Looking for a low-down-payment loan? If your FICO score is good, you’re in luck.

By http://www.washingtonpost.com/people/kenneth-r-harney Kenneth R. Harney April 20

If you’re planning to buy a home with a low down payment, you need to be aware of some important but virtually unpublicized price changes underway in the mortgage market.

If you’ve got good but not great credit, such as a FICO score in the mid to upper 600s, you’re going to get hit with higher fees on a conventional (non-government) loan with a low down payment. Count on it. On the other hand, if you’re part of the credit elite – your FICO score is 760 or higher – congratulations: You’re in line for an unexpected discount on fees, despite making a tiny down payment.

What’s going on? Put simply, the mortgage insurance premiums on loans eligible for sale to giant investors Fannie Mae and Freddie Mac underwent a shake-up this month. Applicants with lower scores and smaller down payments got whacked.

To illustrate: According to one mortgage insurer’s rate sheet, the buyer of a $400,000 house with a 660 FICO, a 3 percent down payment and a fixed rate of 4 1/8 percent would have paid $2,359 a month in principal, interest and mortgage insurance before the premium changes took effect April 4. Today, the same borrower would be charged $2,495 a month – $136 more a month, $1,632 more a year. But a borrower with a 760 FICO seeking the same size loan with a rate of 37/8 percent would now be charged $162 less per month – $2,002 vs. $2,164 – because of the pricing revisions.

[ https://www.washingtonpost.com/realestate/lawsuit-says-banks-improperly-fai led-to-inform-consumers-about-extra-interest/2016/04/12/0c76e00e-0001-11e6-b 823-707c79ce3504_story.html> Lawsuit says banks improperly failed to inform consumers about extra interest]

What about slightly larger down payments, such as 5 percent ($20,000) on the same $400,000 home purchase? If your FICO is a 620, you would have paid $2,261 a month before the change. Now your mortgage will cost you $2,407 a month. If you’re at the higher end of the credit spectrum, with a 760-plus FICO, the 5 percent-down loan would have required $1,931 a month in payments before April 4. That now drops to $1,890.

A little background here: When you make a down payment of less than a 20 percent on a conventional loan, private mortgage insurance is required, to limit some of the potential risk for the lender or investor. Typically, the premiums get tacked on to the monthly payments. Fannie Mae and Freddie Mac also add their own extra charges on low-down-payment mortgages. The lower your credit score and the smaller your down payment, the higher the add-on fees charged by Fannie and Freddie.

Mortgage insurers say they were forced to make the pricing revisions because Fannie and Freddie rejiggered capital requirements on them. “We had to end up charging more,” said Michael Zimmerman, a senior vice president at MGIC, a major insurer. The “cross-subsidization” in premium rates that previously existed – where borrowers with excellent credit were charged a little more in premiums so that lower-FICO borrowers could pay a little less – has “now been eliminated.”

[ https://www.washingtonpost.com/realestate/many-couples-pay-more-when-both-o f-them-apply-for-a-mortgage/2016/04/05/6fbcd910-fa76-11e5-886f-a037dba38301_ story.html> Many couples pay more when both of them apply for a mortgage]

Fannie and Freddie officials say the revised capital requirements were necessary to ensure that the companies they deal with have sufficient strength to handle future default and foreclosure claims. Andrew Wilson, a spokesman for Fannie Mae, said the mortgage insurance companies could have revised their rates differently, limiting the impact on lower-score home buyers, but they chose otherwise.

Bose T. George, managing director of equity research at Keefe, Bruyette & Woods, a highly regarded mortgage industry analyst, says Fannie and Freddie also had choices: They could have reduced their own “significant” fees on lower-down-payment, lower-FICO borrowers, fees that they have had in place since the housing crisis. “They have never revised their fees, and to expect private companies to subsidize lower-score borrowers is unrealistic,” he told me in an interview.

Putting aside these inside-the-industry spats, what do the new changes in insurance premiums mean to you in practical terms? If you’ve got a FICO score in the mid to upper 600s and you want to make as small a down payment as possible, you’ll probably want to look to the Federal Housing Administration for your financing.

FHA offers 3.5 percent minimum down payments and is more flexible and lenient than Fannie and Freddie on credit issues and debt-to-income ratios. Last year, FHA slashed its own premiums, and they’re now the less-costly choice below 700 FICO.

But FHA-insured loans have a key drawback: Unlike private mortgage insurance, you generally can’t cancel premium payments once your equity reaches a certain threshold. So you could end up paying monthly premiums indefinitely. That’s a real turn-off.

Homeowners fight mortgage-interest overcharges

Kenneth R. Harney on Apr 15, 2016

WASHINGTON – For years it was widely considered a massive, government-sanctioned rip-off of home mortgage borrowers. Then it was banned by the Consumer Financial Protection Bureau. And now it’s the subject of class-action suits that accuse four large banks of illegally collecting millions of dollars in excess mortgage interest payments from their customers.

