A hybrid in your housing future?
Kenneth R. Harney Jan 31, 2014
WASHINGTON — Higher mortgage rates for 2014? Count on it. Could this be the year to check out hybrid mortgages, which haven’t been popular lately? Maybe.
You can count on interest rates going higher because:
Some options for mortgage shoppers
Kenneth R. Harney Jan 24, 2014
WASHINGTON — The verdict was nearly unanimous at a recent hearing on Capitol Hill: The new federal “ability to repay” and “qualified mortgage” regulations that took effect Jan. 10 will make obtaining credit tougher, not easier, this year, and potentially force large numbers of credit-worthy homebuyers to defer or cancel their plans.
What nobody addressed at the hearing, though, was the elephant in the room: OK we’ve got a problem. But what, if anything, can buyers who find it difficult to meet the new standards do about it?
The testimony came from mortgage, banking and credit union leaders — even the head of a nonprofit Habitat for Humanity chapter. Though they didn’t dispute the good intentions of Congress or federal regulators in adopting the sweeping changes — banning or severely restricting most of the worst practices and loan features that facilitated the mortgage debacle of the last decade — they said the new rules amount to overkill.
By forcing creditors to offer mortgages within a tightly confined box of complex underwriting requirements and imposing crushing financial penalties for infractions, the new regulations are making lenders hyper-cautious about approving anybody, especially applicants who appear marginal or don’t quite fit the standard profile.
Bill Emerson, CEO of Quicken Loans, one of the country’s highest-volume lenders, said the new rules could “impair credit access for many of the very consumers they are designed to protect.” These people are all over the country — young first-time buyers with student debts, middle-income minority buyers, self-employed individuals and those whose incomes are not received at regular intervals, plus just about anybody with household debt that exceeds 43 percent of income.
But are there ways for folks like these to improve their chances to get a mortgage this year, rather than waiting the estimated 12 to 24 months it may take for regulators to assess the impact of their rules and loosen up? Yes. Here are a few practical strategies.
House Democrats Highlight New GSE Plan
by Victoria Finkle JAN 16, 2014 5:16pm ET
WASHINGTON – Reps. John Delaney, D-Md., John Carney, D-Del., and Jim Himes, D-Conn., unveiled the outlines of a new housing finance reform plan on Thursday that would provide an explicit government backstop for the market, while requiring increased private sector participation.
The plan, which will be formally introduced this spring, would unwind Fannie Mae and Freddie Mac and be based on a mortgage reinsurance system organized around Ginnie Mae, with private companies pricing and sharing in the risk on mortgage-back securities.
“To ensure a stable housing finance system, we must move past the current state to a new system that engages more private sector capital and private sector pricing of risk in partnership with an explicit government role in the provision of stabilizing liquidity to the market – this bill does that,” Delaney said in a press release.
The Democratic plan comes at a time when mortgage finance reform has stalled in the House. The Republican-majority House Financial Services Committee approved a bill this summer down party lines that would get rid of Fannie Mae and Freddie Mac and remove any government backstop from the market, but it’s still unclear the plan has enough support to win a vote on the chamber floor.
Leaders on the Senate Banking Committee, meanwhile, are also said to be developing legislation that is likely to draw on earlier work by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., to remove the government-sponsored enterprises, but establish an explicit government guarantee for the market.
Supporters of the new proposal argue their plan takes attractive elements from both approaches – maintaining the explicit government guarantee laid out in the Corker-Warner bill, while adopting private sector pricing for the securities.
“Our proposal today doesn’t come in a vacuum,” Carney said in a meeting with reporters Thursday. “What we try to do, and I think we’ve done it well, is to try and strike the right balance.”
Issuers would be required to hold 5% first loss capital under the plan before they can securitize their mortgages through Ginnie Mae. The government corporation would separately contract with private reinsurance companies, locking in rates based on the private market assessment of risk and sharing the risk with the private entities. Ginnie Mae would assume 90% of the risk and the private companies 10%.
