Tri-Valley Mortgage News

I've often wondered how a good faith estimate, an initial closing cost fee sheet and/or an estimated settlement statement must look to a first time home buyer. All of these documents itemize the various closing costs involved in purchasing their home yet they do not explain exactly what each fee entails.

Of course, a good loan officer will sit down with his or her clients and carefully explain the loan's closing costs. However, in this day and age, it is very common for a loan officer to never meet his or her client face to face. I have conducted several transactions by phone and (mostly) email. This is not the best format in which to explain closing costs.

So over the next few weeks I will lay out here some common closing costs: what they are and why they may be necessary in order to close a transaction.

In my last post on closing costs, I explained what origination fees are and how they are usually charged. In this post I will address the other lender-related costs a borrower may encounter.

Whether you are obtaining your loan through a direct lender of utilizing the services of a mortgage broker, a very common closing cost you are likely to be charged is a Processing Fee. This fee is charged to cover the costs associated with gathering and (big surprise) processing the documentation needed to complete your loan file. The loan processor is a very integral part of any loan transaction. He or she will make sure all the needed documents are in the loan file and that they are up-to-date. A processor will many times be the liaison between you and the mortgage underwriter (the decision maker) and work to ensure your loan is approved and closed on time.

Along with the processing fee, you may also be charged for a credit report and/or the appraisal on the property you are buying or refinancing. These fees may be paid either to the actual company providing these services or they may be paid directly to the broker/lender on behalf of the service provider.

Lender and bank fees can vary greatly but there are a few categories that are commonly seen on closing costs statements:

• Underwriting Fee: this is the fee paid for the thorough review of your fully processed file by the lender's/bank's underwriter. The underwriter decides whether your loan is approved or denied. But it is usually only charged at closing if your loan is approved.

• Document Fee: this fee refers to the lender/bank's issuing your final loan documents and making sure they are delivered to the signing agent along with any other items that require your signature for closing.

• Flood Certification: all lenders will "pull a flood cert" to determine whether or not your home is in a flood zone and will need flood insurance. Whether you will need flood insurance or not, you may be charged a (usually small) fee for obtaining the certification.

• Wire Fee: this fee (again usually small) is charged by some lenders to cover the cost of wiring the loan funds to the closing agent (either escrow or the real estate attorney depending on where you live).

• Tax Service Fee: this is a fee charged by the lender to ensure that they are alerted if you ever default on your real estate taxes and to prevent tax liens from occurring.

These are the most common lender fees you may encounter. Of course, as mentioned above, they can vary greatly in name and in dollar amount. That's why it's important to shop for the best deal on rate and fees. A mortgage broker has access to many different banks and lenders and can do the comparison shopping for you.

In my next post, I will move on to fees associated with closing and title insurance. If you have any questions about closing costs, give me a call or drop me an email!

Tips for preserving your credit during the loan process

My last post mentioned that lenders ordering a pre-closing credit report and comparing it to the initial credit report may become standard practice. With this in mind, the following tips could help borrowers ensure that no surprises come up that could jeopardize their closing:

1. Don't incur new debt until your loan is closed. This can be tough especially for home buyers who want to secure a great deal on furniture or appliances prior to moving in. But new debt incurred before closing will be counted against your income and could potentially tip your debt ratios over the maximum allowed!
2. Don't let a creditor run your credit before your loan is closed. As mentioned above, even if you are just browsing for new merchandise, do not let anyone run your credit. This results in an "inquiry" that the lender will see when they run your final report. This may cause your scores to decrease depending on how many inquiries you've incurred since your last report. Don't risk it!
3. Don't pay off collections or charge-offs. This sounds counter-intuitive but the fact is, if you pay off one of these types of accounts it will refresh the date of last activity on the account and cause a dip in your credit scores as you are. If the lender has approved your loan, leave these accounts alone until after your loan closes
4. Do not charge up your existing credit cards. Along the same lines as in example number one above, do not make any major purchases on your existing credit accounts. The additional debt can both lower your scores and possibly cause your debt ratios to exceed the maximum allowed.
5. Don't consolidate your debt into one or two cards. Again this may be counter-intuitive but it is better to have debt spread out across many cards rather than maxing out one or two cards. Doing so can have a negative impact on your scores.
6. Finally, please continue to pay your credit accounts in a timely manner. Keep track of due dates and make sure everything is being paid on time throughout your loan process. Nothing could be more devastating than to have a late mark on your credit at closing cause your entire transaction to fall apart.

