Were you denied a mortgage and/or put through the ringer as a potential borrower?  The drag on the housing recovery as a result of the uncertainty and insanity of current mortgage underwriting cannot be overstated.  If the current administration wanted to do one thing to jump start the housing recovery (and by extension the US economy), it would provide clarity to the rules and regulations going forward for Fannie Mae and Freddie Mac.  Without clarity, lenders are terrified they will be forced to buy back a non-performing loan for some obscure reason.  Private mortgage-backed security investors also need clarity before they will be willing to return to a market that has shrunk by some 95% from its peak.

I frequently work with buyers who have the capacity to stroke a check for cash for the property they are attempting to purchase.  These are high net worth, high credit score individuals who should be able to obtain swift financing approval, but who instead are being subjected to overzealous scrutiny and supporting documentation requests that make them wish they had never even thought about purchasing real estate.  Why don’t they stroke a check for cash?  One of the reasons they are well off financial is because they are savvy about financial matters and understand the extraordinary value of obtaining 30 year fixed rate loan <5.0%.  In fact, for many of these buyers, availability of the mortgage money is just as important as the real estate they want to purchase.

If you know someone in Washington who can influence Fannie Mae/Freddie Mac policy (and who would love to be known as the architect of the US housing sector recovery), please tell them to take action.  We don’t need radical change to prevent another mortgage meltdown like we saw in 2007; we do need a little common sense.

More good reading: Outlook for Mortgage Market

Starting this year, homeowners can no longer write off their private mortgage insurance (PMI) premiums like they have for the past several years.  Some type of mortgage insurance is required when a home buyer uses less than a 20% down payment.  Mortgage insurance for conventional mortgage loans can be paid two different ways.  It can be paid as an additional premium with their monthly mortgage payment.  Homebuyers can also choose to use a technique that I’ve recommended for years and that is to use what is called Lender Paid Mortgage Insurance (LPMI for short). W ith LPMI, the borrower pays a one time fee for the mortgage insurance at closing and then there is no monthly premium added to the monthly mortgage payment.

For many purchase transactions, the borrower can possibly negotiate to have the home seller pay the one time LPMI fee so the borrower ends up with a more affordable monthly payment without paying any out of pocket expense.  Now that the monthly premium for mortgage insurance is not longer tax deductible, LPMI is looking even more attractive to many home buyers.  LPMI is also an attractive option when a borrower is refinancing their home.  Using LPMI gives the homeowner lower monthly payments from the first payment and it costs less than using monthly PMI if the borrower stays in the home for more than 3 years.  The cost for using LPMI is about the same cost of about 3 years worth of PMI monthly payments.  A borrower paying PMI typically has to make those additional monthly payments for about 10 to 14 years.

Larry Saunders

Loan Officer

Mahone Mortgage, LLC

larrys@mindspring.com

Mobile:  (434) 466-5662

A change that just started in the past week is an increase in the cost for conventional financing to pay for the temporary extension of the payroll tax cut that was enacted just before Christmas.  This new fee is supposed to go into effect on April 1 but it is for loans delivered to Fannie Mae and Freddie Mac starting on April 1.   That means banks are starting to add this fee to new loans that are being originated right now because by the time the loan closes and gets delivered to Fannie Mae or Freddie Mac, April 1 will be here.  The fee varies from 0.375% to 0.5% of the loan amount which is equivalent to an interest rate about one eight percent higher.  Some banks have not yet instituted this new fee yet so if are thinking about moving ahead, right now would be a good time to buy before this new fee hits.

Personally, I don’t understand the rationale for funding the payroll tax relief by raising costs for home buyers at a time when the housing industry is still trying to recover.  But they didn’t ask my opinion…

Larry Saunders

Loan Officer

Mahone Mortgage, LLC

larrys@mindspring.com

Mobile:  (434) 466-5662