Posts Tagged Fannie Mae
Many people earn part or all of their income from commissions. Commission income is permissible for mortgage loan qualification if a few requirements are met.
Generally, Conventional, FHA and VA loans require that the applicant have received the commission income for at least two years. The amount of income used to qualify will be based on an average of the past two years of commissions. Commission income should for the most part also show increases from year to year.
There are some borrowers that will qualify with less than the two years of commission income. These would be people that work for a company on a regular basis, but get paid piece work; such as auto mechanics, auto body repair technicians, medical billing transcribers and others that work a steady job for a company, but that company has chosen to treat their employees as private contractors. In such cases less than two years of commission income is permissible, however there must be at least twelve (12) months of commission income and a year of tax returns filed with commission income.
It is by no means a deal-killer if you’ve recently gone from being W-2’d to 1099’d, but you do have to have received 1099 income for at least twelve (12) months and filed tax returns with such before it can be counted as qualifying income for a mortgage loan, and must be documentable as continuing in the future.
As always, don’t hesitate to contact me with any questions you may have.
The Federal Housing Finance Agency (FHFA), who oversees Fannie Mae and Freddie Mac, released the HARP 2.0 “Obama Refinance” guidance to lenders this week. The new HARP (Home Affordable Refinance Program) program is a concerted effort by the government to refinance more homes and reduce monthly payments for home owners that are underwater and can’t obtain a traditional refinance. This is being accomplished by expanding the guidelines to, what I feel, more accurately reflects the current state of the real estate market. The original HARP program was simply too small a box and therefore didn’t help all the home owners it was intended to.
Now that lenders have guidance from FHFA they will develop their own guidelines, or “overlays”. An example of an overlay is Fannie Mae says an appraisal is not needed but the lender requires it to reduce their risk, or Fannie Mae says “this loan program is available to borrowers with credit scores down to 580” but the lender sets their threshold at 620.
So here are the highlights of the new HARP 2.0 program as told by FHFA. These could change and requirements could be different from lender to lender, though.
Applications for HARP 2.0 refinancing will be accepted after December 1, 2011.
Deadline for application for a refinance under HARP has been extended to December 31, 2013.
Most loans owned by Fannie Mae and Freddie Mac will be eligible for a HARP 2.0 refinance. Loans that are not are subprime loans and those that allow negative amortization, such as Option ARMS.
Loan-to-value limits for all occupancy types:
- No maximum LTV for fixed-rate mortgages with terms up to 30 years.
- 105% for fixed-rate loans with terms greater than 30 years and up to 40 years
- 105% LTV for ARMs with initial fixed periods greater than or equal to five years and terms up to 40 years (as permitted by the ARM plan).
Borrowers must not have any late mortgage payments in the past 6 months.
One 30-day late mortgage payment is permitted in the prior 7 to 12 months.
The waiting period to refinance after a bankruptcy and for reestablishment of credit has been lifted.
The borrower must receive a benefit in the form of either a reduced monthly mortgage payment or a more stable loan product, such as refinancing a adjustable-rate mortgage into a fixed-rate mortgage.
If the current loan has mortgage insurance, mortgage insurance will also be required on the new mortgage.
If the current loan does not have mortgage insurance, mortgage insurance will not required on the new loan.
Loans that currently have lender-paid mortgage insurance (LPMI) are eligible for HARP 2.0 based on some restrictions. I found under HARP 1.0 that loans with LPMI are eligible on a case-by-case basis determined by the terms of the loan set by the lender Fannie Mae or Freddie Mac bought the loan from. So check with a mortgage professional who will have to contact Fannie Mae or Freddie Mac in regards to the eligibility of your loan with lender-paid mortgage insurance being refinanced under HARP 2.0.
Unless the payment is increasing by 20% or more (such as could happen by moving to a 20 or 15 year loan) or funds must be brought-in to the closing for some reason or another, the borrower should not have to re-qualify in regards to credit, income and assets to receive the mortgage refinance. In other words, no income and asset documentation will be needed in most cases. This could change by lender based on their overlays.
An appraisal may not be needed, but as noted above, each lender will detail their guidelines for items such as this.
Fannie Mae is significantly reducing the maximum amount of loan-level price adjustments that apply to “HARP” mortgage loans. Loan-level price adjustments, or LLPAs, are those factors that result in a borrower with lower credit scores and/or higher loan-to-value’s receiving a higher interest rate than borrowers with higher credit scores and/or lower loan-to-values. In short, they are “risk-adjusters”: The higher the risk to the lender, Fannie, Freddie and Wall Street, the higher the interest rate for the borrower. What this all means to you is that although you may qualify at a higher interest rate because of a lower FICO score, that rate won’t be as high as it was under HARP 1.0.
