Kurgan-Bergen Realtors in Rutherford provides the following information.
You may have heard about recent changes to mortgage lending rules that could make obtaining financing more difficult. Well, breathe easier potential homeowners, because these changes really shouldn't affect you much.
The new rules aren't really new. Lenders have known of and prepared for them for some time now. Most have already adjusted their policies accordingly so that you won't see much change at all going into the new year. In fact, Richard Cordray, the director of the Consumer Financial Protection Bureau who is making the rule changes, said approximately 95 percent of the loans currently being made would fit the new criteria.
The change that would have had the most direct impact on a borrowers ability to qualify is the imposition of a maximum 43 percent "debt to income" ratio.
This limits the percentage of a borrowers monthly gross income that can be used towards the payment of mortgage principal and interest, real estate taxes, homeowners insurance, mortgage insurance and consumer debt to 43 percent.
Existing policy varies from lender to lender but is generally capped at 45 percent on a "conventional" loan and can go as high as 50 percent on an FHA/HUD insured loan. However, this particular rule change isn't scheduled to go into effect until 2021.
A new report provides some evidence that it may have become a little easier for some Americans to get a mortgage as the housing market improves and lenders grapple with a pullback in refinancing amid higher mortgage rates.
The average credit score for approved mortgages fell to 727 in December, down from 748 one year earlier, according to a report released Wednesday by Ellie Mae, a mortgage technology firm. (Under a system devised by Fair Isaac Corp., credit scores run on a scale from 300 to 850.)
The report said that some 46% of mortgages that closed in December had credit scores above 750, compared with nearly 57% one year earlier. Meanwhile, around 31% of loans had credit scores below 700, up from 21% one year earlier. Ellie Mae, a mortgage software provider, tracks the characteristics of loans run through its platform.
The data also showed that the average debt loads of borrowers increased. On average, total monthly debt for borrowers whose loans closed in December stood at 39% of their incomes, up from 35% in June and 34% in January. Rising interest rates and home prices could account for some of the increase in debt-to-income ratios.
Why might credit standards appear to have eased, if only very slightly, last year?
First, home prices have stopped falling and the economy is slowly improving, making lenders more comfortable to extend loans.
Second, big drops in refinances, which have slumped after interest rates rose last summer, could also lead lenders to become more competitive for home purchases.
Third, analysts say it is normal for borrowers with weaker credit to seek out refinancing as rates go up and as the refinance cycle nears its end. According to the report, the average credit score on a refinance loan backed by Fannie Mae and Freddie Mac stood at 729 in December, down sharply from 763 one year earlier. There was much less of a drop for new purchase loans, with credit scores falling to 756 in December from 761.
Total average debt-to-income ratios also jumped on refinances, to 41% from 33% a year earlier. There was little change on those ratios for borrowers seeking home purchases.
Some economists believe that, as home prices rise and mortgage delinquencies fall, banks could begin to remove so-called “overlays” that have led them to keep credit standards tighter than what Fannie and Freddie require. So far, however, there are few signs this is happening in any meaningful way on home purchases.
On the other hand, lenders face new regulations that took effect last week governing their legal liability if they don’t ensure borrowers can repay a mortgage. Some economists believe that these regulations will lock in today’s more conservative underwriting standards—particularly those governing lenders’ ability to document borrowers’ incomes and assets.
A separate report released Tuesday from Black Knight Financial Services, a data firm, showed that loans originated last year are performing better than any year since it began tracking such performance in 1997. Some lenders point to this stat as proof that credit standards are too stringent.
But some loan officers say the issue isn’t that credit standards are too tight; instead, they say it’s that many American households are too weak, with incomes that aren’t strong enough to qualify for the amount of debt required to purchase a home. Down payments are also a big problem for many borrowers, either because low interest rates and a weak economy have made it harder to save, or because steep home-price declines from 2006 to 2012 wiped out home equity. Many families use equity from their current homes to trade up, or to help their kids purchase homes.
