10 November 2009 –Fannie Mae is primed to become a landlord on a national scale. Last Thursday, Fannie Mae announced a new program that would allow current home owners in foreclosure to stay in their homes by signing a 1-year rental agreement. After the lease expires, homeowners could then enter a month-to-month lease. This would make Fannie Mae the largest property manager in the country. While this program may keep some foreclosed homeowners from going homeless, the policy may also depress local property values. The announcement comes on the heals of Fannie Mae asking the federal government for another $15 billion in bailout money. So, who do the tenants call when the heat goes out or when a water main bursts?

13 April 2009 ? Mortgage rates and home prices are still very attractive. Now is the time to buy or refinance your mortgage.

Fannie Mae?s ?Home Affordable? program is coming to fruition, allowing homeowner?s with a Fannie mortgage refinance up to 105% of the home value, and their mortgage insurance situation stays the same. For instance, if somebody had a mortgage at 80% with no mortgage insurance, the new loan will also have no mortgage insurance. Good stuff, for sure.

As of first thing Monday morning, the markets are down. There are talks of bankruptcy at GM, and of Chrysler just not making it.

Chicago-base aerospace giant Boeing announced less than expected first quarter profits.

2 April 2009 – Depending on the circumstances, we have been doing mortgages in high 4s to low 5s lately.

Fannie Mae?s new ?Home Affordable? program is set to be rolling out in a few days, but the specific details are hard to come by. The intent of the program is to reward those who have been responsible and making their payments on time, but have lost equity due to market conditions. This should be a great boon to those who want to stay in their homes and take advantage of the current low rates.

In other economic news, the G20 is meeting this week in London to try to get some global agreement on measures to fix the global economy?yes, we?ve got it bad, but so do Japan, Germany, and the UK.

Government loan giants Fannie Mae and Freddie Mac, as well as the Federal Housing Authority (FHA), a division of the Dept. of House and Urban Development (HUD), have been slowly, but surely, tightening up guidelines, and making it more difficult for all but the very most qualified borrowers to get the best rates. Sure, the Federal Reserve Bank (the Fed) has cut its funding rate, but that doesn’t directly translate into lower mortgage rates. It does directly affect home equity lines of credit (HELOCs), as well as credit cards and car loans, but mortgage rates are, for better or worse, more influenced by Wall Street than by the Fed.

Here is a list of items that negatively impact interest rates now:

• FICO score or credit score: Lenders will use the middle of three credit scores they pull on you, or they will use the lower of two if only two scores are available. There are progressively worse mortgage rates if your credit score is below 720, then below 700, then below 680, then below 660, and finally below 620.
• Loan-to-value, or LTV: This is how much money is you are borrowing versus how much a home is worth. For example, if the house costs $100,000 and you need to borrow $90,000 (you have $10,000 for a down payment), your LTV is 90%. Once again, the mortgage rate you can find gets progressively worse at: above 60% LTV, above 70% LTV, above 80% LTV, and above 90% LTV. And with home values falling, your LTV will probably be higher than you thought.
• Escrows: Not having your taxes and insurance escrowed (which means including them with your mortgage payment) causes the rate you pay go up, but only by a little.
• Cash out: If you are taking cash out when you close, the rates will be worse. And please note that if you took out a second mortgage or equity line after you purchased your home, and are paying this off, it counts as cash out, even if you are not walking away from the closing with cash in your hands.
• Condos: Lenders consider condo loans a riskier transaction, and pricing for a condo is much worse than for a single family house, probably 3/8 to 1/2 point higher rate.

So next time you see 5.0% on a web site or in the paper, unless you have above a 720 credit score, have 40% equity in your house, are escrowing taxes and insurance, are not taking cash out or paying off a second mortgage, and live in a single family home, don’t expect that’s the rate you can get.

More Tightening of Lending Rules

On top of not being able to get the rate you were hoping for, it is simply more difficult to get a loan at all. Here are a couple of rules that may be tighter these days:

• Mortgage insurance (MI) companies won?t insure condos with a 95% LTV any more. This means lenders cannot lend up to 95% LTV on condos, no matter what.
• Many lenders and mortgage insurance companies are requiring borrowers to have a total debt-to-income (DTI) ratio of 45% or less; they want to make sure you can afford your mortgage.
• Stated income and no income verification programs are a thing of the past. Full documentation, which means copies of W-2s, pay stubs, tax returns, etc., are all required now, regardless of how good your credit is, or how many assets you have.

After years of aggressive lending, we are now back to basics.

No More Talking Between Lenders and Appraisers

How does the new Home Valuation Code of Conduct (HVCC) recently adopted by Freddie Mac and Fannie Mae affect the appraiser and the consumer? Just as there are many layers to an onion, there are many ways to look at the financial mess this country is in. Some blame the banks, some blame the mortgage brokers, some blame the real estate brokers, and others blame the uneducated consumer. Maybe if the consumer knew what they were signing up for we wouldn’t be in this mess? What it all boils down to is . . .we all have ourselves and our need for bigger and better, to blame.

The new HVCC is a bill that mandates that the mortgage broker no longer has contact with the appraiser. A third party will contact an appraiser and order appraisals for the lending institutions.

Pressure

In past years, I have heard complaints from appraisers that mortgage brokers would tell them to come in with their number they needed to make the deal or they would no longer order appraisals from the appraiser. This put many appraisers in a precarious position. Appraisers are upheld by a code of conduct entitled Uniform Standards of Paraprofessional Appraisal Practice, or USPAP for short. These standards are strict and require that the appraiser be a Disinterested Third Party to the valuation process. When told that they need to come in with a predetermined number for the deal to go through, the appraiser is no longer Objective. Not only that, the pressure of losing business had to be hard for some. Therefore, some appraisers are thrilled with the new mandate. Others are worried about customer service.

Some Potential Problems

With Third Party Appraisal Services ordering appraisals, the banks will not know if the appraiser even understands the particular market they are appraising. For instance, a person who lives in the city probably does not understand a suburban market as well as an appraiser who lives in that particular suburb. I do have a specific territory, and I am not comfortable appraising outside of my it. Is it possible to do so? Yes, it is, but it will take much more time to complete the report to do the proper research to get familiar with the neighborhood.

From a client perspective, having a relationship with the appraiser helps to ensure the reports are completed in a timely fashion. The client also understands what neighborhoods the appraiser works in and knows the quality of reports the appraiser completes. With a third Third Party Appraisal Service none of the previously mentioned concerns will apply. Not only that, Third Party Appraisal Services could demand expedited service from the appraiser or they will not order again from that appraiser. Again adding pressure to complete a report that is not necessarily quality. Without quality the values could and more than likely will be skewed.

Federal Reserve Bought Mortgage-Backed Securities to Try to Reduce Mortgage Rate

Bloomberg.com is reporting that the Federal Reserve has bought $10.2 billion of Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities. According to the New York Fed’s Web site they bought $6.9 billion of Freddie Mac securities, $2.9 billion of Fannie Mae bonds and $450 million of Ginnie Mae debt.

Mortgage-backed securities are bundles of mortgages. The value of these securities comes from the flow of payments being made on the principal and the interest of the mortgages in the bundle. Many people, facing a combination of personal economic problems and rising payments on their adjustable-rate mortgages are not able to make their payments. This results in the securities being worth far less and the institutions that hold them unable to do anything.

The $10.2 billion purchase is one of the steps taken this week in a program attempting to lower mortgage rates. It appears that the program is working. It is being widely reported (WSJ, MSNBC, Reuters, NYT…) that mortgage rates are falling, and are currently at around 5%. Many experts are predicting that the rates will go as low as 4.5%