Oregon Mortgage Blog

Why is Mortgage Underwriting So Crazy?

James — Wed, 25 Jan 2012 22:59:09 +0000

Why is the loan approval process so difficult these days? Well, the answer is complicated. The truth is that the approval and funding process for a conforming, FHA, or VA, government insured mortgage has never been more complex since I’ve been in the business (since 2003). To get to the root of this issue we need to get into the way-back machine and go back to the year 2004.

This is the year of the ascendancy of the sub-prime mortgage industry. These companies realized that there was a HUGE appetite for AAA rated mortgage backed securities. So they began to package and feed mortgages into these secondary markets (the two biggest of which are known as Fannie Mae and Freddie Mac) created by the investment banking companies on Wall St., who in turn pooled the loans and created high yield bond offerings for pension funds, sovereign funds, endowments etc.

Every step of the way, the loan companies and the investment banks (and the pension funds) are making huge fees and returns and everyone is STOKED! …and they just want MORE MORTGAGES TO BE WRITTEN, right? So the mortgage origination companies began to widen the scope of what would be considered an acceptable lending risk, and loosen the before now standard restrictions that have kept many from buying real estate in the past. They OPEN THE FLOODGATES, and it’s never been easier to get a mortgage. Regular banks get wild too, just to keep up–because like I mentioned, every participant in this system is stacking up tons of cash and getting bonuses and high fives from their bosses and wives and parents, etc.

You’ve all heard the story by now, I’m sure, but eventually, we get too loose, and have packed so many horribly risky mortgages into the system that it begins to crater. Now its late 2006, and real estate appreciation begins to flatten, and decline. Defaults explode, mortgage companies start folding, and the slow motion train wreck that is known as the “foreclosure crisis” comes to pass. In 2007 we actually realize that Fannie Mae is bankrupt, but the government realizes that having them close down is unacceptable for America, so the Bush administration tells Fannie and Freddie to continue operating even though they are losing billions every quarter.

So… now we’re caught up to 2012. Still working within the FNMA/FHLMC (fannie/freddie) system, but now NOBODY is making money or high fiving their bosses. FNMA’s CEO actually just resigned unexpectedly a couple weeks ago. Every loan that gets pushed into this system is now just another THREAT! And the GSE’s continue to lose billions every quarter.

As a result, we are all seeing underwriting guidelines that are just outrageously comprehensive in the level of detail required from borrowers. So I don’t want anyone to be discouraged from attempting the process, but just be prepared to PROVE everything! And the approval process is now completely income driven. If you are hoping to get by on strength of credit and assets, you will be disappointed.

Here’s the key concept for you, dear reader: The job of the underwriter is to organize and document the details of the borrower and the property in such a way that is acceptable to the GSEs, and the GSEs could basically care less if they take on more loan files! You could even argue that THEY DON’T WANT THEM! Its a very odd dynamic to say the least.

My main job as a loan originator is to set your expectations properly. So buckle up! Let’s take advantage of some HISTORICALLY LOW MORTGAGE RATES, and grab our opportunity to reduce costs, save money, and build equity together! I always tell my clients: if everything goes perfectly this will only be a minor inconvenience.

New HARP loan “HARP 2″ + new FHA loan limits 2011

James — Tue, 22 Nov 2011 05:16:29 +0000

Christmas might be coming early for homeowners in Oregon and Washington! The Obama administration has been putting pressure on banks to come up with ways to extend opportunities to refinance into lower rates in recent months, and it appears that we’re getting some movement on this finally. The original HARP loan (aka: Home Affordable Refinance Program) has been around since early 2009, and allows homeowners to refinance their existing first mortgages into lower rates, EVEN if the value of the securing property has gone down dramatically. The program allows you to borrow 125% of the appraised value of the home, but most major lenders only really allow for 105%. A great program all around, however – all Obama can do is have FNMA create the guidelines, but lenders still have to deliver the program based on those guidelines (FNMA is NOT a lender, but buys loans from banks). Many have been disappointed with the final numbers, the government thought that millions of families would benefit from this program, but since its come out, only eight hundred thousand or so of these HARP loans have been written. Given the current economic environment, Obama wants to remove as many barriers as possible for homeowners to access the savings and stability these low rate mortgages provide…. enter “HARP 2″.

HARP 2 is supposed to completely get rid of any value requirements. We’ll see if lenders jump in on this program. I know of a dozen people off the top of my head that would benefit greatly from being allowed to lower their payments, get out of an interest only program and start the process of their own debt to equity improvement program. Early indications are promising that this program will become available to borrowers trying to refinance underwater homes in Portland very soon.

In another area that has been recently restricted, we’re seeing indications that FHA loan limits will return to their former glory in coming days/weeks as well. FHA loan limits were reduced this fall from $417,000.00 in our market to $362,500. This is great news for any FHA loan holder who would benefit from an FHA streamline loan. Right now, if your current loan is greater than this new FHA max allowable, you are stuck with what you’ve got (shy of cutting a big check at close). With rates being at these amazing low levels, just about all FHA borrowers can be benefiting from a streamline. Hang in there! Help is on the way!!

Is it Possible to Buy Real Estate with Less Than 20% Down?

James — Sat, 29 Oct 2011 01:12:26 +0000

A realtor colleague of mine was recently relating his shock to me about how often he is talking to renters who aren’t considering buying real estate because they are under the impression that a purchase requires a 20% down payment. This idea couldn’t be further from the truth, and this message is sadly often relayed on TV from uninformed talking heads and people who are obviously not real estate professionals. I’m here to tell you the truth, dear blog reader! Isn’t that why you read blogs?!

The truth is that just about every borrower in the market could qualify to put less than 20% down if they chose to. The FHA loan is one of the easiest loans to qualify for and it isn’t just for first time home buyers, nor is there an income cap on this program… and it only requires a 3.5% down payment, but I digress… let me break this down for you in internet-friendly bullet point fashion.

PRIMARY RESIDENCE LESS THAN 20% DOWN

THE FHA MORTGAGE: The trusty FHA — where would the world be without FHA mortgage insurance? I hope none of us ever have to find out. The FHA loan is the easiest of all loans to qualify for: it requires the least amount of cash, the least amount of credit history, allows for the highest debt to income ratios (which means “least amount of income”), etc. etc. The FHA loan requires a minimum cash contribution from the buyer of 3.5% of the purchase price, has some of the lowest rates in the market, and carries an annual mortgage insurance policy of 1.15% of the loan amount per year/paid monthly.
3% DOWN “community” Mortgages: Private mortgage insurance is back in Portland. We’re on the list of stabilized markets according to the PMI actuary peoples. This means that if you have a good credit score and some cash reserves (retirement funds qualify for reserves), you can actually buy a house with only 3% of the purchase price required from the buyer. PMI also allows for 5% down, 10% down and 15% down. The more you put down, the lower the cost of that MI policy. For an idea about how much each down payment costs in monthly MI please see my “mortgage calculator reference page“ This is for what is called “Borrower paid MI” which means the borrower pays for the mortgage insurance a little every month embedded into the monthly payment.
LPMI / Lender Paid Mortgage insurance: You can finance up to 95% of the value of a property with LPMI- which means that you can have the lender pay for your mortgage insurance. This is reflected in an above market mortgage rate, but for many this approach makes a TON of sense. Its better for shorter term holds or for those who might not qualify to deduct the mortgage insurance against their taxes. The LPMI gives the borrower a better payment than BPMI, and also a better tax deduction.
Zero Down loans: The USDA loan and the VA loan are the only remaining zero down loans in the marketplace (some credit unions have some very limited zero down offerings but I can’t really speak to that as they aren’t available for me to offer). See my post on no money down loans for real estate in Oregon and Washington for details on how to qualify.
The Homepath loan: The homepath loan allows for 3% down, and has NO mortgage insurance! It also allows for 10% down on second home/vacation homes as well as 10% down for Investment property… all with no mortgage insurance! See my post on foreclosure financing loans for more information on the Homepath Loan.

So, what have we learned today? Stop renting! Call your realtor, and apply for a mortgage today!

Operation Twist = Mortgage Rate Bonanza

James — Thu, 22 Sep 2011 18:47:01 +0000

Yesterday’s announcement from the Fed’s quarterly meeting was a major market mover–especially for mortgage rates. Ben Bernanke announced the initiation of something called ‘operation twist’, which many market observers were prepared for, but my understanding is the tone of the announcement really made the bond market jump to levels never before seen, with the result being the lowest mortgage rates ever seen in the US. I get some great information from a market analyst in the Chicago area named Doug Nardi, and I’m copying and re-posting his assessment for you, here:

The Federal Reserve’s Operation Twist was everything it was cracked up to be, and even a bit more. While the stock market was less than impressed with the central bank’s latest stimulus plan, the bond market was all for it. The Fed announced it would direct $400 billion from the sale of treasuries of three years and less in duration and invest it in those with maturities of 6 to 30 years.

The total was about $100 billion more than expected and an indication that the Twist–which seeks to lower long-term borrowing costs (mortgage rates mainly) by compressing the yield curve for government debt–was on in a big way. Listed below is an excellent synopsis from our research partner ISI of today’s Fed actions.

Highlights:

1. Summary – The Federal Reserve decided to engage in operation twist as widely expected. The size, however, at $400 billion, was larger than expected. The Fed also decided to reinvest proceeds of maturing agency and mortgage securities into more mortgages instead of into Treasuries. The Fed’s outlook is bleaker than last time, with now “significant downside risks.”

2. Growth Outlook – There weren’t many significant changes in the first two paragraphs of the statement, but the assessment that risks are now significantly to the downside is notable. Overall, the Fed has probably further reduced its expectations of what growth is likely to be in coming quarters.

3. Inflation Outlook – No concern at all on the inflation front. The statement said that “inflation appears to have moderated” from earlier in the year, even if the most recent CPI is at 3.8%. The Fed thinks that the combination of a weaker economy and the recent decline in commodity prices will result in lower inflation going forward.

4. Policy Stance – The Fed decided to sell $400 billion of Treasuries with remaining maturity of 3 years or less and to buy the same amount of Treasuries with maturities of 6 to 30 years. According to the table released by the NY Fed, re-investments will be as follows: 32% of the total between 6-8 years; 32% between 8-10 years; 4% between 10-20 years; 29% between 20-30 years; 3% in TIPS between 6-30 years. The amount in 20-30 years is larger than expected, hence the large drop in the 30 year Treasury yield.
The Fed also decided to reinvest the proceeds of maturing agency and mortgage securities in other mortgages instead of in Treasuries. The estimated amount is about $20 billion per month or maybe slightly more, depending on refinancing activity. This could be significant because it could lower mortgage rates by reducing the spread of mortgage securites to Treasuries.

The Fed maintained its conditional commitment to keep short rates very low until at least mid-2013.

5. Looking Ahead – The Fed maintained an easing bias, so it is prepared to do more should the economy not improve. At least part of that may come through the communication of what it will take for the Fed to raise rates. The aim would be to make it clear that rates will not increase for longer than the 1.75 years currently in the statement. That should keep the yield curve lower and anchor yields even beyond two years, thus further motivating investors to buy risky assets. We will have to wait for the minutes of the meeting and other communications to see if this is something we can expect to see happening in the relatively near term.

———————–

What this means for mortgage holders is that this week is an unprecedented opportunity to lower the cost of your debt. Don’t forget that lowering your rate gives you two choices:

1. You can have more money each month to direct to other debts or future savings/investments, or:

2. You can accelerate the payoff of your mortgage entirely.

How Does the Debt Ceiling Affect Mortgage Rates?

James — Fri, 29 Jul 2011 05:17:21 +0000

This debate is unavoidable, so I won’t try to establish any context for this blog post. I’ll just try to keep this very simple for those of you who are searching for some quick perspective on how this current debt ceiling debate might impact residential mortgage rates and fees.

***DISCLAIMER*** I am not an economist. I have 9 years of mortgage lending experience and a Bachelors degree in communications from NC State University (Go Wolfpack).

Mortgage rates are directly derived from FNMA mortgage bond offerings. This bond is sold just like any other bond, and competes with other municipal and corporate bond offerings. The yield of this bond changes from day to day. When the overall economy is “good,” this yield generally comes UP to attract investors (competing against stocks)… when the economy is poor, this yield comes down, as investors want to buy these bonds for “safety” (bonds are considered safer investments than stocks)… and when investors want the safety, the bond makers don’t have to offer much yield to get a purchase right? Mortgage rates are based on this specific bond yield… yield goes UP, rates go UP… yield goes DOWN, rates go DOWN.

Regarding this current political debate on the debt ceiling, my thought is this: If the United States goes into default, this could trigger a ratings downgrade for our government bond offerings. This downgrade would undoubtedly pressure bond yields AND mortgage rates higher, and this change could happen quite rapidly, to the tune of .375-.625% swing in RATE.

Conversely if we somehow make a “grand deal” to raise this ceiling and avoid a downgrade, we could see markets normalize, and even improve (in terms of mortgage rates). Global economic news is all extremely “bond friendly” still, and once we get the ceiling raised, I would expect continued, steady and stable and VERY low mortgage rates.

How to save your money: Webinar invitation

James — Fri, 22 Jul 2011 18:17:45 +0000

“Establishing your cash reserve: the first step to financial safety”

Join James Adair from Portland Home Loan for a Webinar on July 28: 12:15-12:50 (during your lunch hour)

Space is limited.
Reserve your Webinar seat now at:

YES! I WOULD LIKE TO REGISTER FOR THE WEBINAR

What exactly will we discuss?

The first step to ensuring long-term financial safety, and protecting yourself from life’s unexpected events, is establishing an appropriate Cash Reserve, or “Emergency Fund”.

This event will be presented by Trevor Hammond from Makena financial. He is a certified financial coach, and liability advisor. He is also the inventor and CEO of ”My Financial Independence Coach“.

Please register and join us for this 35-minute complimentary webinar, brought to you by Mortgage Trust, Inc. You will learn:

- How much do I need, based on my unique situation?
- How should I get it started?
- Where should I save it?
- What happens when I’m forced to use some of it?
- Should I pay off debt or establish my cash reserves first?

So bring your lunch back to your desk, log in, and learn during this 35 minute on-line workshop.

*Space is limited for this online event, so register soon!

PS – Have a friend who would like to attend? Simply forward this post to them. This exclusive event is for clients, friends, and partners of Mortgage Trust, Inc. We are committed to helping you achieve a safer, more successful financial future!

Title:	Lunch & Learn Webinar – Establishing Your Cash Reserve: The First Step to Financial Safety!
Date:	Thursday, July 28, 2011
Time:	12:15 PM – 12:50 PM PDT

What To Do If You Are Underwater On Your House

James — Thu, 16 Jun 2011 06:02:19 +0000

Many of us are finding ourselves living in homes worth less than we paid to purchase them (myself included). Some of us purchased with a down payment, to find that equity we started with evaporating at what seems to be an alarming and relentless clip. Some of us purchased with little or no money down and feel stuck in a home that cannot be sold for what is owed on it. These are troubling times for the recent home owner – and many of us need more than a mortgage 101. But I’m here with a message of hope. I recently met with a young woman who purchased a home with zero down in 2007 for $225,000.00 and bought with a fixed rate INTEREST ONLY product (meaning: she still owes $225 against it). She wanted to see what a refinance would look like for her. I told her to brace herself for what the appraisal would show us. I suggested that we look at an FHA refinance which is the loan that allows for the least amount of equity (FHA will allow 97.75% of the appraised value on a rate/term refinance in Portland) and hope for a strong appraised value. Well, we got the appraisal and the value came in at $177,500. What this meant to her was that if she wanted to proceed with this refinance loan she would have to bring over fifty thousand American dollars to the closing table to make it go. Crazy, right? Of course that is a deal killer, right? Wrong, we’re going ahead with this loan and we’re happy to do it because it makes great sense for this particular borrower and here’s why:

1. The loan she is currently in is particularly horrible. Its a fixed rate, no mortgage insurance loan at a rate of 8.5%. We are able to get her a new FHA insured loan at 4.25% (at the time of blogging this).

2. She intends to keep this house for a long time. Even if she wants to move in the future, her plan is to retain this home as a rental.

3. She has access to the cash to make the loan work.

4. The annual return on this cash ($55,000 to be exact) AFTER TAX is $3,540. She will spend $3540 less per year to own this home.

This return on cash is about 6.3% AFTER TAX — meaning adjusted for the lowered tax benefit of the lower interest rate. Also, if she were to invest this $55k, any gains would be taxable so she’d have to make about 15-20% more return to net this same amount. This is a good return on your money if you ask me, and the best part is that its guaranteed. Additionally, if we can average a 1.5% property appreciation over the next 10 years, she will be made whole again on the $55k she initially parted with (unfortunately this part is NOT guaranteed… although quite likely I think).

When you put these factors together along with the experience of feeling the IMMEDIATE benefit of the new and improved loan. You can see why we think moving forward is the right move.

If you would like me to do some analysis on YOUR particular situation, I would be happy to create a custom report that shows what these low rates can really mean for you. Generally, if you have the cash, AND the intention to stay in the home for a while, re-structuring your current financing could be a no-brainer.

Call or email anytime! I am licensed to lend in both Oregon and Washington.

FHA Streamline: How to Qualify

James — Sat, 04 Jun 2011 20:56:00 +0000

I should have subtitled this post: “Why you might NOT Qualify”

The FHA mortgage continues to be one of the most popular mortgages in Portland. The reason for this is undoubtedly its FLEXIBILITY. The FHA loan is the easiest to qualify for, requires the least amount of cash, has the lowest credit requirements, allows for gift funds on the down payment, allows for non-occupying co-borrowers to fully count towards the DTI, the list goes on. But once you’ve GOT the FHA loan in place, the flexibility continues!

For one, the FHA loan is always “Assumable”. This means that when you want to sell your home, you can also offer your mortgage to be assumed by the buyer (provided they qualify with the lender, etc). Imagine how much value that might have in 5 or 10 years when rates are at 7%… or maybe the 30 year fixed mortgage won’t even EXIST in a decade?! How attractive will it be selling your home with 20-25 years remaining on a 4.5% fixed rate? So, assumability is a great value added feature on the FHA.

The other really cool thing about the FHA loan is the “FHA Streamline Refinance” program. The Streamline is nice because you don’t necessarily have to get an appraisal (there is an option to get one with an appraisal, but in this market that hasn’t been the smart option). So if you’ve lost some ground on your equity, you can still qualify to take advantage of lowering rates…. Except not really this year.

Even though FHA rates on the 30 year fixed are approaching 4.25%, many FHA loan holders with rates in the low 5% range won’t qualify for any savings. The reason is because of the increase in the FHA mortgage insurance premiums that took place this spring. A year ago, FHA monthly MI was based on .55% of the loan amount annualized, and now that has more than doubled to 1.15% per year.

Long (and let’s be honest: boring) story short- Even though the rates are lower, your payment won’t be lower. I took a look at a refi for a client in a 5.25% FHA fixed rate. If we lowered him to 4.5% but added the NEW mortgage insurance structure, we only saved ONE DOLLAR per month! You wouldn’t even be able to get the loan if you wanted! The FHA streamline requires a minimum payment improvement.

