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AMCs vs. Direct Contact Roughly 50/50 Post-HVCC
Nearly six weeks after the Home Valuation Code of Conduct went into effect, technology vendor Global DMS found that the number of lenders ordering appraisals through appraisal management companies was roughly the same percentage as those lenders who ordered appraisals...
Open Letter from a la mode Chairman: Reversing the damage done by the HVCC
To: Our colleagues in the real estate industry From: David Biggers, Chairman, a la mode, inc. RE: Reversing the damage done by the HVCC As many of you are aware, we’ve always been at the forefront of lobbying for and...
NAMB - HVCC Call To Action
To: All Mortgage Brokers, Real Estate Agents, Appraisers, Lenders, Home Builders, Title Agents, and Consumers From: Marc Savitt, President- National Association of Mortgage Brokers After more than a year of exhaustive negotiations with Fannie Mae, Freddie Mac, Director of FHFA...
Fannie Mae Announcement 09-19 - Clarification of Announcement 08-30, Appraisal-Related Policy Changes and Clarifications
Fannie Mae's Announcement 09-19 updates and clarifies the following appraisal and property-related topic: Clarification of Announcement 08-30, Appraisal-Related Policy Changes and Clarifications Updates to Announcement 08-30, Appraisal-Related Policy Changes and Clarifications. Market Conditions Addendum to the Appraisal Report In Announcement...
New Appraisal System (HVCC) Impacts Consumers
[The other day Appraisal Scoop posted I'm just an Appraiser. How can I do anything to impact the HVCC? , with permission from Truett D. Neathery, who suggested getting LOCALwith your activism. I belive the following article provides a good...

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Home Rescue Plan Revisited

A U.S. House of Representatives panel on Wednesday backed legislation that would overhaul a $300-billion federal mortgage guarantee fund that was meant to help struggling homeowners avoid foreclosure, but has so far failed to catch on.

The legislation will likely be considered by the House floor next week, Frank said.

"There have been a series of trials and errors here," Frank told the House Financial Services Committee, about the effort to fix the housing assistance program.

The Hope for Homeowners program was one of the first federal responses to the housing market crisis. Approved by Congress in July, it was launched in October with estimates that it would assist as many as 400,000 mortgage borrowers.

But so far only 451 applications to participate have been received, 25 loans have been closed, and the Federal Housing Administration (FHA) has insured no loans, according to the U.S. Department of Housing and Urban Development (HUD).

The proposed legislation would lower program participation standards, cut consumer costs and bring Hope for Homeowners into closer conformity with existing federal housing practices to reduce lenders' implementation costs.

Alabama Republican Rep. Spencer Bachus said he had reservations about the changes, calling them "attempts to fix a fundamentally flawed unfixable program" that will erode taxpayer protections.

The housing rescue reform is part of a package of legislation that won approval from the committee on Wednesday. It also included a safe harbor for mortgage servicers who do certain loan modifications, and would make permanent the increase in deposit insurance to $250,000 per account.

FHA’s popularity booms amid credit bust

WASHINGTON: Three years ago, the Federal Housing Administration was hardly doing any business, insuring less than two percent of all home-purchase loans.

But things have changed for the agency, created in 1934 during the Great Depression. In the year ended September 30, it insured more than eight percent of all home-purchase loans, as measured by total dollar volume. When refinancing is added in, the rise in FHA’s business is even more dramatic, jumping to an estimated 26 percent of the loan market. The FHA’s backing can loosen the purse strings of lenders, which have become pickier as foreclosure rates have climbed and credit markets have tightened. Getting a loan without putting down as much as 20 percent has become increasingly difficult. FHA loans require a down payment of just 3.5 percent and are available to anyone who is buying or refinancing a house, although they might not always be a borrower’s best bet.

The FHA does not make loans; it insures them. Borrowers are required to document their income and pay mortgage insurance. Loans are generally for 30 years, with fixed interest rates. The mortgage insurance that makes FHA loans possible also can make them more expensive than conventional loans. But they are a good option for people who might otherwise be shut out of the market or get loans with high interest rates. That includes first-time buyers and people with less-than-perfect credit, according to the FHA and lenders. For some, these loans are now the only option.

That has increasingly become the case as conventional lending has seized up, said Frank Donnelly, a member of the board of governors of the Mortgage Bankers Association of Metropolitan Washington. “If your choices are between no contract and an FHA contract, FHA looks good,” he said.

