MARKET UPDATE - AUGUST 2009

FED RESTRICTS COMPENSATION & ADDS DISCLOSURES

Over the last two years, the mortgage industry has done a thorough job at self regulating itself. Guidelines have tightened, appraisals go through strict lender reviews, and complex loan products (i.e. option arms, balloon mortgages, etc.) have been eliminated. Full documentation is required on all loans and the term “stated income” is nothing but a distant memory. Most of the questionable characters in the mortgage business have been forced out. Today we only ask, 30 year fixed conventional, or 30 year fixed FHA. For the Federal Government, and now the Fed, that is just not good enough.

Effective May 1st of 2009, the HVCC (Home Valuation Code of Conduct) went into effect with the intent of eliminating value manipulation by the appraiser and/or loan officer. Three months later, after a devastating impact on the homeowner, a new bill to place an 18 month moratorium on the HVCC is on the table.

H.R. 1728 has passed the House which aims to mandate loan officer licensing (already implemented through S.A.FE. – legislation long overdue), eliminate yield spread premiums to mortgage companies thus reducing consumer options and increasing consumer costs, and potentially further reducing loan programs available to consumers.

Now the Federal Reserve Board wants to regulate mortgage companies’ compensation, and add one more disclosure to the nearly 50 disclosures already part of the mortgage application.

“The Federal Reserve Board Thursday recommended new disclosure rules for homeowners and compensation guidelines for mortgage brokers to correct some abuses of the recent runaway housing market.” – Reuters. “Prospective borrowers would receive a one-page notice of key questions about their loan and see a graph comparing their interest rate to that of a low-risk borrower, the Fed said. Mortgage brokers would not receive greater compensation if they put a borrower into a high-cost loan, under the rules.” - cnnfn.com

Yes, there were abuses in the past when loan officers that lacked integrity “steered” consumers into high cost loans in order to obtain increased compensation from the lenders, i.e. “Big Banks” that created these mortgage programs and paid those loan officers top dollar to sell those high cost mortgages. What the Fed failed to realize, right along with the Federal Government, is that those high cost loan programs have already been eliminated by the industry; and not through government over regulation. The Fed’s comment regarding “low risk” borrower just reinforces the fact that they are out of touch with today’s mortgage industry. “High risk” borrowers are not borrowers; they are renters!

It has also been stated that if yield spread premiums are eliminated that the loan officers could simply charge a 2% origination fee to the consumer instead of the current industry standard of 1%. I am sure the consumer will appreciate paying twice as much for a new mortgage.
The government also will implement new True in Lending regulation starting July 30th, 2009 (more below), and a newer “easier” to understand four page Good Faith Estimate, replacing the current relatively easy to read one page Good Faith Estimate starting January 1st, 2010.

NEW TRUTH IN LENDINGS LAWS GO INTO EFFECT

The Mortgage Disclosure Improvement Act (MDIA) goes into effect July 30th, 2009. The new Truth in Lending regulations increase the time needed to close loans to ensure that the borrowers understand their options and feel comfortable with the loan.

New Changes:

A seven business day waiting period is now required between the date the initial TIL disclosure is provided to the consumer and signing of the loan.

There must be a three business day waiting period between the date a final / redisclosed TIL is received by the consumer and the disbursement of the loan. Same day fundings have been eliminated.

No fees, other than the credit report fee can be charged prior to the Initial TIL disclosure being provided. Upfront fees may not be collected from the borrower until initial disclosures are delivered to the borrower. Therefore, appraisals may not be ordered until the borrower receives initial disclosures.

The final and redisclosed, and initial TIL disclosures shall contain the following statement: "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."

An increase in Annual Percentage Rate (APR) by more than 0.125% requires the Truth in Lending Disclosure to be revised and delivered to the borrower 3 business days before closing.

To prevent delays in closings, everyone needs to understand the new MDIA. For example, if on the day of closing, the title company changes, adds or removes a fee that changes the APR up or down more than .125%, the funding will be delayed by at least three business days. Or, due to an unforeseen delay in closing, an interest rate lock expires, and the APR changes up or down by .125%, new disclosures will need to go out, and the closing will also be further delayed.

HOME SALES UP IN JUNE

Can we say bottom? Not so fast. That would depend on where you are located. Sales of existing homes were up 3.6% in June, nationally. The median price of existing homes fell to $181,800 from $215,000, down over 15% a year earlier. – National Association of Realtors

Markets hardest hit by the housing crisis seem to be on a faster rebound. Las Vegas Nevada and Phoenix Arizona are heating up, and we are not talking about the temperature. Spurred on by devastated values (both markets down over 50% since 2006), low interested rates and an $8,000 first time homebuyer tax credit, sales of homes reached near record levels over the last few months. Many homebuyers find themselves in bidding wars driving purchase prices well over list price.

Will this trend continue? Interest rates are likely to remain low for some time. The Fed has already stated that they are in no hurry to raise short term rates and the government will likely monitor long term rates to assist economic recovery. The $8,000 first time homebuyer tax credit expires December 1st, 2009 forcing many off the fence and into a home. Many in the industry anticipate the deadline to be extended and there are rumors that the tax credit could be increased to $15,000. Barring any unforeseen tragic global event, the housing market may be on its way back up; slowly but surely.

REALTORS FINALLY SPEAK OUT AGAINST THE HVCC

Months prior to the implementation of the HVCC, the NAMB (National Association of Mortgage Brokers) has been in an intense battle to put a stop to this new government regulation; including a law suit which was finally dropped. The NAMB was unsuccessful and the HVCC has been hammering real estate values for almost three months.

The government didn’t listen to the mortgage brokers, but after real estate agents commissions were evaporating what deals were going sideways due to low ball appraisals ordered under the new HVCC law, the much larger NAR (National Association of Realtors) makes a stance against the HVCC.

“The NAR reports that 17% of its members say they have recently lost one sale due to an appraisal coming in way below a purchase price, and 20% of members say they have lost more than one deal because of low appraisals. NAR’s chief economist Lawrence Yun blamed “faulty valuations that keep buyers from getting a loan” as the reason May home sales data weren’t stronger.” – cnnfn.com

It has also been reported that appraisal costs have risen 30% or more since the introduction of the HVCC; which is another increased cost to the homeowner.
To be added to the petition to stop the HVCC, click the link below. Your support is appreciated. HVCC Petition: http://www.hvccpetition.com/

INTEREST RATE UPDATE

Mortgage Type Interest Rate APR

30 Year Fixed 4.875% 5.008%
15 Year Fixed 4.250% 4.476%

Call today for your individual scenario rate quote.

*Interest rates as of 07/24/09. Conforming interest rates. Not applicable for FHA and VA loans. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to values not to exceed 80%. 740+ credit score. Owner occupied only. Purchase and rate in term refinances. Not all applicants will qualify.

For any additional information, call or email me at any time.

Sincerely,

Aaron VanTrojen
President
Geneva Financial, LLC.
Office: 480-368-2000
Email: aaron@genevafi.com

Geneva Financial, LLC is a mortgage banker / broker licensed in: AZ, CA, CO, ID, MN, NM, NV, OR, WA, WI.