Jumbo Loans Are Making a Come Back in 2017

Jumbo Loans Are Making a Come Back in 2017

As we enter the 10th year since the financial meltdown (and it has been 10 as of this August no matter what you have read because this is when Countrywide, WAMU, World Savings and others began to go down the tube and my head underwriter from our mortgage bank was on a house boat trip and unreachable…..long week that week) we are beginning to see expanded guidelines in the Jumbo loan space.  While Fannie, Freddie and FHA and VA loan guidelines are straight forward and very black and white, Jumbo loans are more “Risk Based Priced” (more on that below).

Fannie and Freddie (read our US Government) are “the” established secondary market that will purchase all those “Conforming” type loans.  Since Conforming loans make up the majority of the volume of all mortgage loans and there has been little secondary willing or able to take on jumbo loans, we have seen very little appetite in the jumbo area.  With rates starting to inch up a little we are beginning to see some new outlier products come to market; bank statement loans, Doctor loans, less than 20% down on jumbos to name a few.

For the most qualified borrowers we are seeing Jumbo interest rates within 1/8 of conforming rates.  This is actually amazing to see but keep in mind when you start to peel back the layers these rates are for the most well qualified, least risk borrowers.  The rates can quickly move up based on the “Risk” of the underlying loan.  Risks can include things like: lower down payments, lower credit scores, lower post-closing reserves, less time on a job, higher debt to income ratios, a 2nd done concurrently and many other factors.  Think of it like this………..if it was your money would you rather lend to a person with a higher credit score or lower? A big down payment or a smaller?  Without the fluid secondary market for Jumbo loans like we have with conforming loans (where all of those loans can be sold and passed on to Fannie and Freddie) there is a limited amount of money willing to fund Jumbo loans.  And remember the Golden Rule of banking………..”those who have the gold make the rules”.  So as rates rise and Wall Street develops a renewed appetite for these larger loans we will continue to see more Jumbo products come to market.

Blue Adobe Mortgage offers a range of Jumbo loan products for your potential buyer.  We have some of the most aggressive rates out there if your buyer fits that profile and since many borrowers will be somewhere outside the lowest risk category we have those too.

  • 10% down on Jumbo
  • Delegated In-House underwriting
  • Under 700 Credit score for Jumbo
  • Same Local Appraisers for Jumbo loans
  • Asset Depletion loans
  • Non-Warrantable Condos
  • Non-Occupant Co-Borrower
  • HELOC 2nds to stretch buying power and stay out of MI

Happy House Hunting –

To kick off our holiday season we have some great news…

Fannie and Freddie have raised their conforming loan limits.  This will be a big help to the many buyers who have fallen just outside the current limit.  In practical terms a buyer can now purchase a $605,000 home with just 5% down in Monterey County and almost a $670,000 home in Santa Cruz and San Benito Counties.   ….Looking forward to a wonderful 2017!!!

 

GENERAL LOAN LIMITS:

 

UNITS: Contiguous United States Alaska and Hawaii
     
One $424,100 $636,150
Two $543,000 $814,500
Three $656,350 $984,525
Four $815,650 $1,223,475

 

 

The high-cost area loan limits are established for each county (or equivalent) and are published on Fannie Mae’s website: https://www.fanniemae.com/singlefamily/loan-limits  and on FHFA’s website: http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

 

 

HIGH-COST AREA GENERAL LOAN LIMITS:

 

UNITS: Monterey County Santa Cruz County
     
One $575,000 $636,150
Two $736,100 $814,500
Three $889,900 $984,525
Four $1,105,800
$1,223,475

 

Buy Now or Later??

Anyone that lived through the 80’s remembers the song by the Clash “Should I stay or Should I go”.  https://www.youtube.com/watch?v=GqH21LEmfbQ

While country music was more my go-to rhythm, this song by the Clash transcended  all the high school clicks.  Remember the Mods, the Hicks, the Surfers, the Jocks, and all the others………..which were you?

Back on topic………  I just spoke to a gentleman who purchased a home in Monterey in 1990 for $275k.  It is currently in escrow for $945k.  Pretty good return huh?  It’s even better if you consider he only put down 20% (or $55,000) and is leaving the table with $670k in profits after 26 years.

