Lenders Hungry for Jumbo Loans

Homebuyers and refinancers in pricier areas are finding attractive interest rates and less stringent requirements to qualify for jumbo mortgages, thanks to lenders' growing appetite for large loans.

As the housing market rebounds and more investors turn their eyes to the jumbo mortgage market, lenders are easing their terms and credit score requirements on jumbos. Loan origination and approval rates on these loans also are on the rise.

''Six months to a year ago, if you weren't at a 720 credit score or a 740, you couldn't get a (jumbo) loan," says Jason Auerbach, divisional manager for First Choice Loan Services in New York. "Now, there are opportunities to get jumbo financing with credit scores as low as 700. And there may be lenders out there that will go below that."

That's not to say jumbo loans have become easy to get. To qualify for a jumbo loan, borrowers must have better credit, more savings and higher down payments than borrowers seeking loans that fall within the conforming loan limits. Jumbo loans are generally loans bigger than $417,000 in most parts of the country, but in high-cost areas, they may start above $625,500.

Jumbo loans generally require at least 20 percent down payment or equity from the borrower, says Mathew Carson, a mortgage broker for First Capital Group Inc. in San Francisco. That's an improvement from much higher down payments that lenders required on jumbo loans after the financial crisis, especially in areas that were hit hard by foreclosures.

There are exceptions to the standard 20 percent down. Wells Fargo, the nation's top jumbo mortgage originator, recently began offering jumbo financing to buyers and refinancers of primary residences with 15 percent down payment or equity. The loan does not require mortgage insurance. Most loans with less than 20 percent down do.

Some of the terms for jumbo loans that are used to buy second homes also have eased, Auerbach says.

''We have seen an expansion in those guidelines as well in the recent months," he says. "Whereas before we could do 70 to 75 (percent) loan-to-value, now we can do 80 (percent) on up to $2 million on second homes."

Only 16 percent of the borrowers who applied for a jumbo mortgage in 2012 were denied a loan, according to the LendingPatterns.com Home Mortgage Disclosure Act database. The denial rate on jumbo mortgage applications has fallen consistently since 2008, when about 3 in 10 jumbo loan applications were denied.

Part of the reason lenders have loosened up and are more eager to do jumbo loans is that they have grown more confident about home prices, especially upper-end homes, says Tom Wind, executive vice president of residential and consumer lending for EverBank.

''Stability in the real estate market is driving people's desire to buy move-up homes, to invest in real estate," Wind says. "And it means lenders are more comfortable lending against it."

Lenders see jumbo loans as an attractive market because jumbo borrowers tend to be "high-quality" customers with sterling credit and often have significant assets.

For borrowers that means more competitive rates. The average interest rate for a 30-year fixed jumbo mortgage is now comparable to the rate on a conventional loan.

''This is an unusual event that runs counter to the historical industry trend of nonconforming rates being higher than conforming ones," says Brad Blackwell, executive vice president and portfolio business manager for Wells Fargo Home Mortgage.

About a year ago, the fixed rate on jumbo mortgages was more than a half of a percentage point higher than on a conforming loan, according Bankrate's weekly rate survey.

''That gap between the jumbo and the conforming has definitely narrowed," Carson says. "And some lenders are doing some really aggressive pricing."

Wells is one of those lenders, he says. Wells jumbo lending activity for the second quarter of 2013 rose 15 percent from a year previously, Blackwell says.

''Demand for nonconforming loans continues to grow," he says. "In fact, we are at our highest funding levels since 2007."

The nation's largest jumbo lenders by volume of loans, according to LendingPatterns.com HMDA database are: Wells Fargo, JPMorgan Chase, Bank of America, Quicken loans and Citibank.

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Mortgage rates inched up this week as the Federal Reserve announced it will reduce the pace of the bond-purchasing program that has long helped to keep rates low.

The 30-year fixed-rate mortgage rose 3 basis points to 4.58 percent. A basis point is one-hundredth of 1 percentage point.

The 15-year fixed-rate mortgage also rose 3 basis points to 3.63 percent.

The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, rose 5 basis points to 4.6 percent.

The 5/1 adjustable-rate mortgage fell 1 basis point to 3.33 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

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Prices Up... Churn down!

The Mortgage Bankers Association (MBA) reported today that despite applications for new home purchases falling by 18% in November from October, the average size of loans continued to trend higher. The average loan size for new homes climbed to $295,523. The MBA estimates that there were 32,000 homes sold last month, down from 40,000 in October.

