If you live in a high-cost area, keep an eye on your calendar. Effective October 1, 2011, temporary conforming loan limits will be lowered nationwide. Perhaps by as much as 14 percent.

These limits range up to $729,750 currently.

“Temporary loan limits” were enacted as part of the government’s 2008 economic stimulus package. At the time, the financial sector was entering its crisis and private mortgage lending had all but disappeared. Financing was scarce for both homeowners and home buyers for whom loan sizes exceeded Fannie Mae and Freddie Mac’s national $417,000 limit — even for those with excellent credit and income.

The issue was exacerbated in places like New York City where local home prices routinely topped $1 million. Buyers unable or unwilling to bring a substantial downpayment to closing (i.e. $600,000 or more) found themselves without financing.

The February 2008 package addressed this issue, using a math formula to change loan limits in Danville and nationwide. The government assigned to each U.S. metropolitan area a temporary, new loan size limit equal to 25% greater than its respective median home sale price, not to fall below $417,000, and not to exceed $729,750.

Then, later that same year, the Housing and Recovery Act made “high-cost areas” permanent, but with a reduced 15% increase to median home prices, and loan sizes not to exceed $625,500.

These new limits take effect October 1, 2011 — one day after the temporary limits expire.

If you live in a high-cost area, therefore, take note. Mortgage rates may be low, but the amount of loan for which you qualify may be less than you expect, and you may find yourself ineligible.

Whether you’re planning a refinance or a purchase, keep an eye on the calendar.

The complete list of high-cost areas is available online.

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Another quarter, another sign that mortgage lending may be easing nationwide.

The Federal Reserve’s quarterly survey of senior loan officers revealed that an overwhelmingly majority of U.S. banks have stopped tightening mortgage requirements for “prime borrowers”.

A prime borrower is one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

Of the 53 responding “big banks”, 49 reported that mortgage guidelines were “basically unchanged” last quarter. Of the remaining four banks, two said mortgage guidelines had “eased somewhat”, and the remaining banks said guidelines “tightened somewhat”.

It’s the second straight quarter in which fewer than 5 percent of banks tightened guidelines, and the first quarter in nearly 5 years in which the number of banks that loosened guidelines equaled the number of banks tightening them.

The easing in mortgage lending is a positive development for the housing market; and for buyers in Danville and nationwide. Looser lending standards means that more buyers will be approved for home loans, and that should spur home sales forward across the region.

However, don’t confuse “looser standards” with “irresponsible standards”. It’s much more difficult to get financing today as compared to 2006. Delinquencies and defaults have altered how a bank reviews a loan application.

Today, underwriters are more conservative with respect to household income, total assets and overall credit scores. Even as compared to just 6 months ago:

• Minimum credit score requirements are higher
• Downpayment/equity requirements are larger
• Maximum allowable debt-to-income ratios are lower

If you can get approved, though, your reward is that mortgage rates are especially low. Since early-April, both conforming and FHA mortgage rates have been on a downward trajectory, and pricing is near a 6-month low.

Home affordability is at an all-time high, too.

Looser guidelines and lower rates should help fuel home demand through the summer months. If you’re in the market to buy, your timing appears to be excellent.

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1. Mortgage Guidelines Start To Loosen At The Country’s Biggest Banks

Another quarter, another sign that mortgage lending may be easing nationwide.

The Federal Reserve’s quarterly survey of senior loan officers revealed that an overwhelming majority of U.S. banks have stopped tightening mortgage requirements for “prime borrowers”.

A prime borrower is one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

Of the 53 responding “big banks”, 49 reported that mortgage guidelines were “basically unchanged” last quarter. Of the remaining four banks, two said mortgage guidelines had “eased somewhat”, and the remaining banks said guidelines “tightened somewhat”.

It’s the second straight quarter in which fewer than 5 percent of banks tightened guidelines, and the first quarter in nearly 5 years in which the number of banks that loosened guidelines equaled the number of banks tightening them.

The easing in mortgage lending is a positive development for the housing market; and for buyers in Danville and nationwide. Looser lending standards means that more buyers will be approved for home loans, and that should spur home sales forward across the region.