With the current hot housing market we are hearing a lot people trying to decide “should I buy or should I rent now”.  And a little like the song from the Clash (you knew I would tie this all in), there isn’t always a black and white answer.  I can sit here and write about why I think it is still a great time to buy;  more people are entering CA than leaving, wages for trades people are on the rise, land is scarce, raw material costs are rising, rents are up and rates are low but here are two articles that I hope will make the decision making process easier for buyers that are on the fence:

which way

 

$217,726: That’s What You’ll Save (Give or Take) If You Buy a Home Now

http://www.realtor.com/news/trends/financial-benefit-buying-a-home-now/

House prices: Buy now or later?  A lack of supply means that America’s lofty house prices are unlikely to fall far:

http://www.economist.com/news/united-states/21601296-lack-supply-means-americas-lofty-house-prices-are-unlikely-fall-far-buy-now-or

Modular vs. Manufactured…..what is the difference

I always used to get confused on these two but this is a nice short explanation……….enjoy

Modular vs Manufactured…..what is the difference

Modular homes are residences constructed entirely in factories and transported to their sites on flatbed trucks. They are built under controlled conditions, and must meet strict quality-control requirements before they are delivered.

Manufactured is the most recent label for what were once called “mobile homes” or “trailers.

Manufactured Homes are now allowed on Conventional loans.

mobile

General Requirements:

    • Designed and constructed to meet the Federal Manufactured Construction and Safety Standards

 

  • Designed as a single family dwelling and classified as real estate

 

  • Constructed after June 15, 1976
  • Must have a permanent foundation system in accordance with manufacture’s requirements for anchoring, support, stability, and maintenance. Must meet local and state codes
  • Towing hitch or running gear must be removed (including tongues, axles, brakes, wheels and lights)
  • Must be permanently connected to a septic tank or other sewer system and other utilities according to local and state requirements
  • Manufactured home installed on site for less than one year is not allowed unless borrower is:
  • the 2nd purchaser of the property  OR
    • Refinancing their current manufactured home
    • Seller cannot be the builder/contractor or manufactured housing dealer who installed the unit on site

Word of the week… “Trended Data”

Word of the week –  Trended Credit Data

Just like your upgraded phone, so too does Fannie Mae update their electronic underwriting system from time to time.  This underwriting system is the most widely used system in the world for underwriting loans.  Even though Fannie Mae (and baby brother Freddie Mac) only purchase loans up to the County maximum, most Jumbo lenders follow their recommendation in some ways.

What is trended credit data?  

Currently credit reports only indicate the balance, the amount of available credit, and if a borrower has been making their payments on time. Trended credit data provides historical information on the balance, scheduled payment, and actual payment made each month.

Why did Fannie Mae add trended credit data to the credit risk factors analyzed by DU?

Fannie Mae used 3.7 million credit reports with trended data to conduct modeling and analytics to support a comprehensive review and redevelopment of DU’s credit risk assessment. Including trended data materially improved modeling of loan performance.

Q)       Will loans for borrowers that make only the minimum payment on their credit card each month be able to receive an Approve recommendation from DU?A)        Yes. The use of the actual payment information will impact the analysis of the borrower’s credit. However, the actual payment information is used in just one of the credit risk factors analyzed by DU (see Appendix A of the DU Version 10.0 Release Notes). DU will continue to perform a comprehensive evaluation of all of the credit and non-credit risk factors on the loan to determine the recommendation.

Q)       How does the amount a borrower pays on their credit card account demonstrate how they will pay their mortgage?

A)        The trended credit data will be used by the DU risk assessment to evaluate how the borrower manages his/her revolving credit card accounts. A borrower who uses revolving accounts conservatively (low revolving credit utilization and/or regular payoff of revolving balance) will be considered a lower risk. A borrower whose revolving credit utilization is high and/or who makes only the minimum monthly payment each month will be considered higher risk.

 Graph

 

To put it into perspective, holding all else equal on a loan…

Research has shown that borrowers who…. Are…… Than borrowers who…..
Never exceed their limit 75% less likely to become delinquent Exceeded their credit card limit in the last 12 months
Pay off their credit card every month 60% less likely to become delinquent Only make their minimum payment each month

 

 

Rules Get looser with Fannie…

Here is some great news.  Most of you know that Fannie Mae, Freddie Mac and now FHA have raised the loan limits in Monterey County to the following:

  • 1 unit $529k
  • 2 units $677,200
  • 3 units $818,600
  • 4 units $1,017,300

……..………so yes, a 3-plex in Monterey County that sells for $1,091,466 with a 25% down payment and new loan of $818,600 is a “Conforming Loan” (NOT a jumbo loan). 

