By Mindy Leisure, Manager of Rescoring Services, Advantage Credit Services (www.advcredit.com)
Fair Isaac, the creator of the FICO scoring models has announced that this fall it will be releasing a new version of its scoring model – FICO 09. An exact release date has not been set. There are some major changes in this new model that could help more borrowers get home loans. In theory these changes are great for the consumer, but unfortunately a borrower may never see the benefits from this scoring model if it isn’t accepted by Fannie Mae and Freddie Mac.
One of the biggest changes in FICO 09 is around medical collections. If a borrower has unpaid medical collections they will carry less weight than before. So a potential borrower with some outstanding medical debt could see an increase of up to 25 points in their credit scores. The borrowers that will gain the most benefit are those with paid medical collections, which will now
be completely excluded from the scores. For some borrowers this could mean a potential of a possible 100 point increase in their scores, depending on what the rest of the credit report looks like.
According to data gathered by Experian, approximately 64.3 million people have a medical collection on their credit report. Out of that number, 9.4 million had a medical collection with no balance. That’s 9.4 million more possible home buyers with the new scoring model as those collections will no longer be factored into the scores. Collections that are not medical, paid or unpaid, will still be factored in as well as late payments on accounts, public records, etc.
Regulators and some large lending institutions have long thought that consumers were too heavily penalized for medical collections. The majority of medical collections are generally because of miscommunications with insurance companies or the result of unpredictable events such as a heart attack or car accident. Since over 50% of collections on credit reports are medical, according to the Federal Reserve, this change in the scoring model is long overdue. Vantage Score took this step last year and changed their model to exclude all paid collections, medical or not. While the Vantage Score is used by some banks it is not widely used by mortgage lenders as it is not accepted by Fannie Mae or Freddie Mac.
Not everyone agrees with the new scoring model though, some banks and lending institutions feel this may be opening the door to allow consumers to get into loans that they may ultimately default on. They have a choice as to whether or not to allow this scoring model to be used in their loan making decisions. At this point, it is too early to know which lenders will be willing to utilize the new model.
The biggest issue is that the change won’t help consumers at all unless Fannie Mae and Freddie Mac agree to use it. Right now they are very specific in the scoring models they will accept. When FICO 08 was released they never adopted it. The only scoring models Fannie and Freddie will accept are:
Experian Fair Isaac Version 2
Trans Union Classic 04
Equifax Beacon 05
These models (above) are basically outdated and antiquated to some extent. Fannie and Freddie have both said they are very comfortable with the current models and “confident in the tools they use to set underwriting standards”. At this point they have no intention of utilizing the new scoring model. However with the benefits it could have for a great many consumers they will most likely get a lot of push back. Right now as far as when/if they will allow the use of FICO 09 is a waiting game. The hopes are that regulators and hopefully the Consumer Financial Protection Bureau can persuade Fannie Mae and Freddie Mac to consider changing to this new model.
The other parameters of the FICO 09 are for the most part the same as FICO 08. The scoring range is still 300- 850 and as with FICO 08, the new model also places more weight on the balances on revolving debt. While the older models utilize keeping revolving balances below 30% of the high credit, FICO 08 and 09 place that percentage at 10%.
Once FICO 09 is released it will be a slow process for lenders to adopt. It will most likely be used first by credit card and auto lenders and slowly be adopted by some private mortgage lenders, but as to whether it will truly help the majority of potential buyers lies in the decisions made by Fannie Mae and Freddie Mac.
Call Todd Abelson with Sunstreet Mortgage for all your mortgage needs! (520) 331-LEND (5363)
With the release of its latest version of “Desktop Underwriter” (their Automated Underwriting System), here are some of the Fannie Mae changes effective 11/16/2013. While some are in advance of the new “Qualified Mortgage” (aka QM) rules beginning January 2014, many will affect potential homebuyers as well as persons refinancing their present loans NOW.
Here’s a summary for your reference:
ELIMINATION of all 3% down programs (5% down or more REQUIRED)
Elimination of “Interest-Only” loans
Elimination of any loans over 30-years in terms
Tightened qualifying requirements on all ARMs
Elimination of the “Estimated Value” (used for HARP refi’s)
Elimination of all “Expanded Approval” programs (allowed less-than-perfect borrowers)
Limiting the Maximum Debt-to-income Ratio to 45% (50% if “strong compensating factors”)
1. The Up-Front “Guarantee Fee” for purchases will remain at 2.0 points, and increase from 1.50 points to 2.0 points on refinances effective with all loans Certified after October, 1 2012.