The lawmakers told reporters that they are continuing to reach out to numerous stakeholders and participants, including industry groups, the Obama administration and colleagues on the banking panel such as Rep. Jeb Hensarling, the committee’s chairman.
“I think the chairman wants the [Protecting American Taxpayers and Homeowners Act] to pass the House of Representatives and go to conference with the Senate – that’s his objective. We respect that, we understand that,” Delaney said. “What we’re trying to do is develop an alternative framework that can appeal to his principles and the principles of other people in his party . so we try to keep him in the loop in a very cordial and construct way.”
The legislation would also include support for affordable housing, popular with Democrats, that is similar to the provisions laid out in the Corker-Warner bill. Ginnie Mae would charge a fee of 5 to 10 basis points on each security that would be used to fund the Housing Trust Fund and the Capital Magnet Fund. Any government profits derived under the new system could also potentially be used for additional programs, the lawmakers said.
A useful rule on appraisals
Kenneth R. Harney Jan 17, 2014
WASHINGTON — A new federal rule could give millions of homebuyers insights they’ve never had before about a crucial element of their mortgage application: the appraisal, including the electronic cross-checks and reviews now used by lenders to determine the amount of the loan they’ll approve.
The new rule will also give buyers the time and ammunition to challenge appraisals they suspect contain errors. Starting this weekend (Jan. 18), lenders nationwide will be required to inform mortgage applicants that they can receive a free copy of whatever appraisals, reviews, computer valuations and other data are used in the transaction. You’ll be entitled to see this material “promptly” after the appraisal report is completed, or three days before your loan closes, whichever is earlier. The lender will have to inform you of your new rights within three business days after receipt of your mortgage application.
This contrasts with the current system, where lenders don’t have to provide you a copy of the appraisal unless you request it. The additional valuation data — which may include follow-up review appraisals by a second appraiser, multiple “automated” valuations and “broker price opinions” provided at low cost by realty agents — currently are not subject to disclosure, even though they may have played a role in the final decision on your loan.
Now everything will be mandatory. You’ve got to be provided any significant information that was integral to the valuation of the property, even if you had no idea it existed and didn’t ask to see it.
The new rule implements changes to the Equal Credit Opportunity Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It will be overseen by the Consumer Financial Protection Bureau. Unlike earlier rules, the disclosure requirements will be limited to mortgages that are first liens on a home, including reverse mortgages and construction loans. If you’re applying for a second mortgage or second-lien home equity credit line, the bank will not have to provide you appraisal materials, although you are still free to ask.
So what might this mean to you in practical terms? Potentially plenty. Say your appraiser works for a management firm that uses low-cost, inexperienced appraisers. By chance it turns out that your appraiser lives 80 miles away and is not familiar with local real estate trends. Then the valuation comes in low because the appraiser used inappropriate “comparable” properties, including a house that sold at a depressed price because the owners were in financial distress.
Under the new rule, your lender will have to send you a copy of the full appraisal report, soon after receiving and reviewing it, including exhibits and attachments. Alerted early on, you, your realty agent and other advisers should have time to spot errors and then challenge the validity of the appraisal and demand corrections.
Among the questions you might ask: Why did the appraiser select one or more comparables that bear minimal resemblance — lot size, square footage of the house, age, location, view, interior improvements — to the house you’re buying? Why were the physical dimensions of the property inaccurately measured? Why did the appraiser add no extra valuation credit for the solar panels on the roof and the extensive energy-conserving equipment throughout the house? Why didn’t an underwriter or review appraiser hired by the lender flag foul-ups like these?
For their part, experienced appraisers generally welcome the new mandatory transparency for consumers. Some of them have fought for years against lender overreliance on poorly trained appraisers who receive only a modest portion of the $450 to $500 that lenders charge consumers at settlement. The rest goes to the management company and some portion may be pocketed by the lender itself.
“I am thrilled,” says Pat Turner, a senior residential appraiser in the Richmond, Va., area, “to have my appraisal stuck beside an [automated valuation] or a broker price opinion,” which will now be mandatory. “Let everyone see the clear distinction of time, effort, expertise and accuracy of a truly professional appraisal.”
