National Bank Of Kansas City - Mortgage News

Five Changes To Mortgage Loans Under Fannie, Freddie rules

2009-08-20T00:00:00

Five changes to mortgage loans under new Fannie, Freddie rules
By Andrew Housser, WDAM - Laurel, MS

Many home buyers are seeking to take advantage of lower home prices, lower interest rates and possibly the federal first-time home buyer tax credit (which expires Dec. 1, 2009). But before launching into a mortgage loan -- likely the biggest debt you will ever incur -- buyers should be aware of how mortgage borrowing has changed.

The U.S. mortgage industry largely follows rules established by Fannie Mae and Freddie Mac -- two very large government-sponsored enterprises that purchase mortgages from the lenders that originate home loans. Fannie Mae and Freddie Mac back nearly half of all U.S. home loans.

As most home buyers may know, the two agencies suffered huge losses in the mortgage meltdown. To save them, the U.S. government bailed them out last September. Afterward, Fannie Mae and Freddie Mac imposed new restrictions on loans they would purchase after April 1 in order to make mortgage lending more secure. Unfortunately for buyers, these new rules also raise the fees on most mortgages. Here is a look at the changes:

1. Appraisals lower -- and costlier
Many would-be home buyers are finding that appraisals on desired properties are coming in lower than anticipated. Some appraisals are significantly lower, to the point that purchases are put in peril. Appraisers now are under significant scrutiny and are acting very conservatively when it comes to valuing homes. Additionally, appraisers will only count comparative property figures from the last three months. Because home sales have slowed, appropriate comps may be few and far between. Plus, Fannie Mae and Freddie Mac are requiring appraisers to complete additional research and reporting on all appraisals. Many appraisers are charging more for this extra work.

What to do: Allow plenty of time for a home deal to go through, so that you can seek a reappraisal or restructure the loan if needed. Talk frankly with your mortgage lender about what to do if the appraisal is too low. Be prepared to pay for appraisals up front, and pay more than in the past.

2. New risk-based pricing
This spring, Fannie Mae and Freddie Mac introduced new risk-based pricing models that charge additional fees to borrowers with lower credit scores. Called Loan Level Price Adjustments, the fees affect just about every borrower with a credit score lower than 740.

What to do: This trend demonstrates yet again why it is important to maintain the best credit score possible. Before going to a mortgage lender, do your best to improve your credit score by paying bills on time, paying down debt and then keeping debt levels low.

3. Points come into play
While borrowers have always had the option to pay points (or discount points) to lower their interest rate, today, buyers often need to pay points just to obtain advertised rates. Points are a percentage of the purchase price paid upfront to obtain a lower annual percentage rate on the loan.

What to do: One point equals 1 percent of the loan amount. Whether buying points is worthwhile depends in part on how long you plan to stay in the home; the longer you plan on living in your new home, the more likely it is that buying points will make economic sense. If you do pay points, bear in mind that they are usually tax-deductible on your federal income tax return.

4. Higher mortgage processing fees
For every type of mortgage, borrowers are paying higher fees for underwriting, loan processing, appraisals, and sometimes even to lock in a certain interest rate. In the past few years, with "no-doc" loans and less stringent standards, underwriting was less complex. Today, mortgage loans are closely scrutinized, and borrowers are paying for that scrutiny.

What to do: Anticipate that mortgage fees will total as much as 3 percent of your loan amount.

5. Condos face tight restrictions
Condominium buyers face even tighter rules. Fees are higher, and mortgages may be rejected altogether if the borrower's down payment or credit score is not high enough, or if too many condo owners in the complex are delinquent on their association fees. For new buildings, the agencies will not back mortgages unless 70 percent of units have been sold. Buyers face higher loan fees if they do not put down at least 25 percent of the purchase price, and some buyers report not being able to attain financing at all.

What to do: Plan to accumulate a significant down payment before buying, and be sure to obtain pre-approval for a mortgage before identifying a property.

The good news for the economy is that these rules are a reaction to a mortgage-lending industry that had spiraled out of control. For individual buyers, the new regulations can be a headache. But for those who are well prepared to purchase, these rules will not prevent you from buying a piece of the American dream.

Taking Refi Pitch to Mortgage Investors

2008-05-19T00:00:00

American Banker - May 16, 2008
by Kate Berry

Of the numerous strategies that have been proposed for stemming the foreclosure tide, many involving Federal Housing Administration refinancings, few if any start with the investors holding troubled mortgages.

That is where National Bank Of Kansas City has been looking for opportunities to boost FHA volume. Since January the $963 million-asset Overland Park, Kan., unit of Ameri-National Corp. has been approaching noteholders with a proposition: Identify loans in your portfolio that you would like to unload, and the bank will solicit the borrowers to refinance.

The loans it targets are current but typically are adjustable-rate mortgages whose teaser rate is soon to reset. "These loans might have a high possibility of default or foreclosure, and the noteholder would rather get them refinanced," said Todd Geiman, an executive vice president at the bank's mortgage division.

With the secondary market for such loans moribund, helping borrowers refinance is one of the few ways investors can cash out. And for National Bank Of Kansas City, which has seven branches in three states but lends nationally using leads purchased from IAC/InterActiveCorp's LendingTree LLC, the program is another way to generate government and conforming loan volume.

"There are a lot of holders of mortgage notes that would like to get them off their books," Mr. Geiman said. "Most of the people we're partnering with cannot fund mortgages on their own, so they're looking for a partner."

