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Appraisal waivers, alimony revisions will make mortgages easier to get

By Jeff Lazerson

8/25/17

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary

From Freddie Mac’s weekly survey: The 30-year fixed rate improved, averaging 3.86 percent, three basis points better than last week’s 3.89 percent. The 15-year fixed was unchanged from last week, staying at 3.16 percent.

The Mortgage Bankers Association reported loan application volume was unchanged from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $424,100 loan, last year’s rate of 3.43 percent and payment of $1,888 was $103 less than this week’s payment of $1,991.

What I see: Locally, well qualified borrowers can get the following fixed-rate mortgages at zero cost: A 15-year at 3.125 percent, a 30-year at 3.75 percent, a 15-year agency high-balance ($424,100 to $636,150) at 3.375 percent, a 30-year agency high-balance at 4.0 percent, a 15-year jumbo (over $636,150) at 4.25 percent and a 30-year jumbo at 4.375 percent.

What I think: The dog days of summer are usually slow when it comes to the new mortgage rules. Not this year.

Let’s start with buying on blind faith when it comes to knowing if your home is really worth what you are paying for it.

Last week, Fannie Mae’s Collateral Underwriter started the appraisal waiver process on some purchases. Fannie estimates 5 percent of its purchases will receive property inspection waivers. Out of that, Fannie estimates that only 40 percent of lenders and borrowers will bypass the appraisal where allowed, according to Fannie spokesman Pete Bakel. Its property inspection waiver on some refinance transactions started last December.

Freddie Mac’s ACE (automated collateral evaluation) platform will start spitting out its automated appraisal alternative (which is code for appraisal waiver) on some purchases Sept. 1. Freddie won’t provide estimates on the percentage of waivers it expects.

My gut feeling is better-qualified borrowers with substantial down payments are more likely to get waivers. Pay up and get your own appraisal even if you receive a Fannie or Freddie waiver. You don’t know what you don’t know. Hire an expert. Don’t trust an opaque system that provides no hard data to dabble about.

For Fan and Fred, it’s about the overall risk. For you, it’s about paying fair value for the home you are purchasing.

Freddie Mac fell over for some landlords. It’s the first mortgage giant to embrace short-term vacation rental income. Yippee! You need a two-year history of receiving the Airbnb type of income. This is important because this income tends to be much higher than classic long-term lease agreements. And, you can use that spiked income to your advantage by qualifying for larger loans. That’s more buying power for sure.

Let’s talk alimony.

Fannie Mae recently allowed lenders to reduce a borrower’s income by the amount of the alimony instead of adding it to his or her debt-to-income ratio, making it harder to qualify for a loan. This smart change is going to make a huge difference for a lot of borrowers.

Let me offer you an example:

1) Alimony Andy makes $10,000 per month and he has to pay Betty Beneficiary $3,000 in monthly alimony.

2) Assume Andy wants to buy a condo for $500,000, paying 20 percent down and borrowing $400,000. His interest rate will be 4 percent and he will pay $350 in monthly homeowners association dues. His total monthly house payment will be about $2,815.

If we take the house payment of $2,815 and the $3,000 alimony payment for a total of $5,815 and divide it by his $10,000 income, the housing expense ratio is 58.2 percent. Fannie will go up to a 50 percent ratio. Too high to qualify!

Conversely, we take the $2,815 house payment divided by $7,000 (salary of $10,000 minus the $3,000 monthly alimony payment) of income. Just like that you have a 40.2 housing ratio.

Alimony Andy is good to go. Oh, the magic of numbers when they aren’t eclipsed!

 

If you have questions or comments, please contact Jeff Lazerson by clicking here.

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