But now Fannie has also gotten with the program and allows non-occupant co-borrowers (that’s like when mom and dad want to co-sign) instead of making the occupant qualify on their own.  Time for your buyers to a call their parents……………

Cliff Notes Version: 

  • Fannie Mae Blended Ratios now ok
  • C/O on High Balance no longer limited to 60%

Long Version:

Non-occupant Borrower Policies in Desktop Underwriter

Historically, when considering non-occupant borrowers on a mortgage loan, DU only considered the credit and assets of such borrowers, and not the income or liabilities.

In an effort to simplify Fannie Mae’s underwriting requirements and provide greater access to mortgage credit, DU will be updated to consider the income and liabilities of all borrowers on all principal residence mortgage transactions, including two- to four-unit properties. No separate calculation of the DTI ratio for the occupying borrower will be required, as the DTI ratio calculation will be based on the income and liabilities of all borrowers on the mortgage loan. 

High-Balance Mortgage Loan Eligibility

Fannie Mae has aligned the eligibility of high-balance mortgage loans with Fannie Mae’s standard eligibility requirements with LTV, CLTV, and HCLTV ratios up to a maximum of 95%. Many of the policy overlays that previously applied only to high-balance loans have been removed and a new policy has been implemented requiring all high-balance loans to be underwritten through DU.

Notable policy revisions with this Guide update include:

  • 5% minimum borrower contribution no longer applies, allowing all borrowers to be eligible to use gifts, grants, and Community Seconds® to fund all required down payment and closing costs on one-unit principal residence transactions with LTV ratios greater than 80%;
  • field review of property requirement for loan amounts greater than $625,500 with an LTV, CLTV, or HCLTV ratio greater than 80% has been removed;
  • appraisals no longer need to include two comparable sales from outside of the subject project when the loan is secured by a condominium; and
  • LTV, CLTV, and HCLTV ratio maximums for borrowers with 5-10 financed properties align with the requirements for loans subject to the general loan limits.

The existing high-balance loan policy overlays that remain in place include:

  • a field review is required for properties valued at $1,000,000 or more with an LTV, CLTV, or HCLTV ratio greater than 75%; and
  • all borrowers must have traditional credit. 

Effective Date

This update will be effective with DU Version 9.3 the weekend of December 12, 2015

Why credit scores matter

Fellow Real Estate Professionals,

This is about as good of an article I have seen on why credit scores matter so much.  I feel buyers often wonder if us crazy lenders are making stuff up on the fly about how loans are priced.  This is the article (see link below) and I have cut and pasted below the matrix from Fannie Mae of how this works (this is FEE NOT RATE):

And by the way…………..the two boxes are added together (so if someone buying a rental is putting down 20% vs 25% and they have a 700 to 719 credit score the points are 3.375 + 1.25 or 4.625 points).  Another buyer with 740 credit with 25% down would only pay 2.375 points).  5% more down and great credit makes a huge difference.  An owner occupied putting down 40% with 740 credit pays no additional “G-Fees” from Fannie.  This is why it is tricky throwing a rate out there like the old days prior to getting the buyer pre-approved.

Seriously, is there a difference between a 700+ credit score & a 800+ score? – Yahoo Finance:  http://finance.yahoo.com/news/seriously-difference-between-700-credit-110059632.html

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NEW FHA Mortgage Loan Requirements

CaptureComing September 15, 2015, the Federal Housing Administration will be changing some of the FHA mortgage loan requirements regarding its single family home loan program. Some of the changes are specified below:

 

Large Deposits

For accounts that have recently opened and for accounts that have had recent deposits, large deposits will be defined as more than 1% of the adjusted value. The adjusted value is the lesser of purchase price minus seller concessions or the appraised value of the home. For example, if a $200,000 home that has a $5,000 seller concession is appraised for $200,000 or more, then a large deposit would be calculated as more than $1,950 (200,000 – 5000 = 195,000. 195,000 x 0.01 = 1,950).

Part Time Income

Two years of uninterrupted part-time income will be required. Your average over that two-year period will be used in calculations. However, if you received a pay increase, you can instead calculate your average over the past 12 months.