If you have any questions about your credit, contact me and I will be happy to discuss these tips in greater detail.

Anyone currently applying for a home loan should be aware that after June 1^st, lenders will start ordering a second credit report prior to the loan closing. This move is mainly in response to an initiative by Fannie Mae, one of the largest companies that purchases mortgage-backed securities in the county that encourages lenders to give consideration to the borrower's credit profile just prior to closing and comparing it to the initial credit report pulled at the time of application. The reason that they have requested lenders do this is because there is the potential for a borrower to make decisions during the loan process that might cause them to be less qualified for the loan even prior to that loan closing. For instance, a potential borrower might, in the course of the loan, buy a new car with a large payment which would decrease their ability to make their proposed mortgage payments in a timely manner.

Any negative change in the borrower's credit profile prior to closing could potentially decrease the amount of the loan they qualify for, increase the interest rate or in the worst case, cause the loan to be entirely declined. The best way to ensure a loan does not fall out due to the supplemental credit report is to be fully informed of what to do and what not to do during the loan process where credit is concerned.

Recently, the monthly E-zine (below) I send to my clients called "YOU Magazine" had a fantastic video and article regarding this issue. You can view it here.

In my next post, I will give a few tips on how to preserve your credit during the loan process to ensure and smooth and timely closing...

Bay Area, Ca Real Estate-Fannie Mae HomePath Listings and Loan Info, Cari Anderson, Diversified Mortgage Group

Last week, Fannie Mae announced that it is extending its popular 3.5% Closing Cost Assistance incentive for HomePath home purchases which was set to expire at the end of April, 2010. The extension is good for closings through June 30, 2010. Below is the email I received detailing the specifics:

Please note that this extension, along with the new state tax credit could be a potential windfall for anyone purchasing a HomePath home! For example, on a $200,000 HomePath home purchase, a buyer could receive $7,000 in closing cost assistance and/or Whirlpool appliances PLUS an additional $10,000 in tax credits over the next 3 years if they are a qualified first time home buyer!

If you are interested in HomePath Financing, I can help you get fully approved before you start your home search. With no appraisal required Diversified Mortgage Group can close your loan in as few as 15 days!

I have 13 years' experience as a mortgage underwriter and I know how to get loans done - ON TIME!!!

For more info on the HomePath loan, see my previous post here.

Jumbo FHA loans, San Ramon, CA, Danville, CA

Are you looking for a great deal on a loan that is above the $417,000 conforming loan limit? Do you have limited down payment funds? Or perhaps you'd rather retain the majority of your savings for reserves or home improvements.

The FHA High Balance (sometimes referred to as Jumbo FHA) loan may be a terrific solution for your home purchase. You can finance up to 96.5% of the homes purchase price! The loan amount can range from $417,001 to $729,250 in the Bay Area. (Click here to find the maximum loan amount for your area)

While rates have been fluctuating a bit lately, I have access to some fabulous pricing on these loans right now!

For example, today (4/22/10) a 30 year fixed Jumbo FHA loan is at 5.0%. Even better, this interest rate is for a no point loan - meaning I would not be charging an origination fee. On top of that, I will also credit you the cost of our processing fee (a $650 value!). Depending on your loan amount, that can be a total savings of up to $7900!*

One thing to be aware of with Jumbo FHA loans is that they do require mortgage insurance due to the fact that you are borrowing well over 80% of the home's value which is the limit to get a loan without any mortgage insurance.

