Some recent changes by the people in the new FHFA (the entity that now controls Fannie Mae, Freddie Mac, and the FHA) should have a positive impact on the housing market!

Someone must have looked at the market and realized that unless we open up financing to those who are actually paying their bills but are upside down in value vs their loan, we will only continue to spiral. An announcement from Fannie Mae today opened up the door to a new, streamlined method of refinancing. This is labeled as Announcement 09-04, and it lays out the guidelines for the newly titled “Home Affordable Refinance”. Full text here.

What is exciting about this program is it appears to give borrowers who have made the last 12 months payments on time an option for limited or reduced income documentation. This will be a boon to those self employed or commissioned persons who qualified on ‘reduced income documentation’ loans in the past and have been unable to take advantage of the lower rates.

For those who are concerned about the reduced income documentation, these are borrowers who have made the last 12 months payments on time, and these loans should reduce the amount of the payment they have been making. If they have been paying on time and you lower those payments thereby making it easier for them to pay…. Logic says they will continue to make their payments.

Another BIG deal is Fannie has decided to let QUALIFIED investors to finance up to 10 properties instead of limiting them to 4. This will help clear out some of the inventory as well. Full text here. This is Announcement 09-02

All in all, this is good news for mortgage companies, and brings good opportunities for those saddled with bad loans or looking to invest in real estate!

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I see a trend right now in the industry of borrowers making decisions of choosing their lender based strictly on rates. The lender with the lowest rate gets the deal regardless of turn times, or regardless of financial stability.

On the surface this seems to make sense, as the lowest rate will save money over the life of the loan – right? Not always.

Several years ago, a lender named Capital Commerce was known for having the lowest interest rates in the market. One day, seemingly without notice, they shut their doors leaving thousands of loans without a home, many loans had been locked at rates that were no longer available. Thousands of customers did not get the rate they had anticipated.

Another lender (who will remain unnamed) was also known for excellent rates. Last week the investor who they sold loans to cut them off without notice. They had loans that they had funded that were now unsalable. Loans that were out to docs had to be stopped and repriced. Today their pricing is nowhere near as favorable as it was in the past and there is speculation that they may not stay open much longer.

This is not to say that rate doesn’t matter. It absolutely does. Taking a rate that is .25% higher than you can get elsewhere can cost you thousands of dollars down the road. It is simply to say be careful of the lender you choose to partner with or to get your loan from. Choose your loan based on overall closing costs. Look at the strength of the lenders. If the rates seem to be too good to be true, ask about their closed volume. If the rates are great but they aren’t doing any volume, this is a red flag. The best rates in the world don’t do you any good if the loans can’t close.

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The next few months will be interesting in the wholesale mortgage arena. Many smaller wholesalers have popped up over the past few months as the mortgage industry appeared to be stabilizing. These smaller lenders typically sell to larger lenders in the market place.

The consumer may still get a better deal than if they were to go to the large lender directly though as these smaller players many times have more streamlined origination platforms, and do not have the costs the large lenders have.

These lenders could be jeopardized though if we see the loss of too many large lenders.

In the past there was a multitude of large lenders that loans could be sold to. Over the past few years Wall Street firms would buy loans directly from them as well. Over the past year however, the large lenders who would buy these loans have been pulling out of the market.

Chase just pulled out last week. Citi effectively pulled out by severely limiting their operations.

The three main remaining large correspondent lenders are Countrywide, Wells Fargo, and US Bank.

If these three pull out, we could see a large number of the smaller lenders closing their doors also.

Keep your eyes peeled, this will continue to get interesting as we all get an education on how each player really affects the industry……

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