Self-employed Declining Income

You cannot use your income if it has had more than a 20% decline except in extenuating circumstances, and it has been either stable or increasing during the past 12 months. However, you need to qualify using your lower income.

Frequent Job Changes

If you have moved more than three times in the past 12 months for work, then the FHA mortgage loan requirements require you to show proof that the moves either advanced your income or benefits, or that you needed the training and can document that fact.

Overtime and Bonus Income

You can include a two-year history of overtime and bonus income in your loan application. You will be allowed to use a 1-2 year history if you have earned overtime and/or bonuses consistently during that time, and are likely to continue doing so.

Rent Obtained from Retained Primary Residence

When relocating for work, the FHA mortgage loan requirements specify that your new residence must be at least 100 miles from your current property. You also need at least 25% equity in the current property, unless the rental income history is on your last tax return.

Non-taxable Income

You can include non-taxable income, such as social security and disability, in your qualifying income, up to a gross maximum of 15% or that income at its actual tax rate.

Deferred Loans

Loan payments must be calculated and included in debt-to-income ratios regardless of their status. You must use the actual monthly payment, but if the actual payment is $0, then you need to use your outstanding balance as your monthly payment.

Installment Debt with Less than 10 Months

According to FHA mortgage loan requirements, you can exclude such accounts from debt-to-income ratios if the total remaining payments due is less than 5% of your gross monthly income.

30 Day Accounts that Require Payment in Full

You can exclude such accounts from your debt-to-income ratio if you can document your payments in full for the last 12 months. If you have had any late payments in that time, then 5% of that balance will be included in your debt ratios.

Authorized User Accounts

If you are the primary holder of an account, and have made payments on time on that account over the last 12 months, then you can exclude that account from your ratio. This helps ensure that debt will not be counted against people who had their parents help them establish credit and who are still listed on an account, but no longer use that account.

Multiple FHA Loans

You can obtain a second FHA loan for your primary residence if you are relocating for work when your workplace is more than 100 miles from your current home. This change does not account for high traffic areas where commutes can take exceptionally long times.

Acceptable Mixed Use Properties

A minimum of 51% of a building’s square footage must be intended for residential use. This is an increase in the allotment of mixed use from the previous rules.

Rental Income for 2-4 Units

When buying a property that has between 2-4 units, you can add the rental income from the other units to your qualifying income. Specifically , you can use 75% of either the appraiser’s estimate of fair market rent or the rent based on the rental agreement.

This change lowers the amount you can specify when qualifying for the purchase of a multi-family property.

Streamlined Refinancing – Net Tangible Benefits

A reduction in term will be deemed an acceptable net tangible benefit as long as the total of the principal, interest, and mortgage insurance is no more than $50 a month higher than your current loan.

 

As always be sure to consult with your Licensed Loan Officer for answers regarding your situation in an effort to ensure the home you’re looking at is priced right for you.

Mike Boerlin

Thank you for visiting my blog. I know you will find the services offered here helpful and the insight on loan programs educational.

As a professional in the mortgage lending industry, I have built my reputation on providing outstanding service and knowledge to my clients. That means you can count on me to always look out for your best interests, and to keep you informed throughout every step of the lending process. Please do not hesitate to call 831.626.2112 if you have questions about the information you find here on here.

What’s in Your Tool Box: Unique style homes

For as long as I can remember (I became a loan officer in 1993), there was no conventional, mainstream, loan available for log homes, geodesic domes or earth homes. Well my friends, times they are a changing. Fannie Mae came out with a Lender Letter, LL-2014-02, on March 25, 2014 that blew some of these old cobwebs right out the window. See an excerpt below and let’s do some loans on “unique” housing types!

“Unique housing types such as log homes, geodesic homes, or earth homes are acceptable to FNMA, provided the appraiser has adequate information to develop a reliable opinion of market value.  It is not necessary for one of the comparable sales to be the same design and appeal as the property that is being appraised.  The appraisal accuracy, however, is enhanced by using comparable sales that are as similar to the subject property as possible.” 

“On a case-by-case basis, both the appraiser and the underwriter must independently determine whether there is sufficient information available to develop a reliable opinion of market value.  This will depend on the extent of the difference between the special or unique property and the more traditional types of houses in the market and the number of such properties that have already been sold in the neighborhood.”