Jul 16, 2018

Is FHA Home Loan a good option for me?

Is FHA Home Loan a good option for me?
FHA, which stands for the Federal Housing Administration, is a United States government agency which insures home loans for FHA approved lenders.
One of the best tips for buying a house is to fully understand all the financing options that are available to them.  As a buyer is trying to determine which type of mortgage is the best, they must weigh the PROs and CONs of each option.
In this article you’re going to learn what the PROs and CONs of FHA home loans are., a buyer puts themselves in a much better position to make a smart decision when it comes to their home financing.

What Are FHA Home Loans?
FHA has been helping people become homeowners since 1934.  FHA is part of the HUD, which stands for Housing and Urban Development. One of the biggest reasons why FHA home loans are popular nowadays is because they allow buyers who don’t have boatloads of money saved for a down payment to still buy a home.

How To Determine If You Qualify For FHA Home Loans
It’s critical to understand when obtaining financing for a home that there are general guidelines a lender follows, also referred to as mortgage overlays, but there is certainly flexibility depending on a buyers individual circumstances.
Below are some general mortgage overlays that lenders will use to determine a buyers eligibility for an FHA mortgage.  
  • Lenders prefer to see a minimum credit score of 620, however, FHA does allow a buyer with a 580 credit score to qualify for a home loan, subject to other requirements.
  • FHA home loans require a minimum of a 3.5% down payment.
  • Lenders prefer to see a buyer with a debt-to-income ratio of 43% or less.  In some cases, FHA allows a buyer to be manually approved with a debt-to-income ratio as high as 55%.  Buyers with debt-to-income ratios higher than 43% can be approved through the AUS (automated underwriting system).
These guidelines above are very basic.  

Peoples Processing is licenced in multiple states that conducts wholesale and correspondent business. It helps brokers with the loan processing with our experienced team and help them close it faster.

Jul 13, 2018

Mortgage application volume rebounds but refis fall to 18-year low

Mortgage applications rose due to year-over-year progress in the job market, snapping a two-week skid. It was a 2.5% increase from the week prior, according to the Mortgage Bankers Association.
The purchase application volume drove the overall numbers. The seasonally adjusted purchase index increased by 7% from one week earlier, however, it decreased by 15% on an unadjusted basis. It stands at 8% higher year-over-year.
Despite the total applications rising, the refinance index decreased 4% for the week ending July 6 from the previous week. That is the lowest level of activity since December 2000. The refinance share of application activity went to 34.8% from 37.2%, the lowest since August 2008.
"The strong job market continues to bolster demand for homes, with purchase volume up 8% year-over-year, even as the lack of inventory still is holding back the pace of sales. Nevertheless, the mix of business continues to move towards loans for home purchase," said MBA Chief Economist Mike Fratantoni.
Mortgage application volume rebounds
Employers added 213,000 jobs in June, while the unemployment rate also increased to 4% as more unemployed people resumed looking for jobs. If hiring increases continue, that could translate to more house hunters in the real estate market.
Adjustable-rate loan activity decreased to 6.3% from 6.7% of total applications.
The share of applications for Federal Housing Administration-guaranteed loans decreased to 10% from 10.2%, Veterans Affairs-guaranteed loans jumped to 11.3% from 10.7% and U.S. Department of Agriculture/Rural Development remained unchanged at 0.8%.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 4.76% from 4.79%. The average for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) also dropped, going to 4.68% from 4.71%.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.80% from 4.78%. The average for 15-year fixed-rate mortgages dipped to 4.18% from 4.22%.

The average contract interest rate for 5/1 ARMs reached its historical high point of 4.13%, gaining 10 basis points from last week. The MBA began tracking 5/1 ARMs interest rates in January 2011.

Jul 5, 2018

VA Program Guidelines Update

The President of the United States signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act. The Act prohibits Ginnie Mae from guaranteeing securities issued on or after May 24, 2018, if such securities are backed by a refinance loan that is guaranteed under the United States Department of Veteran Affairs benefit program and that does not meet the condition provided in the Act. 
To qualify for inclusion in a Ginnie Mae guaranteed MBS, the Act requires VA refinance loans to have a note date that is on or after, the later of:
1. the date that is 210 days after the date on which the first monthly payment is made on the mortgage being refinanced, or
2. the date on which six (6) full monthly payments have been made on the mortgage being refinanced. 
Effective immediately, VA refinance transactions must meet the revised seasoning requirements in order to be eligible for funding/purchase. Plaza's VA Program Guidelines have been updated to align with Ginnie Mae requirements. 
Additionally, for applications taken on or after May 25, 2018 VA IRRRLs must provide a net tangible benefit as described in VA Circular 26-18-13 and all fees and incurred costs referenced in the circular, shall be recouped by the veteran within 36 months after the loan closes. The recoupment calculation is the result of lower monthly payments of the refinanced loan.

