Changes Coming to the Mortgage Industry

Just when housing appears to be moving forward, changes are coming to the mortgage industry for both purchase loans and refinances. Some changes are coming soon, while others are in the near future while some don't have a definite date as of now.

FHA has been updating its' guidelines at a more rapid pace in order to keep up with the ever changing market. The most recent update for FHA mortgages is the increase in the annual mortgage insurance premium which is effective on April 1st. The annual MIP will go up by .10%, or $100 per year for each $100,000 in loan amount, for all case numbers obtained on April 1st and beyond. Any case number issued beginning June 3rd will no longer have the option to eliminate mortgage insurance premiums if the mortgage started with a loan to value higher than 90%. FHA has gone even further and will require that credit scores below 620 and debt to income ratios below 43% will need to go through manual underwriting where compensating factors will be considered. The no cash out FHA streamline refinance with reduced fees for loans that were endorsed prior to June 1, 2009 will not be affected by these changes.

The HARP program has undergone a recent update for the better. Lenders can now give borrowers incentives up to $2,000 in a form of a payment to pay off a portion of the mortgage being refinanced or as a cash or cash-like gift up to $500. Neither incentive is required to repaid by the borrower. The $2,000 must be reflected on the HUD-1 as a lender credit. HARP loans have been popular especially with extremely underwater borrowers since it has made it possible to refinance to low interest rates or shorter terms without the need of an appraisal in most cases. To be eligible for a HARP refi, the borrower must have a loan that was sold to Fannie Mae or Freddie Mac prior to June 1, 2009 and have a good mortgage payment history. The November 2012 Refinance Report released today by the Federal Housing Finance Agency (FHFA) shows that the two GSE's, Fannie Mae and Freddie Mac, have reached a new milestone with nearly 2 million HARP refinances.

Further down the road, the QM rules are set to officially begin in 2014. It is expected that the biggest impact will be felt by the jumbo loan market since many of these loans are interest only, no doc, etc., although the impact on the mortgage industry may not be so terrible. According to the Consumer Financial Protection Bureau, jumbo mortgages were only between 2 to 3% of the 2011 mortgage market. Of those, approximately 85% would have met the qualified mortgage rules if they were in place. According to CFPB, lender's are not required to offer "qualified mortgages" to follow the new ability to repay rules. However, when not doing so, they must cover their own risk. It is expected that most lenders will issue qualified mortgages, even in the case of jumbo loans, in order to protect themselves legally.

Even though changes are being made, an all important fact is how high or low mortgage rates are at the time of application. Historically, low mortgage rates have spurred the refinancing boom, as well as, the increase in home purchases over the past six months. The Federal Reserve, through QE3, has been purchasing $40 billion of mortgage backed securities each month since September 2012 in order to keep rates down and promote economic growth. It has been their intention that by doing so, consumers would purchase homes, refinance, spend more, all of which would lead to growth and increased employment. Just as the overall picture has looked better, the January Federal Reserve meeting minutes were released last week and suggest that QE3 may end sooner than expected since there is concern about the costs, as well as, risk if asset purchases continue. Yet, this week, Federal Reserve Chairman Ben Bernanke stated today in his testimony to the Senate Banking Committee in Washington that the purchase of assets will continue until the labor market shows "substantial improvement". According to Bernanke, the job market is "generally weak" at this time. "Notably, keeping longer-term interest rates low has helped spark recovery in the housing market and led to increased sales and production of automobiles and other durable goods," he said. Mixed opinions by the Federal Reserves only adds to the mystery of how long asset buying will continue and, if ended, how mortgage rates will react. At this point, no one knows where mortgage rates will go, if they will remain low or begin to go higher.

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