Borrowers can still qualify for a mortgage with just a 3.5% down payment through the Federal Housing Administration, which has among the easiest qualification rules. The Ellie Mae report showed that the average credit score on an FHA-backed purchase mortgage stood at 690 in December, down slightly from 699 a year earlier. Average total debt-to-income ratios stood at 42% (lenders generally consider anything above 43% to be high).
Credit score averages don’t tell the whole story of who is, and isn’t, getting credit. One prospect is that lenders relax standards for borrowers with higher incomes and larger down payments, even as borrowers with harder-to-document incomes or lower credit scores face additional scrutiny.
WASHINGTON, D.C. — On Tuesday, Jan. 7, 2014, the Consumer Financial Protection Bureau (CFPB) released additional resources for consumers as part of its campaign to educate the public about the new protections provided by the Bureau’s mortgage rules. These new materials include sample letters that consumers can send to their mortgage servicers. The Bureau is publishing these educational materials in anticipation of the January 10, 2014 effective dates for its mortgage rules.
“Taking out a mortgage to buy a home is one of the biggest decisions a consumer can make,” said CFPB Director Richard Cordray. “We want to make sure that people are aware of their new protections so they have the knowledge to make sound decisions about their financial futures.”
The CFPB’s mortgage rules protect consumers by requiring that mortgage lenders evaluate whether borrowers can afford to pay back the mortgage before signing them up. The rules also establish new, strong protections for struggling homeowners, including those facing foreclosure. Under the rules, mortgage borrowers will be protected from costly surprises and runarounds by their servicers.
The Bureau is working with industry, housing counselors, and consumer groups to promote a smooth implementation of these rules. The Bureau has released many different educational materials to improve the public’s understanding of the new rules and their protections. These materials include:
Read more: http://www.huntingtonnews.net/79688
30 and 15 year mortgage interest rates rise up; Freddie Mac data and pending home sales review today
Housing Sector news review 2013 and mortgage rate trends 2014:
According to the National Association of Realtors, pending home sales in November moved slightly higher. The news was well received and taken as a sign of additional stability for the U.S. economy which is still in the recovery process.
Specifically, pending home sales in November inched higher by .2 percent to 101.7 from the downwardly revised 101.5 which posted in October. The pending home sales data represents contract signings in the sector. The index rise reveals that economic confidence is rising and that future sector data should be positively skewed. Economists analyze the data and anticipate that sector activity will be subdued somewhat, yet stable.
Gains in 2014 will be held in check due to rising home prices and rising mortgage interest rates. The economy is improving and with improving economic trends, mortgage rates and home prices are expected to track higher throughout 2014.
Mortgage interest rates notched higher in the latest week. According to Freddie Mac, mortgage interest rates for the standard 30 and 15 year fixed mortgage plans climbed higher once again.
Mortgage rates for 15 and 30 year fixed plans today January 5, 2014:
According to Freddie Mac, the interest rate for the standard 30 year fixed plan rose to 4.53 percent. The average interest rate for the standard 15 year plan rose to 3.55 percent last week.
New rules for consumers seeking home loans are arriving in the new year. And if you already have a mortgage, new borrower protections take effect for you, too.
The rules, issued by the federal Consumer Financial Protection Bureau, were issued in early 2013 but begin next week.
Beginning Jan. 10, lenders must take steps to make sure you, as a borrower, can afford to repay the loan you are seeking, based on your income, debts and credit history. That may sound like common sense, but during the housing crisis many borrowers ended up with loans — sometimes called “no-documentation” loans — that they couldn’t afford. Often, borrowers took out adjustable rate loans with payments that were affordable to them at an initially low “teaser” interest rate, but that became unaffordable once the interest rate increased.
read more: http://www.nytimes.com/2014/01/04/your-money/with-the-new-year-new-consumer-protections-on-mortgages.html?_r=0