Jun 29, 2018

Recruiting the Best Requires Commitment

Top originators want companies to keep their promises and to reward good work
Turnover in the mortgage industry is high, which leads to a variety of issues for both the employer and mortgage originators. Whether you are working for a large national or international bank or a small local
 mort-gage company, people and relationships are vital to business success, which means a high turnover rate can be a drag on growth.
If the mortgage industry wants to stem rampant turnover and continue to expand, change must first come at the company level. In this current climate, especially as recruiting efforts are at an all-time high with a strong focus on attracting young originators from the ranks of the millennials, a seismic shift needs to happen to respond to the changing expectations of employees.

The mortgage industry is a behemoth, with U.S. home mortgage debt totaling in excess of $10 trillion. Competition for borrowers and talent alike is fierce, however. Determining what really works when it comes to attracting and retaining top talent, then, is a challenge that must be met, if a mortgage company hopes to compete effectively.

Don’t disappoint

The performance of a mortgage company’s loan originators is often a main determining factor of whether borrowers will come back to the company again and again for their borrowing needs. Consequently, recruiting top originators is a goal everyone in the industry is focused on.

The common recruitment techniques normally involve promising originators big checks, written up-front, with the objective of getting those originators to move their business to the mortgage company doing the recruiting. Along with that big check normally come promises of better back-end service and career-growth opportunities.

Nearly everyone recruiting originators says the same things, and it all sounds fantastic. So, why is there so much turnover? The problem is that even though the same promises are echoed by many companies in the recruiting phase, in a lot of instances, those promises are never kept after a hire is made.

Some originators, for example, move their entire book of business and staff to a new company based on promises of greater marketing assistance and support only to find that they are given the same set of tools every other
mortgage originator has at their disposal, and then they are expected to achieve within that limited framework.

To go from autonomy and a position of respect for being a top producer in one shop to being forced into a system where you became just another number doesn’t feel right and, ultimately, that disappointment leads to more turnover. From existing top performers to lower-producing originators that still show great potential, if mortgage companies hope to attract and retain that talent, it is important for them to understand what creates the ideal work environment for originators.

Create a plan

There must be a better way to attract and retain talented mortgage originators. Part of finding that path involves thinking outside the box at times. Sometimes you need to zag when everyone else zigs. The goal should be to develop a program that ensures everyone wins.

When you achieve that goal, success is the natural outcome. This creative mindset should be applied to creating programs that incentivize originators who aren’t normally satisfied with sim-ply plugging into the daily grind of the status quo.

Create a plan to ensure that your originators’ hard work and enduring commitment to get better and grow the business is properly acknowledged. Why? Because true success comes from not only providing employees what they need today, but also in helping them to plan and secure a better future for themselves and their families.

So, when it comes to recruiting and retention, does your compensation model feel the same as those offered by other regional mortgage companies, national players or big banks? If so, it might be time to think about the pro-cess more organically. An exercise that can be helpful is to think of the perfect company — one in which mortgage originators are happy and want to stay. That involves more than compensation. You also are selling a culture.

Build loyalty

With the right formula in place for recruiting and retaining productive mortgage originators, the company will make more money and its market share will grow, fueled by the goodwill that is generated in workplaces where employees feel valued and recognized.

It’s important to put incentives in place to show that the company’s employees are the No. 1 priority, and not just numbers in a system. In order to operate at maximum productivity, employees must not only feel valued today, but also have the peace of mind to know that their company is commit-ted to them and their careers over the long term — and is willing to reward them over time for their performance.

Think about setting up programs to reward originators who meet mini-mum production standards for annual loan production, for example, or per-haps establish a program that is based on loan quality. Loyalty works both ways, and the results of such reward incentives will be readily apparent in the ongoing commitment demonstrated by originators who feel valued and supported. This paradigm shift will promote the retention of top talent by changing the way your originators look at their careers.

Whatever recruiting and retention pro-gram you set up to attract top originators, the most important factor is that the benefits promised must be delivered, so they are not seen as a carrot dangling in the air, just out of reach. Everyone must win.

Jun 7, 2018

Non-QM a good catch?

The mortgage industry is seeing a growing demand for non-qualified mortgages. These are typically quality loans that simply fall short of meeting the strict “qualified mortgage” standards set for loans that are purchased and secularized by the government-sponsored enter- prises Fannie Mae and Freddie Mac.

The expanding popularity of non-qualified mortgages is a blessing for many borrowers who have not been able to qualify for a mortgage using traditional financing options. By making such alternative-financing options available to borrowers, mortgage originators have the opportunity to help many qualified borrowers and their families purchase their dream homes.

Many originators are missing opportunities in the home-finance market because they don’t fully grasp a fundamental requirement affecting all non-qualified mortgages — which is ensuring that the borrower has the ability to repay the loan. In the world of non-qualified mortgages, or non-QM, many originators are not clear on the concept of ability to repay and the characteristics that are most important to meeting the requirement.
So, how and when did ability to repay, or ATR, become the standard for the non-QM industry? It started with the Dodd–Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Barack Obama some eight years ago. The ATR standard embodied in Dodd-Frank requires lenders to make a reasonable, good-faith determination of a consumer’s ability to repay a mortgage that is secured by a dwelling for personal use — a rule that applies to qualified mortgages and non-QM loans alike.

