Home For Sale yard Sign

You know those Millennials and how they want their mortgages with cheap rates and minimal down payments. They want speedy pre-approval and closings with no hiccups. And they want it all right now.

If that seems demanding, well, that’s the Millennial generation for you. The interesting news is, according to a recent survey by Better Homes and Gardens Real Estate, Generation Z is more willing to make sacrifices to achieve home ownership. That’s right: The same generation that knowingly misspells words all over Twitter and Facebook is willing to sacrifice more than the “y” and “o” in “your.” They say they’re willing to sacrifice social media access (HORRORS!) in order to own a home.

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Making it Rain

Interesting story in the Los Angeles Times. According to their business desk, banks are easing lending restrictions and lending more freely, using “creative financing,” which could bring more risk to the market.

The story, which talks about “piggyback financing” and other risky mortgage loans, says that with higher prices comes more risk in housing finance. This all sounds familiar, doesn’t it?

With home prices rising, risk is creeping back into mortgage lending. In addition to creative down-payment arrangements, mortgages on high-end properties — so-called jumbo loans — have also gotten plentiful and cheap. Meanwhile, banks are accepting borrowers with lower credit scores and allowing them to take on more debt relative to their incomes, experts and industry professionals say.

“We are definitely not seeing the looseness we saw during the boom years, but it seems to me that the pendulum is swinging back,” said Erin Lantz, director of real estate website Zillow.com’s mortgage market.

The relaxing of standards comes as banks rely more heavily on new home loans to replace big profits from the recent boom in refinancing, driven by historically low rates. As demand for refinancing declines — and interest rates start to rise — some analysts say an improving economic outlook will cause banks to lower standards further.

But while banks may be lowering standards, and while the Fed is poised to increase interest rates, mortgage restrictions under Dodd-Frank will be coming to bear soon, making lending a series of hoops homebuyers must jump through.

And while some banks are lending more, I hope that we’ve all learned our lesson from the sub-prime mortgage crisis. We have, right?

 

Changes are coming to some of the key documents that homebuyers sign when they
close on a mortgage loan. Government agencies are behind these changes, so it should
come as no surprise that they’re late. The changes to the Good Faith Estimate, Truth-in-
Lending Disclosure and HUD-1 Settlement Statement — required by the Dodd Frank Act
— probably won’t take effect until the middle of 2013.

As a refresher course, these three documents, forms that anyone who takes out a
mortgage loan will see, spell out exactly how much homebuyers will pay in closing
costs and interest for their home loans. The documents also tell homebuyers how many
mortgage payments they’ll have to make and when those payments are due. They’ll also
list the interest rate that they are paying to borrow their mortgage dollars.

The Consumer Financial Protection Bureau is now gathering comments to its proposed
changes. This comment period ends Nov. 6, after which the final changes will take effect.

I recently spoke to Marcus McCue, senior vice president with Guardian Mortgage, about
the possible changes to these key mortgage documents and what they might mean to
consumers.

Candy: My mortgage is two inches thick of mind-numbing paperwork in my safe deposit
box. How will the new changes help that?

Marcus: We’re not sure yet, but we hope that the proposed changes will result in more
accurate fees ad estimates across the board and fewer surprises for borrowers. It should
also mean that the forms and disclosures will be easier to understand. Finally, it should
prevent a greater number of consumers from taking out mortgage loans that they can’t
afford in the long run.

Candy: Sounds too good to be true. Do you see any negative effects?

Marcus: Initially, due to the change in forms, it might take lenders more time to prepare their estimates. That could result in longer approval times for loans, but should not be an issue after the adjustment period.

Candy: I’m sure consumers would love to receive fewer documents when taking out a
mortgage loan. How will that happen under these changes?

Marcus: The Good Faith Estimate and the Truth-in-Lending Disclosure will be
combined into one form called the Loan Estimate. The proposed format is an
improvement on the previous form, but the changes will likely cause confusion for
borrowers who have purchased homes previously.

Candy: What about the accuracy of the fees listed on this new Loan Estimate?
How “guaranteed” will the listed fees be?

Marcus: There will be nearly no variation allowed on a larger number of fees, especially
those coming from vendors such as title companies and appraisers. Today, the only fees
that can’t vary from the Good Faith Estimate, for instance, are the lender origination
charge and points or credits. If these changes take place, fees for appraisals, credit
reports, flood certificates, pest inspections and other services must not differ from what
will be listed on the Loan Estimate.

Candy: Wow! That will be a big shift for those companies. Any other changes that will
affect homebuyers?

Marcus: Lenders must provide their customers with the new Closing Disclosure, which
combines the current HUD-1 statement and the Truth-in-Lending Disclosure, three days
before closing. That’s a slight change from today, when the HUD-1 statement must be
provided one day before closing. It will delay some closings.

Candy: I don’t know if the Consumer Financial Protection Bureau will listen, but what if
I — or any of my readers — want to make comments on these new changes?

Marcus: Comments are welcome from everyone. You can make them here.

Update to the mortgage story. As I said earlier, mortgage broker Ron Schulz told me over the weekend that the biggest hurdle in mortgage financing now is finding mortgage loans for the self-employed. Those deals are near impossible because most self-employed work off K-1 income to control/limit taxes so when they go to get a loan underwriters get all red in the face and say, uh uh no way, this guy has no income.

Well, guess what the most hurtin’ home price range is out there? $750,000 to $1.8 million, right where a lot of successful self-employed want to be.

And look at this email I received from a reader today:

“I recently contacted a lender about purchasing a home for my parents. I told them that I would be able to put 50% down and wanted to finance the remainder. They told me that I didn’t qualify because this lenders policy is to average your income over the last 5 years. Needless to say, averaging income isn’t good for the starting business. They do not take into account the growth rate of a business. Not to mention that I too am a tax planner, so I do my best to make sure that my taxable income is as low as possible.

Ratio of loan to market value apparently has no relevance any more. Lesson learned: By the time I “qualify” for a loan, I will be able to pay cash for this home.”

Now here’s what really gets me hot. We have the Feds trying to keep us from a Double Dip, right, and yet, where’s the financing to allow people, self-employed people, to BUY homes? Not everyone gets a W-2, thought the Feds sure love those because they get their money first. Instead of encouraging responsible lending to this segment, they go and pass legislation that pinches mortgage brokers even harder and passes on more costs to the consumer!

By the way, on his show this week, Ron has special guests Curtis and Paige Elliot of Ellen Terry Realtors.

I was in Southlake over the weekend, and on radio 1160 am with renown mortgage broker Ron Schultz. He said what I’ve written now about a hundred times: there are loans out there for folks with good credit scores and W-2s. The biggest problem is finding mortgage loans for the self-employed. Those deals are near impossible because most self-employed work off K-1 income to control taxes so when they go to get a loan now it’s like, hey, how can you loan this person a penny, he doesn’t earn any money! When the self-employed mortgage loan comes back, says Ron, then our market will get moving.

Interesting: Ron says jumbos are back now big-time, with great rates.