Cool Tools News Spool

Month: November 2014

  • Return of 3% down payment mortgage

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    If FHFA Director Mel Watt has his way, we’ll have 3% down conventional loans again soon, but he’ll have to overcome criticism that lower down payments represent a return to the policies that led to the housing crash.

    Watt said the loan program he envisions would have tougher requirements, such as stronger credit histories or housing counseling, and Fannie Mae’s CEO claimed the new Dodd-Frank regulations will ensure borrowers can afford to repay the loans.

    Some independent analysis supports the safety of the proposed program. An Urban Institute study found that credit scores were a much better predictor of default risk than down payment size. It concluded that allowing loans with down payments less than the current 5% limit should have a negligible effect on default risk.

    Critics point out that it’s not the ability to repay that concerns them, but the ability to weather another decline in home values. It’s undeniable that having “no skin in the game” was a factor in some homeowners strategically defaulting on their underwater mortgages.

    Still others worry that this is “just the camel’s nose under the tent.” They say it’s naive to think this won’t lead to a further erosion of underwriting standards over time.

    However this plays out, I think Watt is being politically astute in sharing his plan with various interest groups and Congress. FHFA can change the minimum down payment requirement without Congressional approval, but I suspect Watt would like the cover that a broad consensus would give him.

  • New USDA mortgage maps could take effect in Dec

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    We talked a while back about the new USDA guaranteed housing maps and how the changes could impact suburban areas in Texas. Implementation of the new maps was delayed when Congress funded the government using a continuing resolution back in Sep. The continuing resolution expires Dec 11th, and the expiration ends the delay for the new maps.

    Or does it? Some folks in the real estate industry have suggested given the results of the mid-term elections that Congress will pass another short term continuing resolution and leave funding the government to the next Congress when Republicans will control both chambers. If that happens, these folks expect Congress to extend the current maps yet again.

    However, I think that’s far from certain. Recent media reports indicate Republican leaders are considering agreeing to fund the government for the remainder of the fiscal year rather than risk a game of fiscal chicken with the president that could result in a government shutdown.

    This issue is particularly urgent given that any USDA applications that haven’t been approved by the end of the month will have to start the application process again. If your customer is using a USDA loan and expects to close in the next month, pay attention to the loan status. If Congress doesn’t extend the maps, you could find USDA pulling the eligibility map out from under your contract.

    I’ve included a link to the USDA eligibility Web site at the end of my blog. From it, you can view both the existing and new property eligibility maps.

    USDA Eligibility Web site

  • USDA will stop accepting mortgage applications

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    We’ve talked in the past about the pending changes to the USDA rural development mortgage program. In order to implement the changes in its computer system, USDA has decided not to accept applications during the last week of Nov. The reason stems from the large backlog of applications in many states. USDA doesn’t feel it can maintain two processing systems, so it will process the applications it receives by the 21st under the old system. It will process applications it receives starting on Dec 1st using the new system. During the last week of Nov, USDA will play catch up.

    Given that the outage period is during Thanksgiving week, I hope the impact will be minimal, except on the USDA employees who get to work overtime. However, there is one area of concern. USDA acknowledged that if it is unable to work through the backlog of applications, any that are not processed will be returned to the lenders unapproved. For these applications, borrowers would have to sign new documents, and lenders would have to underwrite the applications again before submitting them to USDA for approval. This potentially could add another week or two to the loan processing time.

    The takeaway from this is that if you have a customer using a USDA loan, and you want to close in early Dec, encourage all parties to act with urgency. You want USDA to receive that loan package well before the Nov 21st cutoff date, if possible.

  • Misinformation hurts 1st-time homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    I see this statement way too often. “People have a hard time qualifying for a mortgage because they cannot afford the 20% down payment.” I see it in newspaper articles, which is unfortunate, but I also see it in articles written by industry insiders who should know better.

    Wells Fargo recently conducted a survey of homebuying attitudes, and 44% think a minimum 20% down payment is needed to buy a home, and respondents cited a lack of these funds as one of the biggest obstacles to buying a home. This astounded me. The same survey showed 68% think now is a good time to buy a home, yet the previous stat suggests almost half of them are sidelined because they don’t know they can qualify with as little as 3.5% down (and zero down for the military and for rural properties).

    Another survey result that caught my eye is 64% of respondents think someone must have very good credit to buy a home. This one didn’t surprise me as much because of media reports, but it still disappoints. The statement is true only when compared to the mid-aughts when lenders abounded for borrowers with 500 credit scores. Today, most lenders will accept credit scores of 620, which is truly fair credit, and I’ve seen a couple niche lenders that will allow as low as 580.

    I encourage you to help me educate potential homebuyers, especially first timers. Let’s get these folks back in the market. There are lots of good resources out there, and our Web site isn’t a bad place to start.