However, if you are looking for a loan above the conforming limit of $417,000 and you have less than 20% for a down payment, the Jumbo FHA  loan is one program you should consider.

Of course it is always wise to compare your options. I can give you a side-by-side cost comparison between all your options so you can make an informed decision.

I have been in the home loan business for over 15 years and 13 of those years I spent as a mortgage underwriter which means I made the decisions as to whether your loan was approved or not. I can guide you through this process and ensure that if you qualify, your loan process will be smooth and timely.

*rates and credits subject to change daily; rate based on a 15 day lock period and representative FICO score of over 700; not a commitment to lend.

It was reported today that there was a dramatic increase in the number of problem banks in the nation. At the end of the 4th Quarter the FDIC had increased the number of troubled banks to 702 up from 552 during the prior quarter.  Many of us are watching the sector very closely as the commercial loan market is under stress and has not worked it's way through the system yet. It was also noted that the FDIC's reserve fund fell to a NEGATIVE 20.9 Billion Dollars by the end of 2009.  Additionally, the Net Charge Off Rate and loans that were at least three months past due were at the highest level in 26 years which is the same period which that type of data has been collected.

The Wall Street Journal has provided an interesting interactive chart & information tracking the banking sector since the fallout began.

As I briefly discussed earlier today the Federal Reserve increased the Discount Rate by .25% after the market close yesterday.  The full press release is available here.  As mentioned in the statement, the FED "anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period".  This should keep a lid on an aggressive upward movement of interest rates in the near term. It is good news that that they are trying to remain "ahead of the curve" on the inflation front while keeping in mind that the economic recovery is fragile.

Those of us in the Real Estate industry, as well as the general public, should be aware and engaged (no matter what side you fall on) that there is much debate on the current spending levels of the government and what they portend for the future.  On the 16^th of this month the President of the Federal Reserve Bank of Kansas City, Thomas M. Hoenig, gave a speech outlining his views on our current fiscal situation.  One brief excerpt: 

"First, the worst choice for our long-term stability, but perhaps the easiest option in the

face of short-term political pressures: We can knock on the central bank's door and request or

demand that it "print" money to buy the swelling amounts of government debt. Second, perhaps

more tolerable politically, although damaging to our economy: We can do nothing so long as

domestic and foreign markets are willing to fund our borrowing needs at inevitably higher

interest rates. Or third, the most difficult and probably the least palatable politically: We can act

now to implement programs that reduce spending and increase revenues to a more sustainable

level."

The full speech(11 pages double spaced) is worth the read.  As this year moves on we are all expecting higher rates and hope that the powers that be are able to successfully walk a very fine line in the aftermath of one of the most trying times for the financial markets in the history of our country.  As the FED begins to unwind the quantitative easing, remove stimulus programs and put us back on a more traditional path it is my hope to see the return of normally functioning markets sooner rather than later.

The recent waiver of HUD's infamous 90 Day Flipping Rule (that we previously wrote about) has brought much optimism for real estate investors and their fiduciaries. We have already had many requests for FHA financing in response to this new mandate. At Diversified Mortgage Group, we have our finger on the pulse of the lending industry and have made numerous inquiries as to which lenders are aligning themselves with HUD's waiver.  We must note that although the waiver is positive news and much-needed, THE SECONDARY MARKET HAS NOT ADOPTED THE PROGRAM. If you are interested in obtaining financing on a property that would earlier have been excluded from FHA financing due to the flipping rule, it is imperative to contact your mortgage professional as soon as possible to ensure a that there is a home for the loan.

I hope I didn't make your head spin too much with the last post about FHA's latest twists and turns. But if you're into the "excitement" read on - there's more!