That was the situation for Bryan Kauffman and his fiancee, who found a home in Washington last fall. Although they have good incomes and decent credit scores, Kauffman said, they didn’t have a big down payment. He hadn’t researched FHA loans, but his lender, First Financial Services, brought it up as a good option. Insurance on his loan is an extra $200 a month, which he doesn’t enjoy paying. But, Kauffman said, “it’s much nicer to have a house and not have to pay rent at all.”

The government insures the loans against default, making them safer bets for providers. That money comes from the borrowers’ mortgage insurance payments — 1.75 percent of the purchase price upfront, and then usually 0.5 percent annually on the outstanding balance. The insurance premiums can be dropped when the amount owed falls to about 78 percent of the value of the home. With conventional loans, many lenders require private mortgage insurance with a down payment of less than 20 percent. Guy Cecala, publisher of Inside Mortgage Finance, said that, traditionally, FHA borrowers have been considered “A-minus” borrowers. Many lenders set a minimum credit score for FHA loans of 580, compared with the national average score of 723. A score as low as 580 could put a borrower into the subprime category, where little lending is now going on. The FHA is also more permissive than many lenders on the ratio of debt to income a borrower can have: Generally, the home loan can be up to 31 percent of gross income, while all of the borrower’s debt debt can be up to 43 percent of income.

FHA loans traditionally have higher default rates than conventional prime loans. In the third quarter of 2008, 3.7 percent of FHA loans were 90 days or more past due, compared with 2.2 percent of all loans and 1.27 percent of prime loans, according to the Mortgage Bankers Association. However, on subprime loans, that rate was 7.22 percent. The foreclosure rate on FHA loans is also traditionally higher than that of the market as a whole, though that switched at the beginning of 2008. At that point, the broader market’s rate of foreclosures started during the quarter exceeded 1 percent; FHA loans stayed below that level. While borrowers’ down payments and credit scores can be lower than what many conventional lenders are requiring, FHA loans have their own hurdles. Borrowers must fully document their income from the past two years and explain any gaps in employment. If the down payment is a gift, it must be fully documented. Documentation rules like those largely went by the wayside with traditional lenders in the days of the boom.

The FHA also requires homes to be appraised by FHA approved appraisers. As recently as two years ago, Donnelly said, the rules were strict. But the FHA has lifted some of its more onerous rules, and almost no conventional loans are being made without an appraisal, making their requirements similar.

A number of lenders said that for home buyers without big down payments, particularly first-timers, FHA loans should be considered. They won’t always be a better deal than conventional loans, but it’s worth making the comparison.

Subprime is Dead, but the FHA lives on during the refi boom

A rush of mortgage refinancings is reviving the St. Louis mortgage business, which was flat on its back just two months ago.

Rates on a 30-year mortgage averaged 4.96 percent last week, according to the national mortgage giant Freddie Mac. That was the lowest in the 38-year history of the company's survey.

Low rates are sending homeowners running to refinance. The Mortgage Bankers Association's national index of refinancing applications has risen sevenfold in the last two months.

It's welcome news in a business that spent most of 2008 in deep gloom. Among other changes in the local mortgage industry:

•The revival the Federal Housing Administration as a major player in the mortgage market. With the disappearance of subprime lending, local institutions are using FHA loans as a way to extend mortgages to borrowers with little down payment or black marks on their credit.

•The disappearance of lots of players in the mortgage business, from brokers to mortgage purchasers to paperwork processors.

•Tighter lending standards are making it harder for good borrowers to land a conventional mortgage.

When Amy Shaw heard that rates were near 5 percent, she knew the moment had come to refinance. "How could you not hear it? The word was everywhere," she said.

She and her husband own a 118-year-old house in the south St. Louis neighborhood of Benton Park. They had refinanced a year ago at about 6 percent interest. "For mortgages to go to 5 percent saves us $200 a month," she said.

Lots of other people are making the same decision. "We're doing as much business in one month now as we were doing in three months before," said H. John Frank Jr., president of Paramount Mortgage in Creve Coeur. "Now, people are working until 10 and 12 at night."

Shaw had good credit and equity in her house. She had no problem in getting a loan from Gorman & Gorman Home Loans.

