This month in Mortgage--

This month in Mortgage--- As  published in the Home Ideas Magazine, November 2009-- by Wanda Promes

Most Mortgage Loan Officers have full time jobs just keeping up with the ever changing guidelines handed down by Fannie Mae, Freddie, HUD and new regulations passed down by Congress.

When you apply for your next mortgage loan you may see these changes affecting the application and closing process.

The most recent changes in mortgage lending include the areas of appraisals, the self employed borrower, the need for tax transcripts.  These changes have also affected the disclosing process for Good Faith Estimates and Truth-In-Lending disclosures.  Changes in minimum credit scores, Debt-to-Income ratios, and the ability to get Mortgage Insurance on your loan are shifting to a conservative level.

Let's talk about some these individual changes. 

The new HVCC (Home Valuation Code of Conduct) rules affect appraisals. Along with the new HVCC guidelines that prohibit loan originators to talk with the appraisers prior to the property inspection, the new guideline also requires the appraisal to be delivered to the borrower at least 3 days prior to close.

The new Regulation Z states that a correct Truth in Lending be given at least 7 days before closing. This means that if any of the terms of your loan change, including loan amount, interest rate, fees, your closing may be delayed, as much as a week.  This protects you as the consumer from having hidden fees show up at the closing table.

For the Self-Employed;  we will have to look at your tax returns and possibly your year-to-date financials.  I am asked, "Why do you need so much of my personal information?  I have an 800 credit score and 20% down?  I could buy this place for cash if I wanted to liquidate my 401k or stocks?  Last time I bought a home they just wanted my pay stub, why do you want my tax returns?  Are you out of your mind?"  My response as a lender, "YES-we are out of their minds, dealing with fraud and new government regulations."  This new underwriting guideline was put in place to prevent fraud in the over disclosing of income facilitated by "stated income". It certainly used to be an easier way to go for the self-employed, however, it has also created room for over-extension to non-qualified applicants.  Do all self-employed need tax returns? Yes!

A question from the W-2 wage earner- "Do all buyers need tax returns?"  Actually  YES!!!  they do. Here's Why. On almost every file an underwriter is pulling a copy of the borrowers tax returns by using the 4506.  The 4506 is a form signed at the application, by an applicant, which allows an underwriter or investor to pull tax records, or tax transcripts from the IRS.

Credit Scores - As minimum credit scores increase, considering credit repair or simply increasing your score. With the minimum credit scores at 620, but inching up to 640, and minimum credit scores for premium pricing at 740, certainly cleaning up items on your credit, or simply making changes necessary to raise your score can have long term benefits. Increasing your score means you can take advantage of the best rates.  For instance, borrowers with scores over 750 being offered better rates or incentives because of their high scores.

 Extension of the $8,000 tax credit-  On Oct. 5, White House Press Secretary Robert Gibbs acknowledged that "there has been quite a bit of success" with the $8,000 tax credit, and added that President Obama is considering extending it to help strengthen the economy and create jobs. There is a push for higher incentives in 2010 for New Construction Homes.-- UPDATE-- Congress passed a bill extending not only the $8,000 tax credit for First Time Home Buyers, but also a $6,500 tax credit for "move up" buyers, Buyers that have owned a primary residence for 5 years that would like to purchase a new home.

More papers to sign, more info required from the buyer. 

Very often when I hear someone complaining about the new restrictive underwriting guidelines, I stop and correct the, stating "traditional" not restrictive. That is that the guidelines are closer to what they were years ago.

Lender's may still put you through the heavy wash cycle on high heat before approving your mortgage loan, a shift perhaps necessary to preserve our housing market.  On the bright side, we are seeing improvements and stabilization in the housing market.  Home ownership is affordable and still a great investment! If you are considering buying a home, talk with your lender and get pre-qualified.