However, don’t confuse “looser standards” with “irresponsible standards”. It’s much more difficult to get financing today as compared to 2006. Delinquencies and defaults have altered how a bank reviews a loan application.

Today, underwriters are more conservative with respect to household income, total assets and overall credit scores. Even as compared to just 6 months ago:

• Minimum credit score requirements are higher
• Downpayment/equity requirements are larger
• Maximum allowable debt-to-income ratios are lower

If you can get approved, though, your reward is that mortgage rates are especially low. Since early-April, both conforming and FHA mortgage rates have been on a downward trajectory, and pricing is near a 6-month low.

Home affordability is at an all-time high, too.

Looser guidelines and lower rates should help fuel home demand through the summer months. If you’re in the market to buy, your timing appears to be excellent.

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When a mortgage applicants chooses an adjustable-rate mortgage over a fixed-rate one, he accepts a risk that — at some point in the future — the mortgage’s interest rate will rise. Lately, though, that hasn’t been the outcome.

Since mid-2010, conforming mortgages have adjusted below their initial “teaser” rate consistently, giving homeowners in California and nationwide reason to ride their respective adjustable-rate mortgages out.

For example, this month, conforming 7-year and 5-year ARMs are adjusting near 3.011 percent based on the most common loan terms of 2004-2006. It’s because of how adjustable-rate mortgages are structured.

Adjustable-rate mortgages follow a defined lifecycle. First, the ARM’s mortgage rate is pegged; held fixed for a set number of years. This period ranges from one year to 10 years; periods of five and seven years are most common.

When the initial fixed-rate period ends, the mortgage rate then adjusts based on a pre-set formula. The formula is established by contract in the mortgage closing paperwork, and is commonly defined as:

(Adjusted Mortgage Rate) = (2.250 percent) + (Current 1-Year LIBOR)

Next, every 12 months, based on the same formula as above, the ARM adjusts again until 30 years have passed and the loan is paid is full.

It’s important to recognize that in the above equation, LIBOR is a variable so as LIBOR goes, so goes your adjusted mortgage rate. And because LIBOR is ultra-low right now, adjusted mortgage rates are ultra-low, too. LIBOR is expected to stay this way until the global economy has recovered more fully. Analysts predict a higher LIBOR by mid-2012.

So, if you have an adjustable-rate mortgage that’s due to reset this season, don’t rush to refinance. For at least one more year, you can benefit from low rates and low payments.  As for the next adjustment, though, that’s anyone’s guess.

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After this week ends, the FHA is raising mortgage insurance premiums on its new Danville borrowers. It’s the FHA’s third such increase in the last 12 months.

Beginning with FHA Case Numbers assigned April 18, 2011, mortgage insurance premiums will be higher by 25 basis points per year, or 0.25%.

Against a $200,000 loan size, the MIP increase adds $500 to an FHA-insured borrower’s annual cost of homeownership. All new FHA loans are subject to the increase — purchases and refinances.

Existing FHA-insured homeowners across California are unaffected. Premiums do not rise for loans already made.

The FHA is increasing its mortgage insurance rates because, as a group, the FHA is insuring a much larger percentage of the U.S. housing market. 

In 2006, the FHA held a 4 percent market share. By 2010, that share ballooned to 19 percent and, today, it’s estimated to be even higher.

In its official statement, the FHA says that the quarter-point MIP bump will “significantly strengthen” its reserves which are depleted because of delinquencies and defaults. By law, the FHA’s capital reserves must meet certain levels. 

Therefore, to meet these requirements, the FHA is rolling out its new mortgage insurance premium schedule:

• 15-year loan term, loan-to-value > 90% : 0.50% MIP per year
• 15-year loan term, loan-to-value <= 90% : 0.25% MIP per year
• 30-year loan term, loan-to-value > 95% : 1.15% MIP per year
• 30-year loan term, loan-to-value <= 95% : 1.10% MIP per year

In order to calculate what your FHA monthly mortgage insurance premium would be, multiply your beginning loan size by your insurance premium in the chart above, then divide by 12. 

The FHA also charges a 1 percent, up-front mortgage insurance premium at closing. That figure remains unchanged.

