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2015 Mortgage Review

Finally a year filled mostly with Improvements
There were more positive mortgage changes in 2015 than we have seen in almost a decade. Leading up to 2008, good credit, a job, and a down payment were factors that really were not all that important to mortgage companies and government sponsored enterprises like they are today. The mortgage meltdown and consequential foreclosure crisis, in typical American fashion, caused the pendulum to swing too far back in the opposite direction. Thus, qualifying for a mortgage became much too difficult. This prolonged the recovery of the housing market which really did not begin to take shape until 2012.

Mortgage companies and government sponsored enterprises have begun to loosen qualifying factors for home buyers realizing that they did tighten up the rules more than they should have. There were small continual improvements in 2013 and 2014. Then in late 2014, Fannie Mae and Freddie Mac began offering 3% down mortgages. History will show that 2015 was the year that confidence in the system and real improvements took shape. The naysayers may say “here we go again back to the days of 2004 and 2005 when things got too easy”, but this is simply not the case. Today credit and the actual ability to pay are legitimate factors whereas in the years leading up to the mortgage meltdown they were not. We compiled a list of all the changes across the different agencies, most of which were very positive for the real estate market.

MASS HOUSING
• Operation welcome home was announced in November and supports veterans active duty military in achieving homeownership.
• Veterans and active Duty Members of the Armed Forces, and National Guard can be eligible for an alternative loan program to the VA loan program.
• Benefits include a 0% Down Payment Option and Closing Cost assistance up to 3% of the purchase price.
• Condominiums are not required to go through rigorous VA approval process and follow regular Fannie Mae approval guidelines.
• Non Spouse Co-Borrowers are now allowed to be co-signors.
• Rental income is allowable for 2-Family Home purchases.

FANNIE MAE
• Loan limits were increased from $517,500 to $523,250 starting January 1, 2016.
• Down Payment requirements decreased from 10% to 5% down on high balance loans up to $523,250.
• Non Owner Occupant Co-Signors are now allowed with as little as 5% Down Payment.
• Personal Business Expense Write-Offs for most borrowers will be ignored moving forward.
• Limited review will be allowed on established Condominium Associations with a 10% down payment, which used to be 20%.
• The entire down payment can now be gift monies moving forward whereas it was previously only allowed to be a portion of the down payment.
• The maximum number of financed properties that the borrower may own or is obligated on when the transaction is a Second Home or an Investment Property has increased from 4 to 10.
• The equity requirement was eliminated when converting a primary residence to investment property in order to offset the mortgage payment with new rental income. It was previously required to have proof of at least a 30% Equity position.

FREDDIE MAC
• Benefits include a 5% Down Payment Option and allows for non-occupant co-borrower.
• The entire down payment can now be gift monies moving forward whereas it was previously only allowed to be a portion of the down payment.
• When multiple properties are financed, the maximum number of financed properties that the borrower may own or is obligated on when the transaction is a Second Home or an Investment Property has increased from 4 to 6.
• Rental Income – The requirement that a borrower must have a two-year history of managing Investment Properties to use rental income to offset a mortgage payment has been removed.
• The equity requirement when converting a primary residence to investment in order to offset the mortgage payment with new rental income has been removed. It was previously required to have proof of at least a 30% Equity position.

JUMBO LENDERS
• Down payment and Loan to value requirements have become less restrictive. Many lenders have rolled out 5% and 10% down payment options for Jumbo loans. Many of these programs do not require Mortgage Insurance.

FHA
• At the beginning of the year FHA lowered its annual insurance premium by a half point from 1.35% to .85%. This significantly increased the volume of FHA loans being used. Their purchase volume increased 25%.
• FHA’s delinquency rates are continuing to steadily decline and are now back to year 2000 levels.
• In September FHA did make significant changes to their underwriting guidelines that made getting an FHA more restrictive, this has decreased their loan volume slightly.
• The biggest change was with student loan debt. Prior to September mortgage underwriters did not have to take student loan debt that was in deferment for a year or more into account on FHA loans. Now they need to account for it in the debt to income ratio whether they are in deferment or not.

Additional Changes
There is no doubt that 2015 was a very positive year for mortgage changes but more work needs to be done. The Federal Housing Finance Agency which regulates Fannie Mae and Freddie Mac are currently very closely evaluating credit scoring models to decide if they want to update theirs with the intention of being able to offer loans to additional would be borrowers. They are currently working with what is called FICO 4 which is a 2004 version of the Fair Isaac Corp credit model. They are looking at more updated versions from FICO and alternative versions from companies like Vantage Score.

In all it is clear that lending is undoubtedly more responsible than it was in the years leading up to the mortgage crisis but some of the things that were overdone after the crisis are really being backed off. This is wonderful progress that will only help more Americans achieve homeownership and continue to support the overall real estate market which is vital to the entire economy. The National Association of Realtors is continuing to work closely with all Government Sponsored Enterprises and continually monitoring all of the changes. Another factor that will add pressure to further loosening guidelines is interest rates. As they rise over the next few years mortgage companies will want to find ways to keep up the volume so they will continue to evaluate how to loosen credit.

Lastly, the Federal Government needs to end their political witch hunt on mortgage lenders. Here we are eight full years after the crisis and the justice department is still fining and suing lenders for wrongdoings back then. The truth is absolutely everyone including the government made mistakes back then and everyone knows it. Every time they sue a mortgage company the company adds additional overlays on their loans to protect themselves which decreases the amount of mortgages that can be offered. All this does is hurt homebuyers and the overall real estate market. As an example Quicken Loans was sued by the Department of Justice in April. Now they are apparently considering no longer offering FHA loans. That would be detrimental to the Real Estate and would only harm borrowers. The mortgage crisis is over and it’s time to move on.

Sources:
https://www.masshousing.com/portal/server.pt/community/home_buyer_loans/226/operation_welcome_home
https://entp.hud.gov/idapp/html/hicost1.cfm
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing