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What Is A Pre-approval?

A key component to the home buying process is the pre-approval. What is this document and why is it needed?

Homebuyers should start the “process” well before putting a bid/offer on a home (unfortunately this is not always the case). A homebuyer should understand what they can afford, the overall mortgage process, and the available products in the marketplace. This is where a licensed loan officer comes in.

A licensed loan officer will meet with prospective homebuyers to review such elements as credit, income, job stability, assets, etc. They will also review available products & the overall mortgage process. Analyzing such components allows a borrower to understand what to expect and what they can afford. Homebuyers can now shop with “knowledge.”

Once the homebuyer wants to put an offer in on a property, the loan officer will issue a pre-approval, stating that they have reviewed credit, income, assets, job stability, etc. The loan officer is stating that the client has the ability to “purchase” the home. By no means is this a commitment to lend. This will be issued by the lender. Pre-approvals will usually last for 30 days.

If you are in the market, or will be in the near future, call JFC Funding, LLC so we can help you understand the market, overall process and your purchasing power.

ATR/QM is here. What does it mean to you?

Years preceding the mortgage crisis, too many mortgages were provided to consumers without regard to one’s ability to repay the actual loan. Loose underwriting, accompanied by bad business practices, lead to one of the nation’s most serious recessions since the Great depression.
ATR/QM guidelines were implemented Friday, January 10th 2014, shaping the mortgage market for the foreseeable future. These changes attempt to tackle the above issues that crippled our economy. What does this mean to the consumer?
Ability to repay (ATR) requires lenders to make a reasonable, good faith determination that clients have the ability to repay the loan being offered. Lenders can satisfy this requirement by considering the following:

1. Current or reasonably expected income or assets
2. Employment status
3. Monthly payment on this loan
4. Monthly payment on “simultaneous loans”
5. Monthly payment for “mortgage-related obligations”
6. Current debt obligations
7. Monthly DTI ratio, or residual income
8. Credit history

The market will also be shaped around qualified mortgages. Qualified mortgages cover all closed end consumer credit transactions secured by a residential dwelling (and all occupancy types). The rule provides a presumption that creditors that originate Qualified Mortgages (QMs) have complied with the ability to repay (ATR) requirements.

QM requirements generally focus on prohibiting risky features/ practices, such as negative amortization, interest-only periods, loan terms longer than 30 years and balloon payments. In addition, all types of QMs limit points and fees. For certain qualified mortgages, debt to income ratios may not exceed 43% of a borrower’s gross monthly income.

Points and fee restrictions will be driven by loan amount:

• 3% Cap on total loan amounts > $100k
• $60k-$99,999: $3k Cap
• $20k-$59,999: 5% of total loan amount
• $12.5k-$19,999: $1k Cap
• $12,499 & below: 8% of total loan amount

Strength of legal protection for qualified mortgages is based on whether or not a loan is higher-priced. This will be determined by a loans APR. If APR exceeds average prime offer rate by 1.5% for first liens or 3.5% for second liens, such loans will be considered higher priced. Higher priced loans will carry a rebuttable presumption, while non-higher priced loans will be blanketed by a safe harbor.

Banks will still be allowed to originate non-qualified mortgages, but one can expect these loans to carry less favorable terms. Banks are rolling out such products as we speak.

It remains to be seen how many borrowers these changes will impact. Some sources say it may impact 5% of mortgages. Time will tell. What we do know is that we will be operating in a “new” lending environment.

What Does “Taper” Mean

We all hear the term, “taper” from a Federal Reserve perspective. But what does this term actually refer to? Let’s take a look.

First let’s highlight the Federal Reserve’s bond purchasing program known as quantitative easing or QE. This is a monetary policy utilized to lower interest rates and increase money supply. The FED purchases securities in the marketplace, which in turn increases the money supply and lowers interest rates. The most recent cycle, otherwise known as QE3, started on the 13th September 2012. The current cycle incorporates $85 billion per month of US Treasury and mortgage backed securities.

The term “taper” was first introduced back in May 2013 by Federal Reserve Chairman, Ben Bernanke. This term referred to the slowing and or reduction of QE purchasing. When first announced, the markets experienced a great deal of volatility, pushing interest rates up significantly.

Most recently, The Fed announced plans to cut its monthly purchases of US Treasuries and mortgage backed securities from $85 billion in December to nothing by the end of next year, in a series of small steps, starting with a reduction to $75 billion in January 2014.

To recap, the word taper is not a fiscal policy. The term refers to the slowing of quantitative easing, a Federal Reserve liquidity policy.

Loan Limit Updates for 2014

Loan limits are the maximum loan size for a mortgage loan. These vary by product and even region. Some updates below for the upcoming year.

The U.S. Federal Housing Administration (otherwise known as FHA) will pull back on loan their limits for 2014. As noted above, limits could vary by region. Single family limits will decrease to $625,500, from $729,750 in ceiling areas. This limit will apply to FHA case numbers issued on or after January 1st 2014 to December 31st 2014.

