Government Agencies Announce More Mortgage Reform on The Way
Government Agencies Announce More Mortgage Reform on The Way
Courtesy ofTucson Rates andReal Estate
Author: R. Smith
Various Government Agencies,from the Board of Governors of The Federal Reserve to the Director of FHFA, have been holding Press Conferences recently to announce stricter Underwriting Guidelines for ResidentialMortgages. The majority of the rules and new laws are trying to get into compliance with the Frank/Dodd Act, the legislation that was created by two of the the most powerful, highly educated and financially saavy Members of Congress,Chris Dodd and Barney Frank. I could write a book on these two, and hopefully someday, someone will, because they truly are a fascinating story.
Highlights and my comments on the new Laws and Regulations include that all mortgages will be held to a specific standard set by the Government. These standards include:
* The increase in Down Payment needed to purchase a house to a minimum of 20%. If you are refinancing, and want to get cash out, your new mortgage can't be greater then 65% of your homes value.
This will not only eliminate 99% of First Time Home Buyers, but most of Americas Middle Class. Lets do the math real quick. A family making 65K a year and saved 10% annually towards their Down payment would be able to save enough to buy a 200K house,(after taxes and no Retirement Contributions) in approximately 7.5 years. That of course if Inflation and Housing Prices didn't rise.
*No sixty day late payments on your Credit file.
With The Unemployment problem we have had the last few years, this could affect quite a few prospective buyers who would normally qualify. If their credit score is high enough to qualify, then it obviously was a temporary problem as opposed to a long term trend.
*Debt to income Ratio of 28% for Housing Expenses. Quite a drop from the 45% Ratio allowed currently from Freddie Mac.
* 5% of the Unpaid Loan Balance to be kept in reserve by the Lender who originates a loan that is packaged for securitization. I wonder who will have to make up the difference of the lost Interest Revenue from the Reserve Account?
With loan quality at an all time high, it kind of makes you ponder what the end goal is here. Before the fear mongering gets the best of you, their are a few options for you if you aren't able to qualify under these proposed conditions.
HUD has announced that for a very short period of time, they will give Buyers of HUD Foreclosed Homes ,a $3500 "Sales Allowance" to pay closing costs, reduce the principal, or for repairs. This is in conjunction with the $100 Down Payment Option they already offer. They will also give a $1500 Bonus to the Broker who sells the home.This is a lot better than a 0 Down Payment Loan. I am still waiting on a RESPA ruling. Ironic that HUD announced this at the same time the Enforcement Branch of the Government proposed the 20% Down Payment Requirement.
They have proposed an improved Loan Program for Consumers who don't qualify for A rated paper. It even has a catchy name," Alternative A", or it's shorter version, "Alt A". This program, which will be available to Lenders other than GSE's, will be for Consumers who otherwise have good credit, aren't able to put down the required Down Payment, and who will have trouble qualifying for their new Mortgage Payment because they don't make enough money. Fannie and Freddie won't be doing these loans, but other Lenders are allowed. Of course, these loans will carry a slightly higher Interest Rate of .75 to 1.5% above the going rate, resulting in a higher payment for the Consumer who didn't qualify for the lower rate because of his income.
Bill HR 6256: This proposal will allow new Homebuyers to "sell" their equity to an investor, so they only have to make payments on only a portion of their actual FHA Mortgage.Then the lucky Investor will get to share in the windfall when the price goes up. Nobody told me that Former Washington Mutual Executives are now active members of Congress. No, really, I didn't make this up! Apparently Investors are on a two year waiting list already to loan (give) their money to Low Income, 3.5% down payment buyers, who only are able to afford 60% of the actual Mortgage Payment. It is probably the 7 years of front loaded Interest that gets paid through the Amortization Process that has them all excited. OK, I made up the waiting list part.
At the same time all of these strict rules were proposed, there was another part that didn't quite make sense to me, but what do I know. The announcement was how they would define Qualified Residential Mortgages that will be Exempt from these rules. Loans that will be exempt from these new tough standards are as follows:FHA,VA,USDA,Fannie Mae,Freddie Mac, and Portfolio Loans. Since 90% to 95% of the Mortgage activity goes through the GSE's, FHA,and VA, and the rest is probably Portfolio Loans, these new tough standards apply only to..Huh? NOTHING!
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