Others aren't so lucky. Lenders are tightening standards for conventional mortgages — the plain vanilla loans made to people with good income and good payment histories. Some lenders have raised credit score requirements, and most are checking information on applications more carefully. "It's 'Where's this? How did you come up with that?'" Frank said.

The credit crisis began with widespread defaults on subprime mortgages — the type issued to people with inadequate income and poor credit. Many lenders didn't verify borrowers' income, and some borrowers lied about it.

The subprime mortgage business is dead, but its Depression-era granddaddy lives on. Mortgages backed by the government, mainly the Federal Housing Administration, captured a third of the mortgage market last year, according to a Mortgage Bankers Association survey.

In the St. Louis area, the FHA backed roughly 20,500 loans by mid-December, compared to 8,300 in 2007 and 6,300 in 2006, according to figures from the Department of Housing and Urban Development.

FHA quickly has emerged as the favored way for people with little down payment or problems in their credit history to land a mortgage.

Many mortgage players — including many former subprime shops — are applying to become FHA-approved lenders. There are 458 in St. Louis as of November, up from 208 two years ago.

The FHA was formed in 1934 as the government's original subprime lender in an era where it took a 50 percent down payment to get a mortgage. The agency insures loans to people with tiny down payments — just 3.5 percent of the purchase price — and it accepts more scars on credit reports than conventional lenders.

But the FHA never winked at borrowers who couldn't document their income, and it never issued loans too big to be repaid. It usually requires that mortgage payments take no more than 31 percent of the borrower's income and that all consumer debt take only 43 percent.

"FHA loans are fully documented with absolute verification of income and credit," said Neil Volkmann, a lender at First National Bank and president of the St. Louis Mortgage Bankers Association.

Partly for that reason, FHA lending was moribund during the subprime lending boom. Lenders found it easier to make subprime loans, especially when borrowers had shaky income.

The rush to refinance caught the industry flat-footed after a year spent cutting jobs. For instance, Citimortgage in O'Fallon, Mo., last month confirmed plans to cut 104 jobs, following 86 job losses announced in October and 159 in March.

Mortgage brokers also took a heavy hit. In 2007, there were 630 licensed mortgage brokers in Missouri, each employing an average of five people. Last month, the number of licenses was down to 313 and falling, according to state figures.

Mortgage brokers don't make loans themselves. Instead, they act as middlemen, matching borrowers to mortgage issuers. Local mortgage banking firms, which issue their own loans, seem to have survived last year's crunch better.

Now, some firms are finding themselves short-staffed amid the "refi" boomlet. Gorman & Gorman, for instance, recently hired six workers, bringing its staff to 35.

The refinancing rush is producing sudden changes in interest rates. "Even with in the same day, we'll see a three-eighths (percentage point) swing in rates," said Mark Gorman, president of his namesake firm.

Gorman sells his mortgages to institutions further up the financial food chain. The problem is that fewer institutions are buying mortgages these days. Some of them, such as IndyMac bank, have been seized by the government. Other sick players, such as National City, are being gobbled up by healthier banks.

The remaining players have internal limits on how many new loans they'll accept. When one hits its limit, it suddenly jacks up its interest rate. Thus the volatility.

The impact of the credit crisis hits hardest on people who need "jumbo" mortgages — those over the $417,000 limit. Before the panic, interest rates on jumbo loans were about a quarter point above conventional mortgages. Now, the difference is three percentage points, said Gorman.

Fannie Mae and Freddie Mac are the biggest buyers of mortgages in the country. They generally won't buy loans over $417,000, so lenders charge more for such loans.

Reverse Mortgage Volume Is Holding Up Well

WASHINGTON-Originations of the reverse mortgages insured by the Federal Housing Administration are holding up well in this turbulent market, according to fourth-quarter data.

FHA endorsed 27,653 reverse mortgages in the fourth quarter, compared to 115,176 for all of 2008. This shows that loan production is holding steady. But reverse mortgage lenders are still expecting a jump in refinancings due a loan limit increase that went into effect Nov. 6.

As part of a FHA modernization bill passed in July, Congress created a nationwide $417,000 loan limit for FHA reverse mortgages. (FHA calls reverse mortgages Home Equity Conversion Mortgages.)

National Reverse Mortgage Lenders Association president Peter Bell noted that a lot of seniors waited for the loan limit increase and there will be a jump in closings in January and February. NRMLA estimates that 20% of all outstanding HECMs could refinance this year.