Fannie Mae and Freddie Mac announced there will be no changes to confirming loan limits for 2014. Conforming limit will remain at $417,000. Current limit has been in place since 2006.

Its important to know the above loan limits per product. If a loan falls outside of the mentioned loan limits, clients will have to meet varying criteria, which could include higher interest rates, higher down payments or even reserve requirements (money in the bank post closing).

Week ending 12/13/13

Rollercoaster ride due to economic data, budget talks and upcoming Fed meeting.

Monday
Germany announced their industrial production fell for a second month. This triggered speculation that the ECB will also keep borrowing costs low to support growth in Euro zone. No economic news released.

Tuesday
The FHFA announced a GFee increase effective April 1st. This increase of 10 bps, is one of the larger increases we have seen to date.

Wednesday
Overnight Treasuries declined due to speculation that U.S. budget agreement will support the economy and make it easier for the Fed to cut bond purchases. Retail sales increased in November economists predict.

Thursday
Bond market broke three day winning streak after strong petroleum report. Rates increased. 10 year auction captured some losses back. Reports in Washington suggest budget deal may be close, causing investors to think about taper.

Friday
Inflation report less than stellar. U.S. PPI for crude goods drops more than 2.5%, which is biggest decrease since 2012.With inflation lower than expected, Fed may not be ready to tighten policy.
Other notable events:

• Congressman Mel Watt was confirmed this week as Director of the FHFA. The FHFA is the conservator over Fannie Mae and Freddie Mac and as such has tremendous influence over much of the mortgage market.

Week ahead:

• The next Fed meeting will take place on Wednesday. The statement is scheduled to be released at 2:00 EST. Decision regarding the timing of the taper likely will produce a significant reaction. Other market moving reports include inflation indicators and housing reports.

Rates on the Rise Due to Strong Economic Data?

Rates on the Rise Due to Strong Economic Data?

 

Rates pushed higher this week on strong economic data. Many reports came in stronger than expected. Is this a sign of things to come? Let’s take a look at how we got here.

Thursday-Stronger than expected GDP and Jobless Claims data reported. Factory Orders came in close to expectations.

Freddie Mac reported average 30 year mortgage rate increased week over week to 4.46%, from 4.29%.

Wednesday-U.S. economy added 185,000 jobs last month. This is was less than the 204,000 in October. New home sales also surged-October New Home Sales increased 25% to an annual rate of 444K, above the consensus of 425K. ISM report stated economy is still growing at a moderate pace.

Tuesday-Investors sold MBS ahead of important labor market data coming out over the few days.

Monday-Stronger than expected data hurt MBS. ISM national manufacturing index rose to 57.3, above the consensus. Currently at the highest level since April 2011. Construction Spending also exceeded expectations.

Friday will report non-farm payrolls, unemployment rate and more. These two variables could push the market again.

Borrowers should consider locking in low rates while they can. More volatility may follow.

Inspection vs. Appraisal

What is the difference between an appraisal and inspection?

Two key components to the home buying process are the appraisal and inspection. Many homebuyers confuse these two functions. Both play important roles. Let’s take a high level look at their differences.

An inspection at the highest level is an examination of a home’s condition-structure and components.  The inspection is conducted a trained and certified inspector. The inspector will produce a detailed report which will help the homebuyer determine if they want to proceed with the sales contract.  Their main goal is the report on the condition of the structure. The report will detail deficiencies, comment on internal pluming, HVAC, examine the structure of property, etc. Report can also comment on mold, pests, etc. Remember, an inspection is for your protection.

On the contrary, an appraisal is an independent evaluation of market value. It is conducted by a trained/licensed professional called an appraiser. This is a 3rd party that does not have any financial stake in the transaction. This function helps to determine market value by evaluating similar sales in an area during a specific timeframe. Report will also detail square footage, construction quality, etc. When a bank is involved they want to confirm that there is sufficient collateral to lend against.

 

Think value vs. protection!

HARP FAQ

HARP FAQ

Answers to commonly asked questions.

Q:What does HARP stand for?

A: Home Affordable Refinance Program

Q:When was the program introduced?

A: 2009

Q:When is it scheduled to end?

A: 12/31/2015

Q: What is the goal of the program?

A: Help borrowers with little or no equity to refinance to lower mortgage liability

Q: Does Fannie Mae or Freddie Mac have to own my loan in order to be eligible for a “HARP” refinance?

A: Yes, loan needs to be owned by Fannie Mae and Freddie Mac where note date is on or before May 31st 2009

Q: Where can I find out whether or not my loan is owned by Fannie Mae or Freddie Mac?

A: http://knowyouroptions.com/loanlookup, http://freddiemac.com/my mortgage

Q: Can you add or remove borrowers?

A: Yes, as long as one of the borrowers remains on the loan

Q: I owe more than my home is worth. If I meet other guidelines, can I still refinance?

A: Yes, as long as borrower meets other program requirements