2. There will be approximately a two-week gap in fundings from roughly October 1 – 15, 2012 (due to the start of the new government fiscal year).
The Single Family Housing Guaranteed Loan Program (SFHGLP) will have ample purchase funding available through September 30, 2012.
Fiscal year (FY) 2013 will begin on October 1, 2012. Purchase funds will not be available for approximately two weeks or longer after the new FY begins. During this timeframe, Rural Development will issue Conditional Commitments “subject to the availability of commitment authority.” The FY 2013 upfront guarantee structure of 2 percent and an annual fee of .40 percent will apply.
Due to increased interest in the refinance feature of the SFHGLP, refinance funding was exhausted on August 21, 2012. Effective immediately, Rural Development will issue Conditional Commitments subject to the availability of Congressionally appropriated funds. The FY 2013 upfront guarantee fee of 2 percent and annual fee of .40 percent will apply. This notice is effective for all refinance transactions including Rural Refinance Pilot Program loans.
Call Todd Abelson for all your residential mortgage needs at (520) 331-LEND (5626)!
On October 24, 2011, the Federal Housing Finance Agency (the “FHFA”) and Fannie Mae and Freddie Mac (the “GSEs”) announced an expansion of the Home Affordable Modification Program (the “HARP”), or so called “HARP Phase II”, in an effort designed to assist additional “underwater” borrowers.
While the program is limited to loans originated and sold to Fannie Mae or Freddie Mac prior to May 31, 2009, one intriguing feature of the program is the limitation of required representations and warranties from lenders making such loans to the GSEs. This feature could lead to a reduction in repurchase demands for a certain segment of GSE loans refinanced under HARP Phase II.
Prior HARP refinances were subject to a maximum LTV of 125%. That limit has been removed for fixed rate mortgages; adjustable rate refinances are still subject to a maximum LTV of 105%. In addition to the lessening of representations and warranties, the removal of the upper limit on LTV ratios, and the current low interest rate environment could provide this program momentum producing results beyond those of past HARP or other Making Home Affordable programs.
The GSEs plan to issue guidance with additional details about the program changes mid-November. Participation in HARP is not mandatory; therefore, mortgage entities wishing to participate will have time to review program amendments and implement necessary operational changes.
Eligibility criteria for HARP Phase II loans are as follows:
The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae;
The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009;
The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009;
The current loan-to-value (LTV) ratio must be greater than 80%; and
The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
Other program features include:
Certain agency fees will be waived if a borrower elects a shorter term with the new loan (for example, choosing a 20 year loan term when the prior loan had a 30 year term);
If there is a reliable AVM estimate of value provided by Fannie Mae or Freddie Mac, a new appraisal will not be needed; if there is not a reliable AVM value, a new appraisal will be required; and
Certain lender representations and warranties will be waived.
The FHFA and the Department of the Treasury instituted HARP in early 2009 as part of the Obama Administration’s Making Home Affordable program. HARP provides borrowers that have a depressed home value the opportunity to refinance their mortgage into a lower interest rate loan.
While HARP is only one of several refinancing options available to homeowners, HARP is unique because it is one of the few refinance programs that allows borrowers who owe more on their mortgage than their home is worth to take advantage of a lower rate refinancing option.
Call Todd Abelson at Sunstreet Mortgage in Tucson Arizona for all your mortgage needs! (520) 331-LEND (5363)
Upside down on your mortgage? HARP Enhancements Announced!
The Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac have announced enhancements to the Home Affordable Refinance Program (HARP) that are intended to make it easier for lenders to refinance the mortgages of eligible borrowers. Interested borrowers are being encouraged to contact their current lender or any other mortgage lender offering HARP refinances. Guidelines for Fannie Mae seller/servicers, including implementation dates and details, will be available on November 15, 2011
An excellent financing tool to get your buyers into homes with zero down!