But there’s some potential quicksand for unwary borrowers. The rule allows you to waive your right to receive your appraisal materials early on, and instead get them on the day of the closing.
That’s not a smart move. Why give up your guaranteed opportunity to carefully review the appraisal shortly after it’s completed — when you can do something about errors — rather than rush through it during a paper blitz when your eyes are glazed over?
A word about closings
Kenneth R. Harney Jan 10, 2014
WASHINGTON — The federal government has a real estate question for consumers who’ve bought or refinanced homes that’s certain to generate more than an earful: Were there any problems when you went to close the deal?
Any last-minute glitches or surprises that delayed the settlement, required unexpected negotiations or, worst of all, blew up the sale or refi? Did you get your settlement sheet in advance so that you could review the documents intelligently? Were there any errors or discrepancies that popped up — charges that were considerably higher than you had expected, loan-related fees or an interest rate that differed from what you thought you had signed up for? Was the whole process pleasant? Was it “empowering”?
Wow. Talk about stirring up hornets. The Consumer Financial Protection Bureau, which has broad regulatory powers in the real estate settlement arena, wants to know whether there are common problems that need to be fixed. If so, it may make what it euphemistically calls “interventions” in order to right what seems to be wrong.
The bureau also wants to hear from realty professionals, lenders, title insurance and escrow agents, attorneys and others who play roles in closings on homes — the people who produce, bless and witness the signings of mounds and pounds of paper associated with the settling of America’s home transactions.
From industry accounts, the vast majority of closings are successful. The National Association of Realtors estimates that roughly 10 percent to 12 percent of all pending sales don’t close for various reasons. But conversations with agents suggest that a much higher percentage of settlements experience problems that arise just before or during the event that either delay or complicate the process.
Though eleventh-hour delays can occur because of title insurance-related issues and various others, a disproportionate percentage appear to be related to the mortgage. Late in the game, the lender might inform the borrower: Sorry, but we’ve encountered some underwriting red flags in your application that you’ll need to resolve before we can proceed. Or oops, we didn’t get all the loan documents to the closing agent in time. Or worst of all, we’ve changed our mind. We simply cannot do this loan and we sincerely regret that we’re telling you this on the day before your scheduled closing.
Gary Kassan, an agent with Pinnacle Estate Properties Inc. in Valencia, Calif., says he routinely gets buyers pre-approved by lenders but that in at least 20 percent of purchases, problems pop up after the pre-approval that threaten to delay or disrupt closings. In early January, Kassan was waiting for a lender to agree to close on a deal that was originally scheduled for late December. The problem: underwriters’ questions that arose late in the process about the borrower’s income.
“I want to ask all these [loan officers] — why didn’t you bring this up earlier, before you gave [my client] a pre-approval letter?”
Cindy Westfall, an agent with Premiere Property Group in the Portland, Ore., area, has had two recent sales knocked off track by underwriting issues just before the closing, one of which caused the entire sale to blow up, forcing her buyers to start their home search all over again. “My clients were very stressed” by the entire experience, she said in an interview.
Rhonda Masotta, an agent with Bright Realty in Sarasota, Fla., almost found herself in the same situation: Last year, she was sitting at a table for her buyer’s closing on a $1.25 million home. The only thing missing was an essential — confirmation that the bank committed to do the loan had wired the money needed to complete the transaction.
“We all waited for hours,” but there was no word from the bank, Masotta said. The closing was rescheduled for the following day, but then came the bad news: The bank had decided to back out of the deal. That’s usually a death sentence on a home sale, but Masotta and her colleagues on both sides of the transaction opted for an emergency rescue attempt and found a bank willing to underwrite and fund the loan on an expedited basis later the same day.
That’s not the way closings are supposed to work, but stuff happens.
If you want to share your experiences with the Consumer Financial Protection Bureau, email your account by Feb. 7. Detailed instructions for submitting comments — and postings of comments made to date — are online in the Jan. 3 Federal Register, at www.federalregister.gov.