage professionals.

MORTGAGE INTEREST RATES ARE GREAT TODAY. BUT WHAT ABOUT TOMORROW?

Let's face it, mortgage interest rates have been averaging in the low 5% range, and that is great for the real estate market. But do you know where mortgage interest rates come from and why they change?

Lenders don't just make up rates! Long-term interest rates are based on Mortgage Backed Securities, also known as Mortgage Bonds. As money flows in and out of the bond market, the bond "yield" changes and the corresponding interest rate goes up or down.

May people think the 10-year Treasury Note is the correct index to "follow rates" with. While this note usually trends in he same directs as Mortgage Bonds, it is not unusual to see them move in completely opposite diretions. Be careful not to work with a Loan Officer who has their eyes on the wrong indicators.

This is a bit simplistic, but you can look at Fannie Mae and Freddie Mac as a clearing house which "buys" loans from lenders based upon rules they make, then package those loans into Mortgage Bonds, which the public buys on the bond market.

With everything going on in the mortgage world, bond players ramped DOWN the purchase of Mortgage Backed Securities. If no one buys Mortgage Bonds, there is no money for Fannie and Freddie to buy loans from lenders. If lenders can't sell the notes, they run out of money, the supply dries up, and consumers can no longer get a mortgage loan.

With no confidence in the mortgage market, bond players simply stopped buying mortgage back securities, creating a huge liquidity problem in 2007 and 2008.

In order to calm, and ease the strain on the markets, the US Treasury Department started buying up to $1.25 trillion worth of Mortgage Backed Securities which would help keep money flowing to the mortgage markets. By spring 2009, the Treasury Department was buying 2/3rds of all mortgage bonds, which has kept 30-year fixed mortgage rates artificially low.

The overall mortgage bond market has started to improve, and confidence is starting to return because "new loans" are being written to more traditional safer and strictor guidelines. Traditional private sector bond players have started to again purchase mortgage bonds, which is good, as the money pledged by the Treasury to buy bonds in expected to run out over the next few months.

Once the Treasury Department stops buying bonds, all bets are off as to what interest rates will do. If the private market continues to increase their rate of buying bonds, interest rates should continue to stay low, or increase slightly. If the private-sector doesn't carry the load, expect to see mortgage interest rates climb.

While it is too early to know exactly what is going to happen, but if you are on the fence about buying a new home or refinancing an existing home, I'd suggest you take advantage of today's mortgage interest rates RIGHT NOW.

In this market it takes an extraordinary amount of energy to get a loan closed with new regulations, lenders changing their guidelines and rates shooting up and down.

Are you working with the right Loan Officer?

For most people, a home is the biggest investment they will ever make. However, few people do the research necessary to make a good buying decision. The home-purchase process is extremely confusing for most people. With a little bit of homework, and some advice from family and friends who have been through the process before, you can make this a little easier on yourself. There is no substitute for taking the time to educate yourself before you buy or refinance a house, which typically costs you 25% to 40% of your gross income!

By far, the #1 Mistake is choosing a lender simply because they are recommended by your Realtor, or using the Realtor's affiliated companies. While your real estate agent has basic mortgage knowledge, your Realtor is not a mortgage finance expert! They are trained & licensed to help you buy & sell homes. They are NOT trained in mortgage financing! They may not know what's the best loan for you. The Realtor only gets a commission when your house closes. As a result, the Realtor may refer you to a lender that is sure to close the loan, but not necessarily the lender that has favorable rates or fees. Also, many Realtors refer you to their friends in the loan business––who again may not be able to get the best loan for you. Even if the Realtor is very professional and looking out for your best interest, you should still do homework on your own.

WARNING: Be wary of "affiliated companies" (Example: XYZ Realty Company, XYZ Mortgage, and XYZ Title Company). Usually all in the same building, and all owned by the same people. Although it is very convenient to use the affiliated lender and title company across the hall, you typically PAY for that convenience with higher rates and fees than you could find elsewhere. Sometimes the Realtor makes it sound as if you have to use their affiliated companies. YOU DON'T.

A very large portion of my business comes from Realtors referring clients to us (and we appreciate it!) But if you are already approved with a lender, and your Realtor or Builder is now 'pushing', 'forcing' or speaking negatively about your choice while pushing hard for you to use their lender or title company, it almost always means you pay more!

If your Realtor walked you across the hall to get approved with their in house lender, and you haven't gotten a SECOND OPINION, call me right now! You are entitled to a second opinion, even if you have already been pre-approved for your mortgage with them!

I recently took a loan away from a large local Real Estate Company that very aggressively twists their real estate agent's arms to get them to get you to use both their title company and mortgage company. I beat their mortgage company by $1500 in closing costs and 1/2% in interest rate. The title company I suggested using was cheaper by $400. Their purchase agreement VERBIAGE even goes as far as making is sound like your loan won't close if you use someone else.

