My New Blog

Are Lenders Over-Conditioning for Documentation?

Do you feel like mortgage lenders have become overly picky when issuing Loan Approval's? I've certainly noticed a trend of increased documentation and delays in getting loans closed. I've been looking into it and here's what I'm finding out.

It has to do with Fannie Mae, Freddie Mac, and all the loan buybacks they are jamming down the throat of the industry. You see, when lenders sell their loans to Fannie Me and Freddie Mac, they are obligated to buy them back if they do not meet the underwriting criteria outlined in their guidelines. In days past the agencies were pretty loose about enforcing their underwriting criteria and as long as loans were performing they left the lenders alone. Now that the agencies - which are owned by the Government - are losing money they want lenders to buy back the loans that are less than perfect. Lenders are scared of having to buy back loans, which essentially could put them out of business. So they ask for more and more documentation in order to protect themselves.

Fannie and Freddie forced the nation's mega banks and others to repurchase roughly $30 billion in product during the second half of 2009. And that's just half of last year. The way I see it, we have all of 2010 and next year. It's going to be a loan buyback storm from here on out so I don't see the lenders loosening up any time soon.

There are other factors at play too which are too lengthy to go into here but include all those AAA-related bonds they bought from Wall Street investment banks. And it has to do with the mortgage insurance industry which insures most high Loan-to-Value products sold to the two GSEs.

So What do We do Now?

You need to deal with a mortgage broker that has access to multiple sources and that knows the guidelines and can anticipate the documentation that a lender is going to request. If we are good at getting this documentation early in the process, we can avoid the last minute scramble to satisfy the lenders needs and be able to close on time.

This is no market for rookies. There's too much at stake for buyers, Sellers Realtors, Mortgage Brokers and Lenders. I've been in this business for 34 years now and pride myself on know the guidelines and the lenders that are best to work with.

Mortgage Rate Update:

It's been a wild ride this week and not for the good. After rates declining for the past couple of weeks for no apparent reason, it seems that reality is beginning to set in for mortgage bond traders and buyers. The Government's commitment to buy most of the Mortgage-Backed Securities (MBS's) issued by Fannie and Freddie ends next week. In the meantime there is a glut of U.S Treasury's hitting the market in order to finance the country's debt and so supply has outstripped demand. Add the future MBS's into the arena that compete with Treasury's, then take the Government out of the picture as the buyer of about 80% of these MBS's and rates can only go up. Investors are demanding a higher rate of return than 4.5% or 5% if they are going to buy MBS's. It's as simple as that.

The 'Father of Subprime Crisis" ???

New York Attorney General Andrew Cuomo is the "father of the subprime crisis" and his aggressive attacks on Wall Street could make him dangerous to the banking sector if he becomes the next governor of New York, well-known banking analyst Dick Bove told CNBC.

"One of the key reasons why Fannie Mae and Freddie Mac are bankrupt today, and why the government is spending hundreds of millions of dollars in supporting them, is because of the edicts pushed through by Mr. Cuomo," said Bove, of Rochdale Securities, in a live interview.

Cuomo, who was secretary of Housing and Urban Development from 1997 to 2001, has been blamed in some quarters for helping to trigger the financial crisis by pushing Fannie and Freddie to buy more subprime mortgages to increase home ownership among the poor. Many of those homeowners eventually defaulted, and the mortgage-backed securities market later collapsed.

I mention this because Cuomo is also the guy that forced Fannie Mae and Freddie Mac to accept his HVCC - Home Valuation Code of Conduct. This is the Regulation that we all love to hate which prohibits mortgage Lenders and Brokers form having any choice in the selection of an appraiser for a mortgage transaction that will be sold to Fannie Mae or Freddie Mac. It now applies to FHA mortgages too.

Update on the Home Affordable Refinance Program (HARP)

The Federal Housing Finance Agency (FHFA), overseer of Fannie and Freddie, announced the Home Affordable Refinance Program (HARP) will be extended a year to June 30, 2011. HARP is part of the Making Home Affordable Program, and "is designed to expand access to refinancing for otherwise qualified borrowers who cannot move into more affordable mortgages because of a lack of equity in their homes" and is for borrowers who are current on their mortgage.  The program (supposedly) allows borrowers to refinance up to 125% of the current value of their home. But, I can't find a single lender that will go above 105%. They should have made the 125% limit mandatory for lenders.

90% of agents down on HAMP

A mere 10 percent of real estate agents think the Obama administration's Home Affordable Modification Program (HAMP) is reducing foreclosures in their market, according to a recent survey.

The company's Market Pulse Survey Report asked more than 100,000 real estate agents nationwide to participate in a 10-question survey to gauge the state of housing in local markets. Nearly 5,800 agents responded; 51 percent had been a Realtor for more than 10 years. The company conducted the survey in February.

Freddie Mac Eliminates Interest-Only products

The announcement by Freddie that their IO product will be phased out in September due to higher delinquencies than their amortized loan products. No word from Fannie yet on their Interest-Only.

Look at the rates below on these ARM.s They are in the 3%'s!!!

Who' Is More Delinquent - 30-Year or 15-Year Fixed Rate Borrowers?

Borrowers in 15-year mortgages are less delinquent than 30-yr borrowers. Somewhat surprisingly, borrowers are about 30% less delinquent. Notice that 15-year rates are always lower than 30-year rates too.

Mortgage Rate Update

Mortgage rates continued to defy logic and gravity during the past week as they edged still a little lower. Probably the main catalyst is the anticipation that tomorrow's Employment Report will be a bad one. Investors in Mortgage-Backed Securities have factored in a rise in unemployment and therefore a run to the safe harbor of MBS's and Treasury's. If the report is in fact bad, I don't expect any more improvement in rates and in fact rates could pop up a little after the release of the report at 5:30am our time.

Regardless of the report, rates are still very low and nobody should be holding out for anything better.