Overall, the FHA's HECM loan endorsements rose 6.4% in 2008 over the previous calendar year, when endorsements totaled 106,000 loans, according to the Department of Housing and Urban Development's data.

Analysis by Reverse Market Insight, a consulting firm based in Aliso Viejo, Calif., discovered that Miami is the No. 1 market for reverse mortgages, with 9,561 HECMs originated in 2008, followed by Los Angeles at 4,126, Tampa at 3,956, Santa Ana, Calif., at 3,695 and Baltimore at 3,595.

Reverse Market Insight also determined that 2,949 lenders produced at least one HECM last year, a 76.5% increase over the previous year.

Meanwhile, Congress has suddenly become concerned that HUD does not have the capacity to properly monitor the influx of newly approved FHA lenders and prevent fraud and abuse in its single-family programs.

The HUD inspector general has detected flipping schemes involving HECMs where investors sell homes to elderly straw buyers.

Mortgage Matters: Smart borrowers do homework before they refinance

Another flurry of refinance activity took place last week as the federal government started to make good on its promise of purchasing $500 billion in mortgage-backed securities.

It’s easy to get caught up in the refinancing frenzy when rates begin sliding below 5 percent for a conforming 30-year fixed rate mortgage, as they did last week. However, refinancing just to refinance because everyone is doing it should not be the deciding factor.

Here’s a case in point.

I have one customer who owns a townhouse worth about $600,000. The borrower has a five-year adjustable rate mortgage with a rate in the low 5 percent range, and is nearing the time when the rate will change. The current mortgage balance is about $155,000. When rates momentarily dipped below 5 percent several weeks ago we discussed refinancing into a fixed-rate mortgage. However, the borrower balked at doing the transaction because there was a possibility that she would get an inheritance in the next couple of years that would allow her to pay off the mortgage. So it was thanks, but no thanks.

The borrower decided it didn’t make sense to absorb the cost of a refinance — until the following week when she talked to a neighbor who had just refinanced and got a rate of 4.875 percent. That conversation prompted another call to my office, and now the borrower wanted the same thing when it became available. Odd, I had offered the same rate in our original conversation, but now the borrower had to have it because the neighbor now had a better rate than she did. We locked in on Tuesday.

Sometimes, it is an ego thing that prompts people to refinance. However, the smart borrower looks at all of the possibilities, and it is the responsibility of a good loan officer to explain various strategies as well as what goes into each mortgage-rate scenario.

With that in mind, here are a few things borrowers should become familiar with and understand as they explore their various refinance opportunities.

Credit scores

Everyone has a credit score, and it typically is the starting point for any loan officer to have an intelligent discussion with a borrower about their possibilities. Credit scores range from the 300s to 800s and are a measure of a person’s creditworthiness.

In the past two years, lenders have significantly tightened requirements regarding credit scores. Two years ago, if you had a 660 credit score you typically got the going rate in the marketplace; if your score was over 700, you may have even gotten a better interest rate.

Nowadays, to get the best possible rates, a borrower’s credit score needs to be at least 720, and the higher the better. When a borrower wants to do a cash-out refinance — a riskier transaction in the eyes of the lender — a credit score lower than 720 will come with a higher interest rate.

Protect your credit score at all costs. A recent 30-day late on a credit report can drop a score significantly. If you think a creditor has improperly reported you late to the credit bureaus, contest it and call the creditor to see if it can be removed from the credit report.

I like to call this a “test of wills” because experience has taught me that creditors are quick to throw a “derogatory” on a credit report, but slow to remove them. And if you do get a creditor to remove a late payment from a credit report, make sure that you get documentation sent to you on letterhead with specific account information and an explanation that the late payment was reported in error.

Appraisals

With values going down just about everywhere, be realistic on what your house is worth. If you purchased two years ago and still think the house is worth what you paid for it, you are probably wrong. And it is probably fair to say that if an appraiser to going to err, it will be on the conservative side.

In addition, many lenders will use their own Automated Valuation Models — known as AVMs — to validate an appraiser’s conclusions. If there is a significant difference, a second appraisal may be required. In fact, FHA has just issued a new directive that if a borrower seeks a cash-out refinance that goes beyond 85 percent of the value of the home, then it will require two appraisals to be done.

Be prepared that your home may not appraise for what you think it is worth, and that might kill the deal.

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