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Fannie Mae Tightens Lending Guidelines

Jul 10

Posted by Rich Epstein in Economy, Mortgage News | No Comments

fannie-maeFor the first time in nearly six months, Fannie Mae is imposing strict, new guidelines on American homeowners.  This time, the hardest hit demographic is owners of 2-unit homes.

In its official announcement, Fannie Mae listed the following changes to its 2-unit financing programs, separated by occupancy type.

Primary Residence:

  • Purchase: Maximum loan-to-value drops to 80%; FICO minimum score now 640.
  • Rate Refinance: Maximum loan-to-value drops to 80%; FICO minimum score now 640.
  • Cash Out Refinance: Maximum loan-to-value drops to 75%; FICO minimum score now 680.

Investment Property:

  • Purchase: Maximum loan-to-value drops to 75%; FICO minimum score now 660.
  • Rate Refinance: Maximum loan-to-value drops to 75%; FICO minimum score now 660.
  • Cash Out Refinance: Maximum loan-to-value drops to 70%; FICO minimum score now 680.

With Fannie Mae’s new loan-to-value limits falling by as much as 15 percent, it’s a certainty that fewer 2-unit homeowners will be approved in the mortgage process. This could slow both purchase and refinance activity in the coming months.  What it does, then, by limiting the number of possible buyers is depress the home prices.  This we do not need!

However, while Fannie Mae recommends that lenders institute the new policy immediately, September 1, 2009, is the “effective date”.

Therefore, if you plan to buy a 2-unit home, or if you own one and know you’ll need to refinance it soon, it may be a good idea to move up your timeframe.  Lenders could implement the new guidelines at any time up until September 1. So please check with your lender to see where they stand.

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Mortgage Applications Rise 10.9% this Week

Jul 9

Posted by Rich Epstein in Mortgage News, Mortgage Stats | No Comments

mortgage-logoThe volume of mortgage applications filed last week rose 10.9% from the week before, spurred by a surge  in refinancings.

Applications to refinance existing home loans rebounded 15.2% for the week ended July 3, while applications for mortgages to purchase homes also increased, up 6.7%.

Overall, the pace of mortgage filings recovered from the week ended June 26, when refinancings had weakened to their lowest level since last November.

Refinancing applications made up 48.4% of all mortgage activity, up from 46.4% the week before, while adjustable-rate mortgages accounted for 4.4%, up from 4.3%.

According to the most recent survey, 30-year fixed-rate mortgages carried an average interest rate of 5.34% last week, unchanged from the week before.

To obtain this rate, the mortgage required payment of an average 1.13 points. A point is 1% of the mortgage amount, charged as prepaid interest.

Fifteen-year fixed-rate mortgages averaged 4.83% last week, up from 4.81% the week before; the mortgage required payment of an average 1.06 points to obtain the rate.


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Are Mortgage Rates Weather Related?

Jul 1

Posted by Rich Epstein in Mortgage News | No Comments

thermometerAs recorded by Freddie Mac, since 2006, 30-year fixed-rate conforming mortgage rate have made a habit of rising in May, June, July and August before settling down through football season.  This year, the “June Swoon” looks especially strong.  Mortgage rates are higher by 3/4 percent versus late-May and we’re only at the start of the summer trend.

The biggest reason why mortgage rates are up is because of inflation fears.  Inflation devalues the U.S. dollar and renders fixed-rate investments — a set that includes mortgage-backed bonds — become less attractive to investors. When the dollar is worth less, bond repayments are worth less, too.   This is why traders don’t like holding mortgage bonds in their portfolios when inflation looms — it can be a real money-loser.  So, mortgage bonds tend to sell-off when inflation is coming which, in turn, causes mortgage-backed bond prices to fall.

Bottom line for cocktail party conversation: Lower bond prices yields higher mortgage rates.

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The Mortgage Rate Roller Coaster Ride

Jun 21

Posted by Rich Epstein in Mortgage News, Mortgage Stats | No Comments

roller-coaster-2Rates for 30-year home loans fell back this week after soaring to the highest level in seven months a week earlier.  The average rate for a 30-year fixed mortgage was 5.38 percent this week, down from 5.59 percent a week earlier.

Rates had risen for three consecutive weeks after yields on long-term government debt, which are closely tied to mortgages rates, had been climbing as investors worried that the huge surplus of government debt hitting the market could trigger inflation.

But data released Wednesday suggested that inflation remains largely in check.  Though there are signs that the troubled U.S. housing market is beginning to stabilize, higher rates could threaten or slow down any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases.

Simply put, buyers have a certain amount of money they can afford to spend.  If interest rates shoot up, then house prices will have to fall to make up the difference.  The three-week run-up in rates started to slow home buyer demand.