Fixed mortgage rates for a conventional 30-year loan dipped slightly last week to an average 4.42%, down from 4.46% a week earlier. However, to obtain the 4.42% rate, a potential borrower would have to pay 0.7 in points and fees. Freddie Mac also reported that the total amount of single-family mortgage debt increased for the first time since 2008. Freddie Mac's chief economist, Frank Nothaft said, "This is a positive sign as it reflects that the pick-up in new purchase-money originations have offset loan pay downs and led to a net increase in principal outstanding."

What does this mean to the average consumer?  Well, bottom line is that rates are still ridiculously low, house sales are down so it's still a buyer's market and refinance opportunities are still available for those who haven't done so previously due to low house values, credit, jobs, circumstances... or just plain stubbornness!

Frequently Asked Questions about HUD's Reverse Mortgages

The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more.  You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading their free booklet, "Use Your Home to Stay at Home," a guide for older homeowners who need help now. It is smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA's HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.

3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?

Yes.  You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage. 

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5. What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

7. How much money can I get from my home?

The amount varies by borrower and depends on:

• Age of the youngest borrower
• Current interest rate
• Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
• Initial Mortgage Insurance Premium

If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow. 

8. Should I use an estate planning service to find a reverse mortgage lender?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender.  You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing.   Services rendered by HECM counselors are free or at a low cost.  To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you.

9. How do I receive my payments?

You may be eligible for one of the following payment plans:

• Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term- equal monthly payments for a fixed period of months selected.
• Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
• Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
• Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
• Single Disbursement Lump Sum - a single lump sum disbursement at mortgage closing.

 10. What if I change my mind and no longer want the loan after I go to closing?  How do I do this?

By law, you have three calendar days to change your mind and cancel the loan.  This is called a three day right of rescission.  The process of canceling the loan should be explained at loan closing.  Be sure to ask the lender for instructions on this process.  Mortgage lenders differ in the process of canceling a loan.  You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.  In most cases, the right of rescission will not be applicable to HECM for purchase transactions.

Go to: HECM Home Page

WSJ: Small Mortgage Lenders Own the Market

From the pages of the Wall Street Journal...

Smaller lenders are seeing an opportunity to gain market share as more big banks scale back their mortgage lending operations, according to an article from The Wall Street Journal (WSJ). 

As of the third quarter of this year, smaller mortgage lenders have held a 60% market share of the U.S. origination market, an increase from 39% in 2009, according to data from Inside Mortgage Finance referenced in the WSJ article.

Tightening credit standards, coupled with lengthy loan processing times and costly capital rules have been driving factors in big banks’ declining market share, according to the WSJ, as larger institutions have shied away from buying loans from other lenders or mortgage brokers. 

In efforts to reduce their home loan divisions, larger players like Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. have cut more than 10,000 mortgage-related jobs as they faced increasing regulation and a decline in refinancing activity.

Smaller players like the privately held Foothill Ranch, California-based loanDepot.com have capitalized on larger banks shedding their workforce, as the company added 150 mortgage workers in June when it opened a new office in Dallas. The company also has plans to add 850 more workers in the next three years.

Though larger institutions have been scaling back operations, they are still powerful in the business, WSJ notes, specifically Wells Fargo, which had a 22.5% market share in the first half of 2013. On the other hand, Bank of America’s market share fell to 5.2% in the first half of the year, down from 21.6% in 2009, according to Inside Mortgage Finance‘s data. 

“Big banks began pulling out of certain mortgage businesses after new international rules required them to hold more capital for certain assets,” writes the WSJ.  ”Big banks don’t have the same view of the value of those assets relative to the cost of capital today,” explained Jim Cutillo, chief executive of Stonegate Mortgage, in the article.

Renters Have Much to Gain by Pursuing Home Ownership

Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be on your way toward building equity. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop lower than the rate you’d currently be locked in at, and this would cause your monthly mortgage commitment to go down.

And not only would your own home give you added space, your own back yard and overall privacy—home ownership would also give you some tax advantages. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, including "low" down payment mortgage programs. The most common and beneficial loan for people buying their first home is the FHA loan, which only requires a 3.5% down payment. In addition, FHA allows a seller to cover up to 6% of a buyer's closing costs which really helps decrease the amount of money it takes to buy a home. Many people also don't know that FHA allows the lowest credit scores of any loan available today, only needing a 640 score in most cases.