The source of all the controversy- The Federal Housing Administration’s long-time policy of allowing banks to charge homeowners a full month’s worth of interest when they went to pay off their FHA-insured loans – even after they had paid back all the principal they owed.

To illustrate- Say you were preparing to pay off your mortgage balance in full on May 3. Under the government’s policy, lenders were permitted to charge you interest on the paid balance though May 31, collecting it at the closing May 3. It was the equivalent of being charged for a full tank of gas, even though all you pumped was three gallons.

The official rationale for the controversial policy was that mortgage bond investors expected full months’ worth of interest payments on FHA loans, not partial payments. Unless borrowers paid off their loans on the first of the month, the lender could charge them interest for the full month. But FHA was alone in its stance on this. Neither of the two giant mortgage players, Fannie Mae and Freddie Mac, forced consumers to make extra interest payments on loans to please Wall Street. Nor did the Department of Veterans Affairs (VA) do so on its home mortgages. FHA officials also argued that because of the opportunity lenders have to charge additional interest, they typically quote more favorable interest rates on FHA loans – 0.10% to 0.15% lower – compared with non-FHA loans.

Last year, after the CFPB ruled that FHA’s policy amounted to a prepayment penalty prohibited by federal law, FHA rescinded the policy for new borrowers taking out loans on or after Jan. 21, 2015, but kept it in place for an estimated 7.8 million homeowners who had FHA loans dating to previous years. At the same time, the agency conceded that the savings FHA borrowers supposedly received from its policy were illusory, and that “in most cases” the extra interest payments exceeded any small interest rate break up front.

In a series of legal moves last week, attorneys representing FHA borrowers sued Bank of America, Wells Fargo Mortgage, U.S. Bank and SunTrust Mortgage for allegedly failing to properly disclose the extra-interest policy to clients paying off loans originated before the deadline. All four banks, according to complaints filed in federal district courts in Florida and Georgia, violated FHA’s own rules by using payoff disclosure forms that were not approved by FHA and did not adequately advise borrowers on how to limit or avoid extra-interest charges. The approved FHA disclosure expressly informs borrowers that “it is to your advantage” to schedule closings either at the end of the month or by the first business day of the month.

The net effect of the allegedly improper disclosures, the suits charge, is that large numbers of borrowers paid more in interest than they could have, and that the four banks collected substantial sums in post-payment interest illegally on FHA mortgages.

All four banks declined comment on the suits when I contacted them last week.

Real estate industry estimates of excess FHA interest charges over the past decade and a half have ranged into the hundreds of millions of dollars per year. In 2003 alone, according to one estimate from the National Association of Realtors, FHA borrowers paid nearly $587.4 million in excess interest.

One of the plaintiffs in the class-action suits, a homeowner in Florida who allegedly was overcharged by Wells Fargo, claimed in her suit that the bank informed her in a loan payoff statement that she would owe $1,227.68 interest. Yet her typical monthly interest charge was just $613.84. Wells Fargo’s payoff statement was not in the format approved by FHA, she said, and was “both misleading and confusing” and did not properly advise her of her options.

One of the attorneys representing the plaintiffs, Naveen Ramachandrappa of Bondurant Mixson & Elmore in Atlanta, said the suits reveal that the four lenders “took hundreds of millions of dollars in illicit profits” by not following the rules, and “those funds need to be returned to plaintiffs” and to other borrowers who have been victims across the country.

Your equity may be growing faster than you think

Kenneth R. Harney on Mar 25, 2016

WASHINGTON – Did you get your share of the estimated $1.2 trillion in equity growth that American homeowners reaped in the past 12 months? Do you have at least a rough idea of how much equity you’ve got? Is it a big deal to you financially?

Questions like these are especially relevant in the wake of the Federal Reserve’s frothy new home equity estimates, which put total equity holdings nationwide at $12.5 trillion – a stunning doubling between 2011 and the final quarter of 2015. Equity is the difference between your mortgage balance and the market value of your property. If your house or condo is worth $350,000 and you’ve got $200,000 in mortgage debt against it, you’ve got positive equity of $150,000. If the house is worth $350,000 and you’ve got $400,000 worth of mortgages on it, you’re underwater by $50,000.

Though the vast majority of the country’s houses with mortgages have positive equity, roughly 4.3 million homes are underwater, mainly as a legacy of the financial crisis and recession. Another 9.5 million are what analysts call “under-equitied,” with less than 20 percent equity, according to data from research firm CoreLogic. When you have minimal or no equity, your financial options tend to become limited- You may find it impossible to sell your house without having to bring lots of cash to the closing. You may also find it difficult to refinance out of an albatross mortgage that’s been around your neck for years. And you likely can’t tap into your home for help on worthy expenses – you can’t take out a second mortgage or home equity line of credit to help with tuition payments or remodeling the kitchen.