Congress Funds Mortgage Fraud Crackdown

May 21

Posted by Rich Epstein in Mortgage News, Rhode Island Financial, TV & Radio, Uncategorized | No Comments

The FBI, Justice Department, Secret Service and Postal Service will get a combined half a billion dollars to investigate and prosecute those who engage in mortgage fraud. The FBI, Justice Department, Secret Service and Postal Service will get a combined half a billion dollars to investigate and prosecute those who engage in mortgage fraud.  President Obama signed the legislation May 20.  Important to remember; Rhode Island leads the nation in mortgage fraud.

The targets range from people who lie about their incomes on home mortgage applications to highly organized roving networks of “foreclosure relief” scammers who bilk money out of homeowners seeking mortgage modifications.  More on these gems of humanity in future posts.

Known as the Fraud Enforcement and Recovery Act of 2009, the legislation will fund new SWAT teams of fraud-busters and broaden federal legal powers to go after individuals and mortgage operations that currently get attention — if at all — only at the state or local levels.

The law also creates a Financial Crisis Inquiry Commission with broad powers to investigate who and what got us into the real estate mess, starting with the subprime boom, Wall Street hanky- panky and more recent bank failures.
How bad is mortgage fraud? The Treasury Department estimates it causes losses to consumers and the mortgage industry of anywhere from $15 billion to $25 billion a year. FBI Director Robert S. Mueller III told Congress his agency’s mortgage fraud caseload has tripled in the last three years.

Reports of potential fraud filed with the Financial Crimes Enforcement Network exceeded 65,000 in 2008 — up from about 25,000 in 2005 and just 5,400 in 2002. Officials say the recession and the end of the housing boom have actually stimulated more fraud rather than the reverse.

What do these frauds look like and where are they occurring? The Mortgage Asset Research Institute performs an annual study of the problem for the Mortgage Bankers Assn., and its 2009 report found:

* Roughly two-thirds of all frauds involve deceptions at the application stage. For example, some borrowers tell the lender they plan to occupy and use the property as their main residence, but they really plan to turn it into a rental unit. That ruse often gets the applicant a lower rate on the loan, but it’s a violation of federal law.

* About 28% of frauds last year involved deliberate misinformation about tax returns or financial statements. Fake IRS filings can be created with readily available software programs, and documentation of financial assets can be manipulated as well. Around 21% of fraudulent applications contained faked deposit verifications last year.

* Appraisal shenanigans rank high as well and were involved in about 22% of fraud cases in 2008. Appraisal fraud — typically inflated valuations intended to squeeze more mortgage money out of the lender — may well be more commonplace than the official statistics. That’s because many overvaluations are modest enough to avoid detection, but large enough to get the loan closed, thereby increasing subsequent risk of loss to the lender.

* Other widespread forms of home loan fraud include faked employment verifications, misinformation on closing or escrow documents, and credit reports or scores that have been manipulated in some way to get unqualified borrowers approved, or lower interest rates, or both.

Mortgage Rates Fall Again ~ Another Record Low

Apr 14

Posted by Rich Epstein in Mortgage News, Mortgage Stats | No Comments

101 Freddie Mac released the results of its Primary Mortgage Market Survey  in which the 30-year fixed-rate mortgage averaged 4.78 percent with an average 0.7 point for the week ending April 2, 2009, down from last week when it averaged 4.85 percent. Last year at this time, the 30-year averaged 5.88 percent. The 30-year has not been lower in the life of Freddie Mac’s weekly survey, which dates back to 1971 for the 30-year fixed rate mortgage.

The 15-year fixed rate this week averaged 4.52 percent with an average 0.7 point, down from last week when it averaged 4.58 percent. A year ago at this time, the 15-year averaged 5.42 percent. The 15-year  has never been lower in the life of Freddie Mac’s weekly survey, which dates back to 1991 for the 15-year fixed rate mortgage.

Good:Mortgage Rates Fall to 4.98% ~ Bad:How They Did It.

Mar 19

Posted by Rich Epstein in Economy, Mortgage News | No Comments

us-federalreservesystem-seal-copyThe average U.S. rate on a 30-year fixed mortgage fell to 4.98% this week as the Federal Reserve announced it would double purchases of mortgage debt as part of its effort to lower rates and lure home buyers to the market.  This is part of the Fed’s $1.15 trillion plan to buy up bonds.

Conversely, the dollar took a beating yesterday against key European counterparts; euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona.   The dollar dropped 2.7 percent as investors feared the repercussions of this action. It was the steepest one-day fall in nine years.

My Inflation 101 Manual says if there’s too much of one thing, it’s worth less.  Simply printing a trillion dollars up and dumping it into the economy band aids a problem while creating a far greater one.  Now the dollar isn’t worth as much.  Had things just been left alone, we still would have had fantastic mortgage rates and a US dollar that  had previously strengthened during the economic downturn as demand for safe and reliable U.S. Treasury bonds shot up with the stock market tanking.

We’re Number One! In Mortgage Fraud That Is.

Mar 19

Posted by Rich Epstein in Economy, Mortgage News, Rhode Island Financial | No Comments

finger1Besides Del’s Lemonade, coffee syrup and Mayoral Marinara Sauce, Rhode Island can boast one more national treasure.  We are numero uno in mortgage fraud in the country.