How we got here

All owner-occupied and second-home transactions have to abide by the ATR mandate. Lenders are required to analyze borrowers’ income documentation to determine their ability to repay the mortgage. Again, it’s important to remember that properties owned for business purposes, such as investment properties, are exempt from having to conform to ATR rules and regulations.
The underlying logic of ATR with respect to homeownership is based on ensuring that borrowers are provided loans with payment terms they can afford — meaning they are conservatively calculated based on their income history over the prior 24 months. It is a common mistake for originators to use the loan-to-value ratio (LTV) as a compensating factor when evaluating the viability of a loan. Establishing a conservative LTV is a favorable factor for a lender in the case of payment default, but it is completely irrelevant to the income analysis applied to the borrower’s ability to repay.

ATR can become a particularly thorny area in the case of nonprime loans, which are a subcategory of non-QM products. The distant cousins of these higher-risk loans were called subprime loans, and prior to the housing crash 10 years ago, they commonly were offered to borrowers with a history of delinquent payments or other black marks on their credit. In fact, these so-called sub-prime loans were blamed for helping to spark the housing crisis — given many subprime loans at that time were prone to default because they were poorly underwritten, often relying on little to no documentation.

Many have questioned the rising popularity of nonprime loan programs, arguing that they are just another form of the subprime loans that caused so much havoc in the industry a decade ago. Those assumptions are wrong, however, because the subprime loans of that era would not pass muster under the ATR rules that non-QM loans, including nonprime mortgages, have to meet today.

Attempting to help struggling homeowners refinance their existing failing mortgage, for example, would be virtually impossible under today’s ATR standards. Think about it. How could a lender justify the transaction when the loan that is being used to refinance the failing loan and bail-out the borrower is itself proof of the borrower’s inability to repay the underlying mortgage? In order for a nonprime lender to refinance a mortgage, the borrower must demonstrate the ability to repay by bringing the existing loan current.

Another factor to consider with respect to the opportunities opened up by nonprime loans relates to bank-statement loans. Such loans have become quite attractive for self-employed borrowers who don’t have traditional pay-checks and are unable to qualify for mortgages under the documented-income requirements established by agency guide-lines and banks. Such bank-statement programs are of use for non-QM and nonprime loans because they allow a lender to evaluate the borrower’s bank records to establish income and to determine if there is a history of insufficient-funds notices. Too many notices of insufficient funds on bank statements, for example, point to an inability to repay because they are an indication that the borrower is unable to manage their finances.

A way forward

By applying ATR in new ways, more non-QM opportunities begin to open up. Loan programs offering a five-year fixed rate with fully amortized and indexed payments are one such opportunity, for example. A borrower may get a lower rate with a five-year fixed mortgage, but that rate is not used to determine the borrower’s ability to qualify and the maximum allowed LTV ratio.

Instead, it is common practice for lenders in underwriting the loan to assume a 2 percent increase in the rate or the fully indexed rate, whichever is higher. This more conservative approach enables originators to offer products that might seem risky in name, but actually abide by the concept of ability to repay. Interest-only loans represent another opportunity. Originators typically consider interest-only loans as a way of helping a borrower qualify by making payments lower and more affordable at the initial period of the loan. Of course, for many borrowers, these loans can prove to be the complete opposite of affordable

A 30 -year loan that features a 10-year interest-only option, for example, gives a borrower a low payment for 10 years, but for the remaining 20 years, the borrower is forced to make substantially higher payments. That’s because the borrower has a shorter period of time to pay off the entire loan after the initial 10-year interest-only option expires.

So how do non-QM lenders apply ATR to today’s interest-only loans? Simple, utilize the higher payment that begins in the 11th year of the loan to qualify borrowers and to ensure they can repay the mortgage. Of course, many borrowers today would not be able to qualify for an interest-only program under that approach — compared to the way things used to be done when subprime loans were popular prior to the housing crash.

In response, many lenders have introduced a 40-year amortized loan for interest-only programs, providing borrowers with an additional option to meet their needs. Under a 40-year amortized pro-gram with the interest-only option, the borrower would make payments on the interest for 10 years and then have 30 years remaining to pay off the loan. Compared to a 30-year interest-only loan, the payment in the 11th year would be substantially lower with a 40-year loan.
Naturally, there are many exceptions and factors to consider when determining a borrower’s ability to repay a particular loan. The overall concept, however, still boils down to ensuring responsible lending. It is about providing financing for borrowers who will be able to repay the loans today and down the road.

By applying ATR in new ways to more loan programs, the mortgage industry can expand the non-QM environment, make more financing solutions available for more borrowers and put more people into homes they can afford — which we all want to see happen.

Raymond Eshaghian is the President and Founder of Greenbox Loans Inc