Posts Tagged Freddie Mac

Freddie Mac says home affordability is lessening at rates increase

Freddie Mac’s December U.S. Economic & Housing Market Outlook reported in June on how rising rates would affect home affordability throughout the U.S. Freddie Mac determined that the answer is “it depends”. Mostly it depends on what area of the country you live in and how quickly the home prices are rising in that area.

Freddie Mac determined that in most markets rates would have to rise to 7% before home became unaffordable to the typical family. What we do see though is rising rates affects how much home a buyer qualifies for, and as home prices and rates increase, the quality of home the typical buyer can afford will decrease.

Right now at least 50% of Utah households would qualify for mortgage loan of $248,000, which with 5% down on a Conventional loan would equate to roughly a $261,000 purchase price.

If interest rates rise 0.5% the purchase price drops to $247,000. If they rise a full percent above the current level home purchase power drops to $236,0000.

The good news is that right now this still puts most homes in Salt Lake County within the budget of 50% of Utah households. I think what we are going to see if rates continue to rise is a stabilizing of home prices, or at least not the double-digit gains of the past couple of years. With affordability going down, offering prices will be lower and thus home values in general will not continue to increase at their current rate.

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Commission Income and Mortgages

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.

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Highlights of HARP 2.0: What it means to you

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.

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