But the most significant news emerging from the latest national data on equity is that things are looking up. Thanks to rising home prices and pay-downs of mortgage principal, large numbers of people previously in negative equity are crossing the line into positive territory. CoreLogic estimates that around one million of them did so during 2015. Another half million owners escaped from under-equitied status, moving them above 20 percent equity. If prices rise another 5 percent in the coming year, 850,000 more homes should see significantly broadened financial options, say researchers.

That’s great but what does it mean for you? Start with your knowledge of where you are equity-wise. Equity is inherently challenging to track; nobody sends you a monthly accounting. You can’t just go look it up somewhere. Recent research from mortgage lender loanDepot, LLC suggests that most of us don’t have a good grasp on our home’s market worth, making equity estimates difficult at best. Researchers found that though 57 percent of owners believe their home value has increased since 2012, 80 percent of them underestimate how much it’s actually risen. That’s at odds with findings by Quicken Loans’ monthly analysis of owners’ estimates compared with appraisers’ reports. In the latest study, Quicken found that owners overestimate their home values by around 2 percent.

Either way, many of us can only guess about the size of what may be our largest, investment asset. LoanDepot Chief Financial Officer Bryan Sullivan says this is especially the case for people who purchased during the housing boom, watched home prices crater, and since then haven’t kept up with local market changes. They have “regain[ed] equity many thought was lost forever,” but also “are unclear about how to determine changes in their equity.” That, in turn, may be stopping them from making good use of their equity positions – whether to sell and move or to pull some of it out via a home equity credit line or second mortgage.

So how to keep track? Start with the part of the equation you probably know precisely because it’s sent to you monthly by your lender- your outstanding principal balance. To get an idea of your market value you can type in your address at sites like Zillow and Redfin and others that offer automated estimates online. But beware- Local area median error rates on these sites can mangle your calculations.

If you are considering selling your home sometime in the forseeable future, you can contact several local realty agents who specialize in your area, level with them about your timing, and ask for their best estimates. Or you can hire a local real estate appraiser. It’ll cost you some money, but if you seriously want a bench mark on your equity, either of these two options would be the way to go.

Don’t expect realty agents to answer loaded questions

Kenneth R. Harney on Mar 18, 2016

WASHINGTON – They are the radioactive questions in home real estate, yet many buyers seem to have no idea about their sensitivity. So they ask their realty agents-

- Is this a “good” neighborhood?

- Is it “safe?”

- Are the schools “good” or “the best”?

- What types of people live here?

- Can you show us a neighborhood with large numbers of Catholics (or Asians, Jews, Hispanics, African-Americans or some other group)?

Though it may come as a surprise to some home shoppers, certain answers by realty agents could trigger federal and state anti-discrimination legal tripwires. As a result, many agents are hesitant to provide specifics. Mimi Foster, managing broker with Epic Real Estate Group in Colorado Springs, told me “almost every buyer” she encounters asks questions of this type. Eighty percent want to know upfront about schools and crime rates.

“Of course everybody wants a ‘safe’ neighborhood,” she said. “Everybody wants ‘good’ schools. But what’s the meaning of ‘safe’? What’s the meaning of ‘good’?” It varies from shopper to shopper. For some, the meanings may have no racial or ethnic connotations whatsoever. But for others these can be coded, “wink wink” queries implying that the agent really knows what “good” means to the shopper.

“We can’t answer,” Foster said. “It’s all too subjective.” Instead, she refers them to online information sources about whatever they’re asking – websites that rate schools, statistical compilations on crime rates and the like.

Foster says she also gets questions that could be troublesome, such as “is this a family-friendly neighborhood?” or others indicating that the shoppers would prefer to be steered away from areas that have lots of kids running around. Either way, though, she considers family-related questions a no-go subject.

Praful Thakkar, an agent with Keller Williams Realty in Andover, Massachusetts, faces questions from a different angle. Of Indian descent himself, Thakkar often finds himself guiding around Indian professionals who are considering buying a house in the area.

“It’s a very common question,” he says- “Can you tell us how many other Indian families live on this street?” Even though he thinks he understands the thrust of the question – are there people like us around? – he declines to answer directly. Instead, he supplies them a list of the names of current owners on the street, allowing his clients to decide for themselves whether the names indicate that they are Indian or not.

Agents such as Foster and Thakkar are hyper-sensitive because they don’t want to run afoul of the Fair Housing Act, which prohibits any type of discrimination on the basis of race, color, religion, gender, national origin, familial status, disability or handicap. The law is administered by the Department of Housing and Urban Development (HUD). Penalties for violating fair housing rules can be costly, so many real estate brokerage firms train agents on what constitutes “steering” of home buyer clients as well as what could be interpreted as showing any form of bias against any “protected class.”

