Alternative mortgages are filling gaps caused by agency limits on what counts as income following pandemic-era losses.
By Jeff Lazerson | firstname.lastname@example.org | MortgageGrader.com | May 08, 2021
By all accounts, mortgages are performing nicely during the COVID-19 pandemic. Real estate is roaring. Mortgage rates remain as low as they go.
What a perfect example of mortgage lenders, elected officials, borrowers and community leaders pulling together during a crisis.
And then came Calabria.
Mark Calabria, director of the Federal Housing Finance Agency and the regulator overseeing Fannie Mae and Freddie Mac, imposed a half-point adverse-market charge for almost every refinanced mortgage sold to Fannie or Freddie.
On a $600,000 refinance, you pay an extra $3,000 for the privilege. The toll, which started Dec. 1, has made billions of dollars for F & F. There is still no end date announced.
On April 1, Calabria came calling again.
This time, he whacked investment properties and second-home loans targeted for purchase by Fannie and Freddie. January amendments to the preferred stock purchase agreements, or PSPA’s, between the U.S. Treasury Department and F & F, restricted the number of non-owner and second-home loans sold to F & F to 7% of each lenders’ previous 52-week average.
Lenders quickly lost their appetite to sell these mortgages to F & F. Most marked up the prices for investor and second-home loans (like 4 or 5 points) so that the mortgages can no longer be made. The markup bleeds into another set of rules capping total points and fees charged to consumers.
Also included in the PSPA’s but not yet implemented is the F & F limitation on buying mortgages with less than 10% down (or 10% equity in the case of refinance), debt-to-income ratios over 45% and middle FICO scores under 680. FHFA did not respond to my query about a start date for these restrictions.
While Calabria is doing an A-plus job of shutting out more and more consumers from the cheapest mortgage money available, others in mortgage-land are taking notice and creating solutions (albeit more expensively) to address a variety of Fan and Fred deficiencies.
Let’s start with COVID related forbearances.
Some alternative lenders are offering refinancing consideration while borrowers are still in forbearance. The borrower’s narrative needs to make sense with supporting documentation about their circumstances and why things are different now. One lender I interviewed made a loan for a borrower who was in forbearance for nine months without making a single payment.
Fannie and Freddie typically require you to make three mortgage payments before you are eligible to refinance. What is F & F doing with those billions of dollars in adverse-market charges? Not sure, but certainly not throwing a lifeline to those worthy borrowers in forbearance.
How about self-employed borrowers who had a tough time making money in 2020? One lender is allowing borrowers to average their 2020 income with a stronger 2021 year-to-date unaudited profit and loss statement. Fannie and Freddie do not give credence to this income-boosting calculation.
Another lender is waiving appraisals where an automated valuation can support the borrower’s value claim regardless of the type of mortgage applied for. Talk about saving time and money. Fannie and Freddie sometimes provide waivers, but they tend to be more narrowly defined.
How about using year-to-date bonus and or commission income for borrowers who did not receive those perks in the last few years? Maybe their salaries were reduced and bonuses were suspended during COVID. Or maybe the borrower was furloughed or laid-off.
Fan and Fred average income over the most recent two years, but give no deference to those borrowers.
Or what about new alimony income after a recent divorce? One lender says count it. Fan and Fred, on the other hand, want six months proof-of-payment, COVID or not.
To help you to qualify, another lender will take the total of your liquid assets and divide by 36 months to call that income. For example, $100,000 divided by 36 equals $2,777 per month.
That might make the difference between qualifying or not.
Will Fan or Fred take such an aggressive stance? No.
Freddie Mac rate news: The 30-year fixed-rate averaged 2.96%, 2 basis points lower than last week. The 15-year fixed-rate averaged 2.3%, 1 basis point lower than last week.
The Mortgage Bankers Association reported a 1% decrease in mortgage application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $89 more than this week’s payment of $2,300.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2.25%, a 15-year conventional at 1.99%, a 30-year conventional at 2.625%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.125%, a 30-year conventional high-balance at 2.75% and a 30-year fixed jumbo at 3.125%.
Eye catcher loan of the week: An adjustable-rate mortgage that’s fixed for the first 10 years at 2.25% with 1-point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com. His website is www.mortgagegrader.com.
Jeff Lazerson - Mortgage Columnist since 2011