CNC Mortgage Blog

March 14, 2009

Dear XX,

I must apologize for being nasty to you when you called me this afternoon regarding the loan for our customer XXX. I understand that you as a realtor and she as the customer want to close on the property as soon as possible, more so considering that she and her family are living in cramped quarters in her brother in law’s rented home.

As we have all learned, purchasing foreclosed properties is much more complicated that buying from direct owners.

As the mortgage broker I have a responsibility to get a good mortgage loan for your customer but also to see that she holds title to the property in a way that allows her to sell the home the day after she buys it if that were her desire. She must hold clear title the day she buys the property. I must also be comfortable that the bank I am asking to provide a loan also holds an appropriate lien to the property.

It is the buyer’s choice to pick the title company they want to use. In this case she was coerced by the seller and the listing agent to use the seller’s title company, I believe violating RESPA rules.

This particular borrower was denied mortgage insurance coverage by the company that provides that insurance for the MHFA, Minnesota Housing Finance Agency. I am not an underwriter, however I believe she was a perfect candidate for one of those first time homebuyer loans. MHFA and the MI company did not get to the point of studying the title work for this property.

I then moved the loan to PF Bank who approved a loan for XX and proceeded to study the title work. PF Bank is a very strict bank and rigorously screens their borrowers. They approved the borrower but said they would not accept to close with a title company in Kentucky that did not have physical presence in Minnesota. I informed you and the listing agent and proceeded to request the title work from TONE title with which I have done business for more than eight years. PTITLE, the seller’s title company based in Kentucky, could not or was not willing to provide the necessary documents to prove the seller’s legal ownership of the property or the legal capacity to sell this home.

Please understand that it is important for our customer ( yours and mine) hold clear title to the property.

I hope we can close on this property next week.

I appreciate your referrals and look forward to serving your customers.

Your truly,

By Carlos Gutiérrez

A little more information is becoming available to define how homeowners can benefit from the refinancing legislation coming out of the government.

We still don’t have clear guidelines from our lenders as to how mortgage brokers will be involved in the loans that will be refinanced with the new government refinance program.

The lenders with whom we do business are drawing up the conditions that we will abide by.

I think this is how this will work:

1. The customer should call their servicer (whoever is sending them monthly mortgage bills) to find out if their loan is currently held by Fannie Mae or Freddie Mac. If the loan is held by them, you might be eligible to refinance.
2. If you have a second mortgage on your property call the servicer to find out if they would be willing to subordinate the loan if you refinance the first mortgage.
3. Try to estimate the value of your house.
4. If all conditions apply and your proposed loan amount is less than 105% of the value of your property we can then offer you a mortgage at the rates being offered by our regular lenders without charging mortgage insurance.
5. It is pretty clear that cash outs will not be allowed on the new mortgages. This probably means that second mortgages or home equity lines of credit taken out after the property was purchased will not be eligible. We still don’t know about second mortgages taken out to buy the property.

During the past few years the banks have reduced personnel. During a surge in refinance, such as we are experiencing now, they fill their ranks with temporary contract workers. We assume that the lenders will take advantage of all the independent mortgage brokers who can reach out into the community and channel loans to them.

Several of the banks with whom we do business do not have physical presence in Minnesota so they will be very interested in getting their network of brokers to contact possible customers.

Be patient, the horizon will be clearing soon.

Here is a very good article written by Ken Harney about the refinance options offered under President Obama.

They are still preliminary and sketchy but more details will be available next week.

Star Tribune Saturday February 28, 2009

Get ready to refinance under Obama plan

Although the final operational guidelines of the Obama administration's foreclosure-avoidance programs won't be released until next Wednesday, key details have begun surfacing on the extraordinary refinancing opportunities that will be available to an estimated 4 million to 5 million homeowners whose mortgages are owned or guaranteed by Fannie Mae and Freddie Mac.

Under the Obama plan, borrowers who have made their monthly payments on time but are saddled with interest rates well above current prevailing levels in the low 5 percent range may be eligible to refinance -- despite decreases in their property values.

Neither Fannie Mae nor Freddie Mac typically can refinance mortgages where the loan-to-value (LTV) ratio exceeds 80 percent without some form of credit insurance. That insurance can be difficult or impossible to obtain in many parts of the country that insurers have labeled "declining" markets, with high risks of further deterioration in values.

In effect, large numbers of people who bought houses several years ago with 6.5 percent or higher 30-year fixed rates cannot qualify for refinancings because their LTVs exceed Fannie's and Freddie's limits.

Using an example supplied by the White House, say you bought a home for $475,000 in 2006 with a $350,000 mortgage at 6.5 percent that was eventually acquired by Fannie Mae. In the three years following your purchase, the market value of the house has dropped to $400,000, and you've paid down the principal to $337,460.

If you applied for a refinancing to take advantage of today's 5 percent rates, which would save you several hundred dollars a month in payments, you'd have difficulty because your LTV, currently at 84 percent, exceeds Fannie's 80 percent ceiling.

But under the Obama refi plan, Fannie would essentially waive that rule -- even for LTVs as high as 105 percent. In this example, you'd be able to qualify for a refinancing of roughly $344,000 -- your present balance plus closing costs and fees -- at a rate just above 5 percent.

In a letter to private mortgage insurers Feb. 20, Fannie and Freddie's top regulator confirmed that there would be no requirement for refinancers to buy new mortgage insurance, despite exceeding the 80 percent LTV threshold.

James Lockhart III, director of the Federal Housing Finance Agency, described the new refinancing opportunity as "akin to a loan modification" that creates "an avenue for the borrower to reap the benefit of lower mortgage rates in the market." Lockhart spelled out several key restrictions on those refinancings:

• No "cash-outs" will be permitted. This means the new loan balance can only total the previous balance, plus settlement costs, insurance, property taxes and association fees.

• Loans that already had mortgage insurance will probably continue to have coverage under the existing amounts and terms, thereby limiting Fannie and Freddie's exposure to loss. But loans where borrowers originally made down payments of 20 percent or higher will not require new insurance for the refi.

• The cutoff date for the entire program is June 10, 2010.

Lockhart said that although Fannie and Freddie would be refinancing portions of their portfolios into lower-interest-rate, higher-LTV loans, he expects that their exposure to financial loss should actually decline.

"In fact," he said, "credit risk would be reduced because, after the refinance, the borrower would have a lower monthly mortgage payment and/or a more stable mortgage payment." This, in turn, would lower the probability of loss-generating defaults and foreclosures by those borrowers.

Since Fannie and Freddie both operate under direct federal control any additional losses to the companies would inevitably be borne by taxpayers.

How it all works out may well depend on whether the Obama administration's broader efforts to stabilize housing prices, reduce foreclosures and push the economy out of recession are successful.

If large numbers of beneficiaries of these special refinancings ultimately cannot afford to pay even their cut-rate replacement rates and go into foreclosure, red ink could flow in rivers from Fannie and Freddie.

But since that's an unknown and the refi program is an immediate, here-and-now money-saving reality, homeowners ought to make the most of it. If you know that Fannie or Freddie owns or guarantees your mortgage -- your loan servicer can tell you -- and you've got an on-time payment record and an interest rate above today's prevailing levels, start assembling your financial records and get ready to refi.

Distributed by the Washington Post Writers Group. Kenneth Harney is a nationally syndicated real estate columnist. He can be reached at the Washington Post Writers Group, 1150 15th St. NW., Washington, DC 20071-9200 or by e-mail at kenharney@earthlink.net.