• Here's the "biggie" - the "E Ticket Ride" that has everyone throwing their hands in the air. Effective for cases assigned on or after February 1^st, HUD has waived its up-to-now dreaded 90 Day Flipping Rule in an effort to facilitate recovery of the housing market. The guidelines for this waiver can be read here. Of course, this is not a free pass - there are still stipulations that must be met for such a transaction to be eligible for FHA financing. For more in-depth commentary on this, we posted an earlier blog on this topic here.
• The next big drop comes in the form of an HVCC look-alike policy for FHA appraisals. Although HUD does not require the use of AMCs for the ordering of an FHA appraisal, it has set forth new guidelines to ensure appraiser independence. Mortgagee Letter 2009-28 originally had this change take effect January 1^st but the deadline was extended to February 15^th. From that point on any party that stands to earn commission compensation from the successful completion of an FHA transaction may not select the FHA roster appraiser. Therefore it will be up to a lender's staff to order the appraisal and we can expect in most, if not all cases, the lender's AMC utilized for conventional loans will be called upon to complete FHA cases as well.
• Finally another loop on the ride comes in the form of a hike in Up Front Mortgage Insurance Premiums for FHA loans. No one is truly shocked by this - we saw it coming when HUD announced their insurance reserve funds were dwindling below the comfort level. On all cases assigned after April 5^th, the new UFMIP will be raised by 50 basis points from 1.75% to 2.25%. As it has been pointed out by many in the industry, since this premium is usually financed on top of the base loan amount, the monthly difference is not too jarring but this hike as well as the looming expiration of the Federal home buyer tax credit are certainly great motivators for potential buyers on the fence! The corresponding Mortgagee Letter 2010-02 can be found here.

Well that's the ride for you! Hope you're not too disoriented. Although I love a good roller coaster, I could use a break from the twists and turns on the FHA ride. But I'm confident that at some point in the future, HUD will begin to benefit from these tweaks, lenders will become more comfortable with the changes and someday (hopefully in the not-too-distant future) the lending landscape will return to a less turbulent experience.

It's only February and HUD has given us quite a bit to digest regarding FHA financing already! Who needs Disneyland with FHA's own roller coaster of changes? Here's a quick roundup of recent changes as well as links to the corresponding Mortgagee Letters:

• On December 16^th of last year HUD released an important guideline regarding potential borrowers who've had a previous Short-Sale or Short-Payoff.  Mortgagee Letter 2009-52
• January 1^st: FHA Maximum loan limits went into effect for 2010 as outlined in  Mortgagee Letter 2009-50
• FHA reduced the shelf-life of property appraisals from 180 to 120 days on existing homes. It also reduced the validity of appraisals from one year on proposed/under construction properties to 120 days as well. (see Mortgagee Letter 2009-30). This went into effect on Jan. 1 as well.
• Another thrilling change regarding appraisals explained in Mortgagee Letter 2009-29 regarding appraisal portability between lenders. Basically it outlines the various hoops a lender must jump through should there already be an FHA appraisal on a subject property which may happen as a result of a deal that fell through or if the original buyer decides to switch FHA lenders. HUD's guidelines are to prevent appraisal shopping by lenders to inflate value or reduce required repairs.
• Mortgagee Letter 2010-03 puts DE (Direct Endorsement) FHA lenders on high alert that it will be reviewing defaults (90 days or more delinquent)and claim rates during the FHA loan's first 24 months and will reserve the right to revoke FHA underwriting and origination ability of lenders whose default claims exceed the thresholds set forth in the letter. 
• The last day for FHA condo "spot approval" case numbers was January 31^st. As of February 1^st, FHA's new condo approval processes (termed HRAP and DELRAP) went into effect. Although spot approvals came in handy, I believe that this process will actually streamline FHA condo financing. Two mortgagee letters (Mortgagee Letter 2009-46b and Mortgagee Letter 2009-46a) outline the new processes.

Whew! That's only the first month's announcements! You probably need to get off the ride now and regain equilibrium before we go any further. I'll outline the next wave tomorrow...buckle up!