Week in Review, December 7 - 11

A little over two weeks remain as we close out 2009 and brazenly embrace 2010.  The rates that were down in the 4% range have shot back to a more expected level to where rates have been throughout the year.  If the theory holds true though, we may see a small dip in rates come the end of December and into early January so be ready with those buyers to snag the best and most affordable rates.

It has been a while since I posted because of the Thanksgiving Holiday and then my first real vacation (one where the cell phone was left at the condo when we left to do exploring) since I was married in 2006.  Lucky for me, the vacation to Maui was just what I needed to recharge the batteries and to attack 2010 with a vengeance.  I have been researching a few different items related to the mortgage market that I am sure is great information for you and your clients.  So without further adieu:

Week in Review:

• Fannie Mae 8.0 and new Freddie Mac LP - In the world of loan originators, Fannie Mae and Freddie Mac LP, are the lifeline through which we can approve and not approve deals prior to underwriting.  Basically, an approve/eligible rating with Fannie Mae or an Accept rating from Freddie Mac LP, means that the loan does meet minimum guidelines if the Assets, Income, Credit, etc. can be supported through verification.  Why is this important?  Well, both are undergoing upgrades to their Desktop Underwriting system that is going to change the guidelines for borrowers.  For the past two years a decent credit rating and a DTI (debt to income) ratio of less than 57% was enough to get people qualified.  THE NEW MINIMUM STANDARD FOR DTI RATIO IS 45%.  Read it again!  And again!  The guidelines just got tighter, which means we have to be even more diligent to ensure that the borrower are qualified upfront.  It can be said for sure the effect that the new DU system will have on borrowers but it does mean we are back to the underwriting of the mid 90's.  Time to buckle down for 2010.

• Financially - Does walking away make more sense? - An article by a lawyer, Brent White, from the University of Arizona discusses the stigma associated with walking away from your home.  He makes some compelling arguments for people to walk away, because if the numbers work in their favor, they can save tens of thousands of dollars.  An article, written by Liz Pulliam Westin, gives her take on the subject matter.  It is interesting that people are making a moral decision when it comes to their homes not a financial or numbers decision.  Brent White, discusses how the trends of foreclosures closely follows the trend of unemployment and further that people, instead of thinking logically, use emotion to deter them from foreclosing on their home.  However, Liz Pulliam Westin does disagree with White as he speaks nonchalantly about the difficulties associated with credit after a foreclosure. (Of which I agree!)  The most profound comments though came from White when he discussed the general public/society and their decision to keep the house being a moral decision. He believes that the lending industry and bankers don't make moral decisions, they make numbers decisions, and because of that the general public has that right.  

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  • When faced with difficult decisions, are we hurting the economy by making a financial decision that will keep ourselves protected or should we, as Liz Pulliam suggests, continue to put our financial well being in the hands of banks and lenders who are unwilling to help?  (Ms. Pulliam does suggest that banks and lending institutions improve their moral position to help but the truth is that won't happen!

• PMI increases DTI Ratio -  For those borrowers that couldn't get PMI because their DTI was over 41%...Congratulations, the new percentage is now 45% to match that of the Fannie Mae and LP changes above.  Remember, to always find the good in any news. 

Lastly, remember that the new changes always make it more difficult to close loans without underwriting asking questions or wanting more information.  Sure, it can be tiring and grating, but my motto is that the Underwriters are my friends, not my enemy, and if I work with them and don't fight them the chance for overall success is greater.  I will always fight for what the customer needs, but the goal is to win the war and if there are times when we must retreat and not fight small battles to ultimately win the war, then that is what I will do. 

Consistent, Disciplined and Persistent Lending practices will lead to successful closings.  You have all contributed in a positive way I am sure for your clients and for that they will be forever grateful. 

With a little bit of elbow grease, 2010 looks to be even more promising.