In the next couple of weeks we’ll see how all this shakes-out with the lenders for Utah home owners.
Below is some excerpts from the recent news release from the FHFA regarding the new HARP 2.0 “Obama” refinance program that will give you a general overview of what Utah homeowners can expect. After seeing that HARP 1.0 wasn’t expansive enough on the loans that are eligible for refinance and not enough homeowners were being helped, President Obama urged the FHFA to expand the program. An added benefit is that if more Utah homeowners have a lower mortgage payment that extra couple of hundred a month could be used to purchase items that they’ve been holding-off on for a while, thus helping to stimulate the economy, and with increased demand for products and services comes an increased demand for employees to fill those needs.
Another added benefit to Utahans who want to gain-back equity and pay their home off quicker, is the ability to refinance into a 20 year or 15 year mortgage at a much lower interest rate, making their monthly mortgage payment virtually the same as their current 30-year mortgage at a higher rate. You’ll see in the examples below that an underwater homeowner in Utah could again have equity in as little at 5 years on a 20-year mortgage and 3 years on a 15-year mortgage.
There is not much more that we know at this time. Many banks and lenders have signed-on with the program but are awaiting program guidelines from the FHFA before they write their underwriting guidelines and we have a “GO!” on HARP 2.0. Keep checking back here or call me at 801-971-7916 for updated information.
Salt Lake City, UT
Federal Housing Finance Agency
For Immediate release – October 24, 2011
Washington, DC – The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac (the Enterprises), today announced a series of changes to the Home Affordable Refinance Program (HARP) in an effort to attract more eligible borrowers who can benefit from refinancing their home mortgage. The program enhancements were developed at FHFA’s direction with input from lenders, mortgage insurers and other industry participants.
“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco. “Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”
Fannie Mae and Freddie Mac have helped approximately 9 million families refinance into a lower cost or more sustainable mortgage product, approximately 10 percent of those via HARP.
HARP is unique in that it is the only refinance program that enables borrowers who owe more than their home is worth to take advantage of low interest rates and other refinancing benefits. This program will continue to be available to borrowers with loans sold to the Enterprises on or before May 31, 2009 with current loan-t0-value (LTV) ratios above 80 percent.
The new program enhancements address several other key aspects of HARP including:
- Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
- Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
- Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
- Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
- Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.
An important element of these changes is the encouragement, through elimination of certain risk-based fees, for borrowers to utilize HARP to refinance into shorter-term mortgages. Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today’s low interest rates by shortening the term of their mortgage.
The Enterprises plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by November 15. Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.
Which borrowers may be eligible for an enhanced HARP?
- In general, borrowers must meet the following criteria:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
Why are you encouraging borrowers to shorten the terms of their mortgage?
Borrowers who owe more on their mortgages than their homes are worth may be locked into their homes for years and have fewer financial options until they pay down the loan balance. A shorter term mortgage enables such borrowers to pay down the amount they owe much faster than a traditional 30-year mortgage. Furthermore, interest rates on shorter term mortgages usually are less than on thirty-year mortgages. The lower interest rate may provide borrowers the opportunity to shorten the term of their mortgages without much change in their monthly payments, and perhaps even a reduction in that payment. Such an outcome may strengthen the borrower’s financial condition and lower the credit risk for the Enterprise that owns or guarantees the loan. A few examples illustrate how this works:
- Assume a homeowner currently has a mortgage on which he or she owes $200,000 and has an interest rate of 6.5 percent – a monthly payment of $1264. If the house is worth $160,000, the homeowner has a current loan-to-value (LTV) ratio of 125 percent.
- If this borrower refinanced into a 30-year fixed-rate mortgage with an interest rate of 4.5 percent, the monthly payment would decline to $1013. But, by refinancing into a 30-year loan, the borrower’s loan balance will not reach $160,000 for ten full years.
- If the borrower chose a 20-year loan term at a rate of 4.25 percent (mortgage rates tend to be less for shorter term mortgages), the monthly payment would be $1238 ($26 less than the borrower currently pays) and the borrower’s loan balance would reach $160,000 in five-and-one-half years.
- If this same borrower refinanced into a 15 year mortgage, assuming an interest rate of 3.75 percent, the monthly payment would be $1454 ($190 more than the current payment), but the loan balance would be below $160,000 in a bit more than three-and-one-half years.
These examples are purely illustrative and are not meant to represent interest rates borrowers should expect to pay. They do show that some HARP-eligible borrowers, depending on their circumstances and priorities, may benefit from a shorter term mortgage. Since shorter term mortgages reduce credit risk to the Enterprises because of the faster repayment of principal, there will be no added fee for borrowers that choose shorter terms.