Okay, are you ready for me to completely geek out? I will probably lose you about the 2nd paragraph into this blog, but if you’re interested at all in what’s trending in mortgage lending for 2017, stay with me here! I do have clients ask me frequently about interest rates, particularly with the political shake up as of late. I’ve asked lenders with whom I’m in touch quite a bit and they all admit that it’s not easy to make sweeping predictions about rates and far more practical to update folks on new rules, opportunities, and practices that will become the norm starting in 2017. And, if you read until the end (or simply scroll), you will find a teaser on rate prediction. But, here are a few changes for 2017.

Streamlining the paper trail for the borrower: Day 1 Certainty

Day 1 Certainty is an enhancement to automated underwriting offered by Fannie Mae, or the Federal National Mortgage Association, for loans submitted to Desktop Underwriter, the most widely used automated underwriting system in the market today. Have I lost you yet? My clients who bought last year will probably understand this language, and how cumbersome the paperwork submission can be to get a loan.

When lenders decide to use the Day 1 Certainty validation process, Desktop Underwriter will use third-party vendor data to make income calculations entered by the lender. The borrower/buyer will consent to allow the lender to order a verification of employment through the third-party as well. Both the lender and the borrower are relieved from income documentation requirements.

What does this mean to a buyer?

 

    • Borrowers save time by consenting to use electronic data vs. collecting hard copies of paystubs, w2s, etc.

 

    • And, quicker loan decisions can be made since this new dynamic underwriting validates key data up front, makes sure it meets Fannie Mae requirements, and there’s more certainty on income calculations. This eliminates back and forth with banks, lenders, employers- all the time -consuming elements that make the buyer wonder if this is even worth it in the first place. Sorry 2016 home purchasers- why couldn’t this have come sooner?

 

And more to come. Fannie Mae is rolling out an asset component to Day 1 Certainty which will allow the borrower to consent to a third-party provider to obtain bank statements. These statements will then be interfaced with Desktop Underwriter and if Fannie Mae validates the assets, the lender will not have to review bank statements and confirm/document deposits. Technology to the rescue (if you trust the third party, I guess).

Thinking about refinancing your home? Fannie Mae may grant more property inspection waivers for refinances. They are using enhanced logic (computer programming/algorithms) to determine if a property inspection waiver can indeed be used. With less of these inspections required for refinancing, there is a chance that appraisers’ schedules won’t get quite as bogged down this spring and summer, allowing for tighter timelines to close on home purchases (this was a challenge last year- delayed closings due waiting for the appraiser). See caveat below!!! 

A Few Programs Worth Checking Out that Allow for Lower Down Payments!

CHFA DPA Grant

Available for up to 4 percent of the total first mortgage loan amount, the grant may be used for down payment, closing costs, and/or prepaids. This increased flexibility gives borrowers more ways to use the grant as needed for their home purchase. This 4 percent grant will replace the current 3 percent CHFA DPA Grant.

Zero-percent Second Mortgage Loan

Available for up to 5 percent of the total first mortgage loan amount, this product will be a subordinate zero-percent interest mortgage with no monthly payment, but it must be repaid after the payoff/refinance of the first mortgage loan in accordance with the promissory note. It may also be used for down payment, closing costs, and/or prepaids. This product will also have a lower interest rate than the grant, offering borrowers another affordable assistance option.

Note: Borrowers may only select one of the two available down payment assistance options. The grant and second mortgage cannot be combined on the same transaction. Both are only available for select purchase mortgages.

Home Possible Enables Buyers to Make a Lower Down Payment

Home Possible is a Freddie Mac (Federal Home Loan Mortgage Corporation) program. This program offers low down payment options for low to moderate income homebuyers or buyers in high-cost or underserved communities. In most areas, your income cannot exceed Area Median Income: https://www.freddiemac.com/homepossible/eligibility.html.

There is up to 97% financing available with a 105% Cumulative Loan to Value (the cumulative total of a first and second mortgage loan amount divided by the value of the property).

There is no requirement for borrowers to contribute from their personal funds and the down payment can come from a gift, an affordable second, employer-assistance program, or 2% from your lender. It must be your primary residence (not a rental) and homebuyer education is required. It has competitive pricing up against more standard loan programs and can allow for a purchase of multiple unit properties (you must actually live in one, up to 95% financing).

Foreshadowing for 2017

The Mortgage Bankers Association (MBA) is predicting 2 to 3 rate increases this year. However, there is really no way to know and predictions of rate increases that didn’t actually happen have been made in the past. There is more uncertainty in the market currently, in the wake of recent political events.

And, appraiser availability may still be strained, despite property inspection waivers mentioned above. In 2016, there were over 100 appraiser licenses in Colorado that were not renewed and under 40 new ones issued by the State of Colorado during the same year. Deficit of around 60. The requirements to enter into the field are prohibitive and discourage many from even trying it, so, your lender should keep your realtor informed as to any foreseeable delays in getting appraisals done within your purchase contract deadlines.

And here’s a big shout out to Kim Woodcock, from The Mortgage Company, www.themortgageco.com, for helping, well, essentially writing, this blog. Come on now, you know I’m not that geeky!