So I know many of you reading this have received very official looking and super attractive refinance offers in the mail, let me assure you that its probably too good to be true. If you would like a quick analysis on YOUR FHA loan to see if you would qualify for the streamline program, please do not hesitate to fill out the “online rate quote” form found at the upper right of this site.

Low Rates and the Return of Private Mortgage Insurance (PMI)

James — Tue, 17 May 2011 17:19:27 +0000

Its happening again. Rates are tumbling and tumbling more. I read recently that avoiding closing costs in a declining rate environment is a wise approach and I completely agree. By avoiding closing costs two things happen:

1. The net benefit of the improved cash flow is immediately realized, and

2. You are in a position to refinance AGAIN as rates continue to slide. Because you haven’t paid any of your equity there is not much downside.

I’ve been making loans since 2003, and rates have pretty much always been really attractive with a few exceptions (sorry purchasers of the summer of 2006! I hope you’ve refinanced out of your 6.625% fixed).

Something else is brewing that I think bodes well for our real estate marketplace: the return of Private Mortgage insurance, aka PMI. PMI has been on the sidelines in recent years. This isn’t surprising because when homes default, the banks cash in their PMI policies. You see — PMI is to protect the BANKS not the borrowers. PMI is good for borrowers and home owners because it ALLOWS lenders to lend and borrowers to buy, which is obviously critical.

Since 2007, mortgage insurance has been deductible for families with annual incomes less than $105k (DEFINITELY consult a CPA to confirm this — I’m just some jerk mortgage blogger), so there are a lot of reasons why I am very happy that mortgage insurance exists. Anyway — as property values declined in recent years, MI companies were requiring more equity and charging higher premiums. That is all reversing now!

This is particularly good in light of the recent increases in FHA mortgage insurance (which is now 1.15% of loan amount annually for ALL FHA’s). It appears that the PMI companies are jumping back into the market place to provide lower cost options for borrowers. So even if you only have 5% down — a conforming loan with PMI will likely be a better loan for you than the FHA — but ONLY IF your credit score is high.

Thank god for the FHA loan too — It will ALWAYS be a great loan to consider for a variety of reasons… But now there are some very compelling alternatives that borrowers should be looking at.

Free Resources for Divorcing Couples in Portland, Oregon

James — Sun, 24 Apr 2011 22:35:56 +0000

If someone you know is contemplating a divorce, do them a favor and send them a link to this blog post. Helping families in a divorce is one of my core services as a mortgage professional. I can help families get their finances and debts clarified and organized, as well as help them make clear decisions about what their options are with any real estate holdings. Not only have I been specially trained in analyzing real estate, liabilities and credit and how they apply to a divorcing family, but I also offer a FREE online resource for divorcing couples in Portland called “Divorce Shield”.

The divorce shield service is a completely free, anonymous website where you can download a customized plan for yourself that will highlight the specific decisions you will have to make.

Visit my site to DOWNLOAD YOUR DIVORCE SHIELD PLAN today.

I couldn’t be more proud to offer this informational resource about divorce to my clients and blog readers. There has never before been a single place to find a WEALTH of best practice information as well as access to a variety of local professionals who are also specially trained in 12 key aspects of the divorce process. Logging into this site is completely anonymous, and users will never be contacted by me or any other professionals that sponsor these reports.

These reports have information about:

Modes of divorce:

“kitchen table divorce”
“mediation”
“collaborative divorce”
“litigated divorce”

You will find worksheets on what to expect with the cost of divorce, including:

Budgeting worksheet
Saving worksheet

You will find access to financial professionals that can advise on:

Asset planning
Insurance concerns
Real estate buying/selling

You will find access to mediators, collaborative divorce professionals, divorce attorneys, and family counselors, as well.