Donna Evers, president and broker at Evers & Co. Real Estate Inc. in the Washington D.C. area, says “most” of her firm’s clients avoid asking agents questions with discriminatory overtones, but when they do, “we tell them that there are many sources” for the statistical information they seek. “It’s all on the Internet – crime rates, all sorts of data. We say go look it up.”

But some fair housing advocates are concerned that the online information available today may actually enable a subtle form of racial steering when agents name specific sites that offer highly localized racial and ethnic breakdowns and refer clients to them. Lisa Rice, executive vice president of the National Fair Housing Alliance, a nonprofit group that has fielded teams of white and minority “testers” to detect bias in homes sales, thinks that in the event of fair housing complaints against those agents, the fact that they made such specific referrals could be held against them.

So what are home shoppers supposed to do with all this? First and foremost be aware that any agents you deal with are subject to the Fair Housing Act. Most of the data on schools and crime you’re curious about can readily be found on the Web – it just takes a little searching on any of dozens of sites.

Better to look for the information yourself rather than asking agents. They can’t make judgments for you and most likely won’t give you answers anyway.

Lenders blocking realty agents from buyers’ closing documents

Kenneth R. Harney on Mar 4, 2016

WASHINGTON – When you’re buying a house, don’t you want an experienced set of eyes checking out the closing papers for errors and potential overcharges?

Of course. But under the new federal real estate settlement procedures that took effect late last year, an unexpected problem is taking shape- Many lenders and title companies are refusing to provide copies of the final closing documents to real estate agents representing home buyers. That, in turn, is threatening to jeopardize one of the traditional services agents perform for their clients – scrutinizing closing statements for inaccuracies that could cost them money or delay the settlement unnecessarily.

Yet in a recent internal survey of members across the country, the National Association of Realtors found that 54.5 percent of agents reported they had experienced difficulties obtaining the Closing Disclosure form used under the new federal rules, and that half of these agents detected errors when they finally reviewed them. The errors included incorrect fee charges, commission splits, taxes and failure to include seller concessions to the purchasers, among others.

In some cases, when Closing Disclosures had to be changed and re-issued – triggering a mandatory three-day waiting period for the purchasers and delaying the settlement – sellers have balked and even canceled sales. Eric Post, principal broker at BHGRE Realty Partners in Portland, Oregon, told me “we’ve had some situations where this caused the termination” of entire deals because the delay “wasn’t acceptable” to the sellers.

Dan Galloway, an agent with Redfin in the Washington D.C. area, said under the previous system, agents routinely received a copy of the HUD-1 closing form, which summarized the costs and credits for both the sellers and buyers in one document. Typically the HUD-1 was prepared and delivered by the settlement or title agent or attorney closing the transaction. Now lenders are solely responsible for preparing and delivering the Closing Disclosure, the replacement for the HUD-1, directly to the buyers. Lenders are often reluctant to deliver it to any party not expressly designated in the government’s rules. The rules are silent about sharing a copy with the buyers’ realty agent. Lenders also cite federal consumer privacy regulations that they feel constrain them from providing a Closing Disclosure to a realty agent because the document contains “non-public” personal information. Though title, escrow and settlement agencies typically are local, frequently the lender is located hundreds or thousands of miles away and may not be adequately informed about local real estate tax practices, transfer fees and other charges.

As a result, lenders’ Closing Disclosures now commonly contain errors – Galloway says “the lion’s share” of them have one or more mistakes. Emily Vaile, regional manager for BHGRE David Winans & Associates in Dallas, agrees. “Errors are happening all the time,” she said in an interview. “Maybe half” of Closing Disclosures contain them, she estimates – some minor and clerical, some consequential. If there’s something that’s inconsistent with the sales contract in the Closing Disclosure, “it may be obvious to the agent,” she said, but be totally missed by the buyers, whose heads are spinning with all the last-minute details of getting ready to move.

When realty agents can’t obtain their clients’ Closing Disclosure from the lender, they often turn to the title or settlement agent. But title agents may not be willing to share it with them either because of their own federal privacy concerns. Some lenders also prohibit title and settlement agents from sharing the Closing Disclosure with realty agents.

So where’s this all headed? Some title agents have begun using workaround solutions that provide realty agents the information they need, including a customizable “settlement statement” from the American Land Title Association that itemizes all the fees and charges that the buyers and sellers must pay during the settlement process. It includes no personal information that violates privacy rules but allows agents to counsel their clients and report transactional data to the local multiple listing service.

Bottom line for you- Be aware of this issue and discuss it with your agent and the title company you choose. Alternatively, short circuit the whole controversy by handing over a copy of the final settlement disclosure to your agent immediately after you receive it from the lender. Ask for a thorough walk-through of the closing items and their accuracy.

Get the most out of that extra pair of eyes.