7/14/2017

HELOC Balloon Due?

Is your HELOC all due and payable? 
HELOC ballon due?
Are HELOC second payments now HUGE?
Let's fix the home loan.
Thirty Year Fixed rates are still low. 
Do you have a Chase, Bank of America, Wells Fargo or CITI second that now seems unfriendly?


7/12/2017

MIP Plus 1.15 Percentage Points



The CFPB’s threshold for qualified mortgages that are subject to a rebuttable presumption of compliance is an APR that exceeds the APOR for a comparable transaction by 1.5 percentage points or more (for first-lien transactions).  FHA qualified mortgages are subject to a rebuttable presumption of compliance if the loan has an APR that exceeds the APOR by more than the sum of the Annual MIP plus 1.15 percentage points.   Therefore, the threshold that defines the difference between FHA loans that are subject to a conclusive or rebuttable presumption of compliance is higher than the threshold that the CFPB established.  As a result of this higher threshold, HUD’s qualified mortgage rule extends safe harbor qualified mortgage status to more loans.

FHA qualified mortgages are subject to a rebuttable presumption of compliance if the loan has an APR that exceeds the APOR by more than the sum of:
  1. X

EXEMPT
The HUD rule exempts FHA reverse mortgages, which are known as home equity conversion mortgages (HECMs), from requirements to meet qualified mortgage standards. HUD’s rule also exempts transactions exempted by the CFPB. These exempt transactions include:
  • Bridge loans with terms of 12 months or less, including loans used to finance the purchase of a new dwelling while the borrower is trying to sell his/her current home
  • Bridge loans for the initial construction of a new dwelling
  • Construction phases of 12 months or less of a construction-to-permanent loan
  • Loans made by a housing finance agency (agencies that have authority to make loans pursuant to the Housing and Community Development Act of 1992)

Qualified Mortgages



With the publication of its Qualified Mortgage Rule (QM Rule) in January 2013, the CFPB established qualified mortgage standards for conventional mortgages.  Eleven months later, HUD finalized a rule for FHA qualified mortgages.  In the preamble to its rule, HUD stated that all Title II loans and other FHA loan products should be defined as qualified mortgages.  HUD based this statement on the fact that FHA loans do not include risky features such as negative amortization, and on its longstanding guidelines that have “…always required lenders to determine a borrower’s ability to repay a mortgage…” (78 Fed. Reg. 238, p. 75215). The CFPB and HUD rules for qualified mortgages both became effective in January 2014.

 HUD’s rule for FHA qualified mortgages must begin with a discussion of the CFPB’s Qualified Mortgage Rule because the rules are interrelated. Both rules are intended to give lenders the incentive to base lending decisions on “…a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms…” (15 U.S.C. §1639c(a)). Standards for determining repayment ability are set forth in the CFPB’s Ability to Repay Rule (ATR Rule), and HUD has incorporated these standards into its rule.

Even though it maintained that FHA loans were already in compliance with the general requirements for qualified mortgages, HUD issued a rule that more closely aligns its standards with those established by the CFPB. The HUD rule incorporates definitions, points and fees limitations, and standards for determining repayment ability that are found in the QM Rule (24 C.F.R. §201.7).
The CFPB’s QM Rule offers lenders a presumption of compliance with the ATR Rule when they make loans that meet particular product feature prerequisites and underwriting requirements. The product feature prerequisites for conventional qualified mortgages are:
  • A loan term that does not exceed 30 years
  • Points and fees that do not exceed 3% of the total loan amount
  • No periodic payments that increase the principal balance (i.e. no negative amortization)
  • No interest-only loans or other products that permit the deferral of payments of principal
  • No balloon payments (with some exceptions)
The underwriting requirements for conventional qualified mortgages include:

  • A maximum debt-to-income ratio of 43%
  • Verification of the borrower’s income and assets
  • Calculation of regular and substantially equal periodic payments that will repay the mortgage by the end of the loan term
  • Qualified mortgages may have either a conclusive or rebuttable presumption of compliance with the ATR Rule.  Those that have a conclusive presumption of compliance are known as “safe harbor qualified mortgages.” These are mortgages that are not higher-priced mortgage loans.  If a loan is a higher-priced mortgage, it is subject to a rebuttable presumption of compliance.
  • After completion of its rule making process to define FHA qualified mortgages, HUD finalized a rule that extends a conclusive presumption of compliance and safe harbor qualified mortgage status to any Title II FHA-insured single-family mortgage that meets the points and fees limitations of the CFPB’s QM Rule and that has an APR that does not exceed the average prime offer rate by more than the sum of the Annual MIP plus 1.15 percentage points for a first-lien transaction.
    The HUD rule extends a rebuttable presumption of compliance to FHA-insured single-family mortgages that:
    • Meet the points and fees limitations established under the CFPB’s QM Rule, and
    • Have an APR that exceeds the average prime offer rate by more than the sum of the MIP plus 1.15 percentage points
    • HUD has adopted the CFPB’s definition of “points and fees” that is found in Regulation Z, which defines the term to include:
      • Compensation paid by a consumer or by a creditor to a mortgage loan originator
      • Most items included in the finance charge
      • Real estate-related fees that are not reasonable, those for which the creditor receives compensation, or those that are paid to an affiliate of the creditor
      • Premiums paid at or prior to consummation for optional credit insurance products or insurance that names the creditor as the beneficiary
      • The maximum prepayment penalties that may be charged under the loan terms (note, however, that FHA loans may not legally include prepayment penalties)
      • HUD has stated that it will no longer insure single-family homes that have points and fees that exceed the CFPB’s limit for qualified mortgages (24 C.F.R. §203.19(b)(1)). As a result of this rule, single-family mortgages insured under Title II of the National Housing Act may not exceed the following amounts, which are adjusted annually for inflation:
        • 3% of the total loan amount for a loan of $100,000 or more
        • $3,000 for a loan of $60,000 or more but less than $100,000
        • 5% of the total loan amount for a loan of $20,000 or more but less than $60,000
        • $1,000 for a loan of $12,500 or more but less than $20,000
        • 8% of the total loan amount for a loan of less than $12,500
    • higher-priced mortgage loan, which is defined as a loan with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction by 1.5 or more percentage points for a first-lien covered transaction 
    • Copyright © 2017. Caroline Gerardo. All Rights Reserved.

7/10/2017

Mortgage Fraud




FREDDIE MAC NEW RULE AS TO SELLER CONTRIBUTIONS DUE TO FRAUD AND RISING PRICES
Penalties for violation of the Federal False Statements Act, which prohibits false statements to the government (including lending institutions), may include up to five years in prison, fines, or both. 18 U.S.C. §1014 prohibits the use of false statements on a loan application and the overvaluation of property in order to influence decisions made by a lending institution, and violations may result in imprisonment for up to 30 years, fines of up to $1 million, or both.  Loan originators can remind loan applicants of the gravity of providing false information by giving them a copy of the FBI’s Mortgage Fraud Warning. An Occupancy Certificate gives loan applicants the option to state whether the property securing a loan will be a primary residence, a second home that the applicant will occasionally occupy, or an investment property that the applicant will not occupy.

Fraud for profit is also referred to as “industry insider fraud” because it:
  1. X

Correct. “Fraud for profit” or “industry insider fraud” involves the use of inflated appraisals, falsified loan documents, stolen identities, fictitious loan applicants, and other illegal tactics to secure loan funds that the loan applicant has no intention of repaying.  In many cases, fraud for profit involves the conspiratorial efforts of industry insiders including mortgage loan originators, mortgage brokers, underwriters, loan processors, real estate agents, appraisers, and attorneys.


money_hand.jpg
Cash-out purchase fraud is a scheme that Freddie Mac has cited as an emerging trend. [1]  These schemes involve the extension of an offer to purchase a home for an amount that is in excess of the list price.  Using an inflated appraisal, the borrower who is perpetrating the fraud obtains a mortgage for more than the home is worth.  After the closing takes place and the seller receives funds from the lender, he/she pays the fraudulent borrower the difference between the list price of the home and the amount shown on the mortgage.

[1] Freddie Mac. “Emerging Fraud Trends: Illegal Property Flipping With Cash-Out Purchases.” http://www.freddiemac.com/singlefamily/preventfraud/flipping.ht

Builder bailout schemes are also carried out by establishing shell companies that purchase new homes at inflated prices, or by attracting investors with fraudulent incentives, which may include promises to provide free property management services or to absorb any negative cash flow for some period of time. After the closing takes place, these promises are not honored.
Red flags for builder bailout schemes include:
  • Appraisals that solely rely on other homes in the same development for comparables
  • Strong sales in a development while the surrounding market is slow
  • Special incentives for home buyers and investors
  • An unclear source of funds for down payments
  • Affiliated parties in the transaction