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FHA Streamline Refinance guidelines are changing. For the better.

In an effort to improve its loan portfolio, the FHA is loosening approval standards on its popular refinance program, rendering large groups of homeowners suddenly FHA Streamline-eligible.

Now, that may seem counter-intuitive — lowering qualification standards in order to reduce loan defaults — but in the FHA’s case, it makes complete sense. It’s because the FHA doesn’t make loans. It insures them. What’s good for FHA-insured homeowners is good for the FHA, therefore.

All things equal, lower housing payments for its insured homeowners should correlate to fewer FHA loan defaults in California and   nationwide.

One interesting facet of the FHA’s new rulebook is the manner in which the government group is applying common sense to the approval process. So long as the homeowner is current on their mortgage and there’s a demonstrable benefit in the refinance, the FHA reasons, there’s good reason to insure the new loan.

The FHA defines “current on the mortgage” as being up-to-date on payments, and having zero 30-, 60-, or 90-day lates within the last 12 months. Demonstrating benefit is a little more tricky.

According the FHA, “benefit” is defined by refinance type.

When refinancing any fixed rate mortgage, or an existing ARM to a new ARM, the borrower’s new monthly (principal + interest) + (mortgage insurance premium) must be 5% or more below the current levels to meet the FHA’s minimum benefit requirements. 

The refinance of any ARM to a fixed rate mortgage is considered an acceptable benefit.

Beyond that, Streamline Refinance guidelines are simple:

• Income is not verified, or required
• Employment is not verified, or required
• Assets are not verified, unless required to meet closing costs

Note that an appraisal is not required, either This allows “underwater” homeowners to refinance their FHA-insured home loan without penalty. The downside is that without an appraisal, the new loan size may not exceed the current principal balance plus the FHA’s 1% upfront mortgage premium. All other charges must be paid as cash at closing.

The FHA Streamline program is a refinance program special to FHA-insured homeowners. To confirm your own eligibility, check with your lender.

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Beginning April 1, 2011, Fannie Mae is increasing its loan-level pricing adjustments. Conforming mortgage applicants in California should plan for higher loan costs in the months ahead.

If you’ve never heard of loan-level pricing adjustments, you’re not alone; they’re an obscure mortgage pricing metric and, thus, are rarely covered by the media. That doesn’t make them any less relevant, however.

LLPAs are mandatory closing costs assessed by Fannie Mae and Freddie Mac, designed to offset a given loan’s risk of default. LLPAs were first introduced in April 2009.

This April’s amendment is the 6th increase in 2 years. LLPAs can be costly.

In addition to an up-front, quarter-percent fee applied to all loans, there are 5 additional “risk categories” in the LLPA equation:

1. Credit Score : Lower FICO scores trigger additional costs
2. Property Type : Multi-unit homes trigger additional costs
3. Occupancy : Investment properties trigger additional costs
4. Structure : Loans with subordinate financing may trigger additional costs
5. Equity : Loans with less than 25% equity trigger additional costs

Adjustments range from 0.25 points (for having a 735 FICO score) to 3.000 points (for buying an investment property with just 20% downpayment). And they’re cumulative. This means that a borrower that triggers 3 categories of risk must pay the costs associated with all 3 traits.

Loan-level pricing adjustments can be expensive — up to 5 percent or more of your loan size in closing costs. The fees can be paid a one-time cash payment at closing, or they can be paid in the form of a higher mortgage rate.

The loan-level pricing adjustment schedule is public. You can research your own loan scenario at the Fannie Mae website, but you may find the charts confusing.

Phone or email your loan officer if you’re unsure of what you’re reading.

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Mortgage lending appears to be loosening. At least for now.

In its quarterly survey of member banks, the Federal Reserve asks senior loan officers around the country whether their “prime” residential mortgage guidelines had tightened within the last 3 months.

A prime borrower is one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

Of the 54 responding banks, just 2 said its guidelines had tightened during the period October-December 2010. That’s less than 4 percent. And, by comparison, 95 percent of banks said guidelines remained “basically unchanged”.

The remaining banks reported a loosening.

