By Scott Drescher, Highlands Residential Mortgage and 2017 Chairman, CCAR’s REALTOR®/Lender Committee
2017 was a positive year, despite individual struggles that some of us may have endured. The CCAR REALTOR®/Lender Committee can point to improvements in the mortgage landscape practically every year, even those that were marred by over-regulation after the market crash. However, this year we received gifts, from Fannie Mae in particular, that will keep on giving throughout 2018, as well as some improvements in other parts of the industry. Setbacks? Sure, there are always a few setbacks, too, but the positives outweighed the negatives. In case you missed any, here are some of the ones we believe stood out.
At the beginning 2017 (and it seems soooooo long ago now), FHA was poised to lower the mortgage insurance premium for new mortgages, but it was quashed. That was a disappointing start to the year, but it turned out not to portend a bad year for home buyers.
Mid-year, Freddie Mac explicitly shut down 1% down payment mortgages that were the 3% down payment mortgages with lenders rebating 2% of the sale price to go toward the down payment. The problem for both agencies is that lenders were not following their guidelines, particularly when it came to not charging a higher rate to use premium pricing to pay for the rebate. Since lenders only net less than .60% (according to the 2016 report from Mortgage Bankers Association), it would mean that lenders who follow the rules would have to pay over three times the profit from other loans to fund the losses from just one, 1% loan – a bad idea for any business.
Qualifying buyers for North Texas’ ever higher sale prices is an ongoing challenge since prices began to rise after the recession. The Agencies (Fannie Mae and Freddie Mac) made it a little easier in 2017 in four ways. First and the most important by far, they raised the maximum debt ratio 50% for down payments less than 20%. Second, the Agencies both will allow one year’s tax return for self-employed borrowers when the borrowers have owned their business for at least five years. Third, non-mortgage debts paid by others will not be counted in the debt ratio of borrowers even if the payer is not a borrower on the debt. Fourth, Fannie Mae will allow more flexibility in using a lower payment for student loan payments than old way of using 1% of the balance that was calculated prior. These changes could all allow for substantially higher sale prices than before.
Another improvement that may occasionally create some headaches or even busted closings is the removal of liens and judgments from credit reports. This puts greater emphasis on the fraud guard reports lenders use because they are designed to pick up public records. Similarly, the title commitment may have them, too. Lenders who don’t order the reports early in the process are just asking for trouble.
As for double-edged swords, the news that the Agencies expanded appraisal-free mortgages to purchase loans could help avoid both value and condition potential problems. However, your REALTOR®/Lender Committee was quick to point out that it would preclude allowing a home buyer to renegotiate the purchase price due to a low appraisal (that he might have been counting on getting) or lender-required repairs (that he was hoping to require). The value of a REALTOR® as the option arises is never more evident than when a buyer needs the wise counsel regarding saving the appraisal fee or not.
In further automation upgrade news, Fannie Mae rolled out Day 1 Certainty. This allows lenders who use it to retrieve income and asset documentation from institutions who participate, eliminating the need for income and asset documentation that comply from being hunted down by buyers. Not only has this shortened the turn times in processing slightly, but it has also allowed for fewer questions and problems that arise when underwriters unintentionally see things that were better left unseen.
Probably the best news for REALTORS® in markets with rapid appreciation is that loan limits increase along with prices. For our area, the new conforming single family limit is $453,100, and the FHA single family limit is $386,400. This humble writer started in real estate when the conforming SFR limit was $191,250.
Of course, the biggest news of the year (testing to see whether anybody is really paying attention), was when Beyoncé and Jay-Z took out a $52 million mortgage to buy a house in 2017. As the highest paid celebrity couple, it’s unlikely they cannot afford the mortgage payment. Although it is probably not a 30-year fixed, guessing at the payment using that as a guide puts the monthly at $263,476, but you should not have fear for the wealthy couple – they must have an interest-only adjustable rate mortgage because the payment was reported to be under $150,000 per month, making it much easier to pay, I’m quite sure.
Onward and upward, friends!