Since January, National Bank Of Kansas City has refinanced 2,000 to 2,500 borrowers through its Mortgage Recovery Program; 60% were put into new FHA loans, and the rest were put into Fannie Mae or Freddie Mac loans. The bank makes its money by selling the new loans into the secondary market, which is much more welcoming of mortgages that carry a guarantee from a federal agency or a government-sponsored enterprise.

Mortgage analysts have said the foreclosure prevention bill the House passed this month from Financial Services Committee Chairman Barney Frank, D-Mass., would rely too heavily on servicers, who have little authority to change loan terms, rather than noteholders or trustees. The bill is designed to prevent foreclosures by having servicers reduce the balance voluntarily on troubled mortgages and then refinance into FHA-guaranteed loans.

Mr. Geiman said the noteholders in National Bank Of Kansas City's program sometimes forgive a portion of the debt or waive prepayment penalties.

Still, some borrowers get turned away. With underwriting standards tightening in the secondary market, National Bank Of Kansas City's mortgage unit is turning down a higher percentage of borrowers "than we would have hoped," primarily because of poor credit or low property values, said Christa Spencer, a bank spokeswoman. (The bank would not give a specific number.)

Bill Alread, a managing partner of contract finance at Steel Mountain Capital Management LLC, a Lakewood, Colo., investor in scratch-and-dent mortgages, said it has had "quite a bit of success" using the program. "This is one of the few options to show liquidity out of our portfolio."

One pitfall has been trying to communicate effectively with borrowers, he said.

Steel Mountain's loan portfolio is serviced by Wilshire Credit Corp., a unit of Merrill Lynch & Co. Inc., and Mr. Alread said that because borrowers send their payments to Wilshire, the borrower assumes that Wilshire owns the loan.

"Having NBKC call them and say they have a great deal, and the owner is willing to forgive some of the principal and pay the closing costs, makes the borrower very suspicious," he said. "There is strong emotion in people's minds that any offer is too good to be true."

For that reason, Mr. Geiman said, National Bank Of Kansas City often has the servicer send solicitation letters to borrowers on its behalf. It is working with six servicers, which also refer the bank to noteholders.

Unlike many lenders that have started underwriting government loans recently to stay afloat in the current environment, National Bank Of Kansas City is a relatively old hand in the sector. Last year 25% of the $1 billion of loans it funded were guaranteed by the FHA or by the Department of Veterans Affairs.

Mr. Alread said other banks are considering similar programs that would bring liquidity to investors. By facilitating a refinancing, the noteholder eliminates the need to get another appraisal, which likely would be lower than the original one as a result of falling housing prices, and it can avoid taking a big loss.

"It's fair to say that with the number of foreclosures and REOs on the market, servicers have their hands full," he said. "So it goes without saying that the owner of the asset is taking the lead in this."

National Bank Of Kansas City Starts Mortgage Recovery

2007-12-11T00:00:00

In an effort to help those borrowers hurt by subprime mortgages, National Bank Of Kansas City’s (NBKC) mortgage division has started a Mortgage Recovery program.

As part of the program, NBKC will review a consumer’s current loan, including prepayment penalties, adjustment dates and rate variables, and educate the borrower on the current loan and available options.

With so many stories in the media regarding subprime loans, refinancing, FHA loans, rate freezes and foreclosures, consumers are confused about their options,” said Todd Geiman, Executive Vice President of NBKC’s mortgage division. “We were taken aback by the misinformation given to many of the people we’ve spoke with. Many home owners don’t even realize they fall in the subprime category. We want to help people understand their options.”
Out of this concern grew NBKC’s Mortgage Recovery program. Loan officers will review current loan papers, making sure the consumer understands when their loan will adjust and what it will adjust to. If the consumer’s loan has already adjusted and they are struggling to make the payments, the loan officer educates them on their options as well as provides information on other agencies that may be of help. Those interested in having their loan reviewed can call 800-375-8096 to schedule an appointment.

Refinance is an option for some people, while others may qualify for the rate freeze. The problem we’re seeing is that people don’t know where to turn or what they qualify for,” said Shawn Courter, one of the loan officers who volunteered for the program.

The consultation is a no-pressure, no-sales meeting. It’s strictly about arming the borrower with the facts about their mortgage and making sure they understand any potential risk.

“Home ownership has climbed to 80 percent in the last couple of years. We are finding people in subprime loans that shouldn’t be,” Geiman said. “Many would qualify for an FHA loan, which can include better terms, and more importantly, a fixed rate.”

On Dec. 6, President Bush announced a plan to freeze rates for a select group of subprime borrowers. To qualify, the loans had to be funded between Jan. 1, 2005, and July 31, 2007, and have an interest rate that will reset between Jan. 1, 2008, and July 31, 2010.

The rate freeze will only help a fraction of the more than one million subprime borrowers. Borrowers also need to look at FHA loans and refinancing as possible solutions. Refinancing to a fixed rate should be the first option the consumer considers,” Geiman said.

Recently the Federal Housing Administration received broader flexibility to offer refinancing to homeowners with good credit history.

Although NBKC is a national lender, lending in all 50 states, the program is being rolled out first on a local level. It will be rolled out nationally in the second quarter of 2008. Currently NBKC funds conforming loans, including FHA and VA mortgages. In 2007, 24.69 percent of NBKC’s funded loans fall in the FHA and VA categories. NBKC funds FHA loans in all 50 states.