It’s a positive sign for the housing market, and for home buyers in Danville and nationwide. If banks have stopped raising the hurdles of home loan approval, in theory, more would-be buyers will be approved.

It’s much tougher to get a home loan versus 5 years ago. Delinquencies and defaults have changed how banks review loan applications. Today’s underwriters are more conservative with respect to household income, total assets and overall credit scores.

Even as compared to January 2010, approval standards are higher : 

• Minimum credit score requirements are higher
• Downpayment/equity requirements are larger
• Maximum allowable debt-to-income ratios have been lowered

Although mortgage rates remain low, qualification standards do not. Based on last quarter’s banking survey, however, mortgage applicants in California may find approvals easier to come by soon. Low rates don’t matter, after all, if you’re not eligible to get them.

The housing market is strong and lending looks to be loosening. It should help fuel the demand for homes in 2011, which will push supplies down and lead prices up. For homeowners that qualify, therefore, the best time to purchase a home may be sometime this spring.

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Fannie Mae rolls out new mortgage guidelines Monday. Therefore, if you’re in the process of applying for a conforming home loan, consider giving your complete application by the close of business Friday.

All Fannie Mae applications taken on, or after, December 13, 2010, are subject to the changes.

As compared to mortgage guidelines updates of the last 3 years, Monday’s roll-out is relatively small. There is no change to the maximum debt-to-income ratio, for example; nor is there an increase in the minimum FICO score requirement.

Most mortgage applicants in Danville and nationwide will be unaffected.

Others, however, will find getting approved to be more difficult.

The most major change is with respect to revolving and installment debt. This category includes credit cards, charge cards, and student loans, among others. Going forward:

1. Debt with fewer than 10 payments remaining must now be included in an applicant’s monthly obligations.
2. Debt not reporting a monthly payment must be assigned a payment equal to 5% of the outstanding credit balance.

These edits will raise applicants’ debt-to-income ratios, and may push some of them beyond the maximum allowable limits, resulting in a denial. People with relatively large car payments are especially susceptible.

Another change relates to receiving gift funds for a purchase. Unlike debt calculations, though, the “gifting” process is getting easier.

Under the new Fannie Mae guidelines, buyers of owner-occupied, 1-unit properties (i.e. single-family homes, condos, townhomes) can forgo Fannie Mae’s customary, minimum 5% downpayment contribution from personal funds. Downpayments can be comprised 100 percent of gifted and/or granted monies.

Buyers of second or investment homes, or multi-unit properties must still make a 5% downpayment from their own funds.

And, lastly, Fannie Mae is easing some of its documentation requirements. Salaried applicants from whom commissions and/or bonuses paid account for less than 25% of annual income will have fewer paystubs to produce for underwriting.

Fannie Mae’s complete guideline changes are available online at http://efanniemae.com.

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It’s getting tougher to get approved for a mortgage. Still.

In its quarterly survey of senior loan officers around the country, the Federal Reserve asked whether “prime” residential mortgage guidelines” have tightened in the prior 3 months.

A “prime” borrower typically carries a well-documented credit history with high credit scores, has a low debt-to-income ratio, and uses a traditional fixed-rate or adjustable-rate mortgage.

For the period July-September 2010, 52 of 54 responding loan officers admitted to tightening their prime guidelines, or leaving them “basically unchanged”.

Just 4% of banks loosened their lending standards.

If you’ve applied for a home loan lately — for either purchase or refinance — you’ve likely experienced the effects of the last 4 years. Because of delinquencies and defaults, today’s mortgage underwriters are forced to scrutinize income, assets and credit scores, among other facets of an home loan application.

Mortgage applicants in Danville have higher hurdles to clear:

• Minimum credit scores are higher versus last year
• Downpayment/equity requirements are larger versus last year
• Debt-to-Income ratios must be lower versus last year

In other words, although mortgage rates are the lowest they’ve been in history, qualification standards are not.  Minimum eligibility requirements are tougher, and appear to be toughening still.

If you’re among the many people wondering if now is the right time to join the Refinance Boom, or to buy a home, consider that, while mortgage rates may fall further, eligibility standards may not.

Low mortgage rates don’t matter if you can’t qualify for them

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