We recommend shopping for a loan with at least 2 mortgage companies before you make a decision, maybe the one your Realtor suggested, and someone else! Remember to GET A GOOD FAITH ESTIMATE IN WRITING. There are countless stories of consumers who wind up paying higher rates or getting a loan program that was not right for them because they blindly followed their Realtor's mortgage advice.

Choosing a lender just because she/he has the lowest "quoted" rate or cost, or not getting a written good-faith estimate is also another major mistake. While interest rate is important, you have to look at the overall cost of your loan. Your largest financial transaction is too important to place in the hands of a rate quoter, or the high cost in-house lender across the hall.

This includes looking at the APR, the loan fees, as well as the discount and origination points. Some lenders include origination points in their quoted points, while other lenders add an origination point in addition to their quoted points. So when one lenders says 2 points they mean 2 points, whereas another lender means 2 points plus 1% origination. Click HERE for closing cost information.

The cost of the mortgage, however, cannot be your only criteria. There is no substitute for asking family and friends for referrals and for interviewing prospective mortgage companies. Learn how to Pick a Good Lender. You must also feel comfortable that the loan officer you are dealing with is committed to your best interests and will deliver what he/she promises. Often, the company that has the absolute lowest quoted rate (far from everyone else) may not be telling you something. It is hard to compare apples to apples, when someone is slipping you an orange. Your mortgage company is required to provide you with a written good-faith estimate of closing costs within 3 working days of receiving the application. When you do receive one from each lender, CHECK THEM CAREFULLY! All lenders have basically the same fees and costs for doing your loan. If one lender is significantly lower, chances are they are not telling you something up front. Check the other Good Faith Estimates to see what is missing.

Call me at (651) 552-3681. I will be happy to go over a competitors Good Faith Estimate with you. Also, be sure to read our article "Beware of the BAD, Good Faith Estimate.

The new "Mortgage Disclosure Improvement Act" (MDIA) starts next week (July 30 2009) and will likely seriously delay closings - especially over the next few months as unprepared lenders everywhere drop the ball until they all get comfortable and familiar with the new APR (Truth-in-Lending) disclosures.

Learn what you need to know by watching this quick video at http://www.thinkbigworksmall.com/mypage/player/tbws/12733/1110605

The Federal Reserve Board changes to consumer protection regulations for APR disclosure, while mandated with good intention, will certainly cause delays right at the last moment as FINAL numbers used to prepare the ACTUAL APR are not always known until the last moment. The new rules have such a tight tolerance that lenders will almost ALWAYS have to be redisclosed, and DELAY THE CLOSING while everyone waits for the 3 day waiting period to pass.

The Federal Reserve Board approved final rules that revise the disclosure requirements for mortgage loans under Regulation Z (Truth in Lending) . Regulation Z is a consumer protection regulation that requires lender disclosure of the cost of financing a home, and has been revised to provide greater consumer protection. The revisions are an amendment to the Truth in Lending Act (TILA) called the Mortgage Disclosure Improvement Act (MDIA) . The MDIA covers primary residences and second home applications made on or after July 30, 2009, and requires that lenders provide disclosures earlier in the mortgage process. The MDIA requires the following waiting periods:

• Lenders must give good faith estimates of mortgage loan costs ("early disclosures") within three business days after receiving an application for a mortgage loan (unchanged from current rules). The only fee that can be collected within this three day period is a nominal credit report fee.
• Lenders must wait seven business days after they provide these early disclosures before closing the loan (usually not a problem, as it takes longer than that to get every done anyway).
• If there are any changes during processing to the terms or cost of the mortgage, lenders are required to give a new disclosure with a revised annual percentage rate (APR), and wait an additional three business days before closing the loan. A change that results in an increase to the APR of 0.125% requires re-disclosure. Closing can occur no sooner than three business days after re-disclosure. "Business days" include Monday - Saturday (excluding holidays).

The burden of proof is on the lender to deliver disclosures and most will not want to make exceptions in fear of closing a loan that is out of compliance. Responsible lenders have already been doing this disclosure/re-disclosure all along. On most transactions, the actual increased time required to process loans due to MDIA may be three to seven days.

Plan on additional delays in closing your next real estate transaction as lenders adhere to the new law.

We are ready and fully prepared for the changes. Remember the lender choice reflects heavily on your future referrals. Once a deal is on the table, time becomes a critical factor. Any delay or hiccup could mean that the deal doesn't get done. There's nothing more frustrating than having a deal on the table that falls apart because it doesn't seem to be a priority to the lender who is too busy for your deal while he works on some refinances, or hasn't figured out the new laws.

That's why I make it a habit to make your problems, my problems; your obstacles become my obstacles. And I work tirelessly to get your deals funded. For properties in Minnesota or Wisconsin Only, 7 days a week, call (651) 552-3681, or E-mail me your questions.

- Joe Metzler, MMS