• No down payment ‑ 100% financing + USDA fee of 3.627% of purchase price (added to loan)
• No Monthly Mortgage Insurance
• Great, low rates
• Southern Arizona areas include Vail, Sahuarita, Green Valley, Marana (north of Tangerine Rd.). Checkout UDSA for eligibility of a specific property
• Seller contributions of up to 6% allowed
• Closing costs can be added to loan if property appraises for more than purchase price
– Property must be located in eligible area – see website for confirmation
– Annual family income limits of $74,600 for 1-4 person household, $97,750 for 5+ person household
‑ Bankruptcy and foreclosure must have three years of seasoning with credit re‑established.
– Judgments and tax liens must be paid with proof of release or satisfaction for at least 12 months prior to closing.
– Buyers cannot concurrently own “adequate housing”. Existing home must either be sold or converted to a rental (acceptable if current home does not meet their current needs or is outside of reasonable commuting area).
– No Properties located in flood zones or on private dirt roads
– No Manufactured homes or properties with swimming pools
Call Todd Abelson at Sunstreet Mortgage for all your mortgage needs! 520-331-LEND (5363)
Fannie Mae Rolls Out New Lending Rules December 13, 2010
Starting Monday, December 13, 2010, Fannie Mae is changing its mortgage lending guidelines.
For some mortgage applicants of Arizona , the loan approval process will simplify. For others, it will toughen. How you’ll be affected personally will depend on your credit profile and your loan characteristics.
Among the biggest changes from Fannie Mae is a new set of guidelines for gift funds. When the new rules roll out, accepting cash gifts for downpayment will be easier.
Undetr the new guidelines, buyers of owner-occupied, 1-unit properties (i.e. single-family homes, condos, townhomes) can forgo Fannie Mae’s typical, minimum 5% personal downpayment contribution. Downpayments on homes meeting the above criteria can be comprised of 100% gifted and/or granted funds.
Buyers of second homes and multi-unit properties, however, are not exempt.
There’s also two changes pending with respect to revolving debt.
Debt with less than 10 payments remaining may no longer be waived in debt-to-income ratio calculations
Debt lacking a monthly payment on credit must be assigned a payment equal to 5% of the outstanding balance
Both of the above should increase the number of loan denials in 2011.
And, lastly, Fannie Mae changes some of its documentation requirements, the most noticeable of which will be with respect to income verification. Salaried workers and applicants whose commission/bonus accounts for less than a quarter of their income will have fewer paystubs to produce for underwriting.
Loan applications taken prior to December 13, 2010 are exempt from the new rules.
For the second time this year, the FHA is modifying mortgage insurance.
Beginning with FHA case numbers issued on or after October 4, 2010, the FHA is changing its upfront and annual mortgage insurance premium structure.
Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity:
Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
Annual MIP increases to 0.850% of the amount borrowed from 0.500%
For homeowners in Tucson and everywhere else , this switch in MIP decreases the upfront cost of an FHA-insured mortgage, but increases the loan’s long-term costs.
Using a $100,000 mortgage as an example, upfront MIP falls to $1,000 from $2,250; monthly MIP jumps to $70.83 from $41.67. The FHA expects the change will yield an additional $300 million in premiums monthly.
The update is a huge win for the FHA whose reserve funds are self-proclaimed to be “perilously low”. The extra monies should help recapitalize and stabilize the government group.
For the majority of refinancing FHA homeowners and home buyers, the MIP change is neither good nor bad — the borrowing landscape will just looks a bit different. Yes, loans will cost more to carry each month, but also they’ll be less expensive to procure. It’s a trade-off and you can apply math formulas to solve for the best time to apply FHA.
It may be wise to get your FHA case number before October 4, for example, depending on your time frame in the home and the expected life of the mortgage. Or, it may be better to wait until after October 4 to apply.
If you’re unsure of how the new FHA mortgage premiums will impact your mortgage, be sure to call or email your loan officer for help.
Continuing on the path to “right its ship”, tighter restrictions and/or program eliminations were announced, effective as early as June 19, 2010. In summary, here they are:
Borrowers using ARMs (Adjustable Rate Mortgages) with a fixed period of 5 years or less, MUST qualify based upon the GREATER of the fully adjusted rate -or- the start rate + 2%.
Use of Interest-Only loans will no longer be allowed for Cash-out refinances, rental properties, or multi-unit properties (even if owner-occupied). Furthermore, the Borrower must have a 720 FICO score AND 24 months of PITI reserves!
Elimination of Balloon programs (they are actually called 5/25 or 7/23 “Two-Steps”)
Better definition of restrictions on pre-foreclosure or Deed-in-lieu of foreclosure