If there is any time to buy it is NOW! Why? Because home prices are low today. Low home values are surely not good for people selling homes but they are great news for people wanting to buy a home. Don't miss this opportunity to take advantage of the current market before home values rise.

Home Buyers Face Decisions that Affect Their Long-Term Financial Picture

Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a mortgage consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here. 

Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames. 

If a lender is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate. 

It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!

Once you have found a mortgage consultant that you feel comfortable working with, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.

Your mortgage consultant should be able to narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.

Moreover, a reputable loan originator will not hesitate to share this information with your tax consultant or financial planner so they may offer additional feedback on your behalf.

Home ownership imparts a rewarding vehicle for building wealth and a strong financial future. The mortgage consultant that you choose should be there not only when your loan closes, but should also provide you with ongoing service to assist you in managing that debt over time.

Protecting Your Credit During Divorce

When a marriage ends in divorce, the lives of those involved are changed forever. During this time of upheaval, one thing that shouldn’t have to change is the credit status you’ve worked so hard to achieve.

Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills, the maxing out of credit cards, and a total breakdown in communication frequently lead to the annihilation of at least one spouse’s credit. Depending upon how finances are structured, it can sometimes have a negative impact on both parties.

The good news is it doesn’t have to be this way. By taking a proactive approach and creating a specific plan to maintain one’s credit status, anyone can ensure that “starting over” doesn’t have to mean rebuilding credit.

The first step for anyone going through a divorce is to obtain copies of your credit report from the 3 major agencies: Equifax, Experian®, and TransUnion®. It’s impossible to formulate a plan without having a complete understanding of the situation. (Once a year, you may obtain a free credit report by visiting www.AnnualCreditReport.com.)

Once you’ve gathered the facts, you can begin to address what’s most important. Create a spreadsheet, and list all of the accounts that are currently open. For each entry, fill in columns with the following information: 

• Creditor name
• Contact number
• The account number
• Type of account (e.g. credit card, car loan, etc.)
• Account status (e.g. current, past due), account balance
• Minimum monthly payment amount
• Who is vested in the account (joint/individual/authorized signer).

Now that you have this information at your fingertips, it’s time to make a plan.

There are two types of credit accounts, and each is handled differently during a divorce. The first type is a secured account, meaning it’s attached to an asset. The most common secured

accounts are car loans and home mortgages. The second type is an unsecured account. These accounts are typically credit cards and charge cards, and they have no assets attached.

When it comes to a secured account, your best option is to sell the asset. This way the loan is paid off and your name is no longer attached. The next best option is to refinance the loan. In other words, one spouse buys out the other. This only works, however, if the purchasing spouse can qualify for a loan by themselves and can assume payments on their own. Your last option is to keep your name on the loan. This is the most risky option because if you’re not the one making the payment, your credit is truly vulnerable. If you decide to keep your name on the loan, make sure your name is also kept on the title. The worst case scenario is being stuck paying for something that you do not legally own.

In the case of a mortgage, enlisting the aid of a qualified mortgage professional is extremely important. This individual will review your existing home loan along with the equity you’ve built up and help you to determine the best course of action.

When it comes to unsecured accounts, you will need to act quickly. It’s important to know which spouse (if not both) is vested. If you are merely a signer on the account, have your name removed immediately. If you are the vested party and your spouse is a signer, have their name removed. Any joint accounts (both parties vested) that do not carry a balance should be closed immediately.

If there are jointly vested accounts which carry a balance, your best option is to have them frozen. This will ensure that no future charges can be made to the accounts. When an account is frozen, however, it is frozen for both parties. If you do not have any credit cards in your name, it is recommended you obtain one before freezing all of your jointly vested accounts. By having a card in your own name, you now have the option of transferring any joint balances into your account, guaranteeing they’ll get paid.

Ensuring payment on a debt which carries your name is paramount when it comes to preserving credit. Keep in mind that one 30-day late payment can drop your credit score as much as 75 points. It is also important to know that a divorce decree does not override any agreement you have with a creditor. So, regardless of which spouse is ordered to pay by the judge, not doing so will affect the credit score of both parties. The message here is to not only eliminate all joint accounts, but to do it quickly.

Divorce is difficult for everyone involved. By taking these steps, you can ensure that your credit remains intact.