Since 2004, Rhode Island has been steadily on the rise. In that year, it ranked 41st, with a score of 16, meaning it had only about one-sixth its share of mortgage fraud cases. In 2005 and 2006, Rhode Island ranked 18th. And in 2007 it climbed to 5th.

Mortgage fraud is exactly what it sounds like;  falsifying some rather important information on a mortgage application to obtain a mortgage one would not qualify for under the rules. I have to mention that this fraud does not always sit squarely on the shoulders of the lenders.  Borrowers, too, have knowingly given false information to obtain these loans.  Nationally  60% of mortgage fraud cases last year stemmed from falsified applications, while 28% came from tax returns or financial statements, and 22% came from appraisals.

In Rhode Island, however most of the fraud came from the appraisal/valuation portion of the mortgage process.  Here an unbiased appraiser visits a property on behalf of the lender and determines if the property is worth the money that is being suggested to buy or refinance it.

Originators are often the origin of price inflation according to Sandy Nickol, a regional president with Republic Bancorp Inc.’s  mortgage company in Farmington Hills, Mich.

“It starts with the originator trying to make the deal happen,” says Sandy Nickol. “Sometimes you can’t close the deal unless you can get the customer a mortgage of ‘X.’ If they’re trying to pull cash out to pay off three credit cards and it doesn’t make sense to refinance today unless they can do that, the whole deal is going to hinge on an appraisal that’s high enough to do that.”


Originators know this, so some will try to talk appraisers into modifying their estimates. Experts say that isn’t too tough because those estimates rely to some degree on an appraiser’s subjective evaluation of property and market conditions.

At first glance, the process might look harmless. After all, it helps borrowers get the loans they want. But in reality, overinflated appraisals trap consumers with too much debt and lock them out of the refinance market. They can also force people into default.  Take a mortgage one shouldn’t have in the first place, combine that with a national recession, mix in the declining home values we have seen here in Rhode Island, and it’s a recipe for disaster.

Look for this activity to increase further as cash strapped people turn to refinacing homes to pay essential bills.

Rhode Island Neighborhood Stabilization Plan Specifics

Mar 3

Posted by Rich Epstein in Mortgage News, Real Estate News | No Comments

OW002508NSP Home Buyer Assistance provides up to 20% of the purchase price to income eligible homebuyers in the form of a deferred loan.  This loan does not have to be repaid if the property is kept for five years. If the property is sold within five years, then the amount borrowed, plus interest would be due.

Eligible properties include single family and multi family (up to four units) properties. Condominiums are not included in this program. The buyer must occupy the property as a primary residence – no investors.


The properties must be located in certain designated neighborhoods impacted by the foreclosure crisis and where potentially problematic loan are in great number. The cities reflected are Providence, Pawtucket, Cranston, Central Falls, Woonsocket, Johnston, Warwick, West Warwick, North Providence, East Providence and Cumberland. Refer to this map to see exactly where these areas are located.

Property values are determined by a standard residential appraisal completed by a Rhode Island licensed appraiser during the lending process, not by a sales price.

Obama to Unveil Foreclosure Prevention Details

Feb 16

Posted by Rich Epstein in Barack Obama, Mortgage News, Real Estate News | No Comments

The Obama administration this week will announce a plan with the goal of stemming mortgage foreclosures and trying to put a halt to falling real estate prices.  Obama plans to unveil his housing plan during a visit to Phoenix.   As part of his swing through western states, he is set to stop in Denver Tuesday, when he will sign the $787 billion economic-stimulus plan just passed by Congress.  Unfortunately, there are few details of the housing plan, but the buzz is the application of $50 billion to $100 billion to fund foreclosure prevention is expected.

Sounds fantastic in theory, but I’m not sure how practical the methodology.  One likely element of the plan would reduce Americans’ payments on troubled mortgages, possibly through a cut in the interest rate, the costs of which would be shared by the government and mortgage servicers.   I’m not sure how the mortgage servicers will fall in line without risking their own businesses.  The Government, at their determination, would make the reduction available to people who are at risk of defaulting.

A loan-modification program at government-backed Fannie Mae and Freddie Mac currently calls for holding monthly housing-related payments to 38% of pretax income. The new formula is likely to be as low as about 31%, according to some people.  In addition, the administration is expected to endorse a plan to allow judges to modify mortgages during bankruptcy proceedings in some circumstances, a move long opposed by the mortgage industry.  And frankly I think I see their point!  I have a hard time getting my head around the idea of the Government cherry picking through loans and re-writing them as IT sees fit.  I am all for helping out people in mortgage distress, but the Government has to work hand in hand with the lenders, not dictate to them.

The country’s three largest mortgage lenders are putting a temporary halt on foreclosures until all of this is sorted out.  Both Dems and Republicans are tossing the idea of nationalizing banks around.  Stay tuned.