Proposed Appraisal Changes You Should Be Aware Of

Kenneth Harney, who writes a syndicated column
for the Washington Post Writers Group penned a
column recently from which I am borrowing liberally.

During the "go-go" days of making loans without
much concern about the quality and qualifications,
the appraisal process at times was compromised to
some degree by various market pressures.

There is a new proposed regulation, called the Home
Valuation Code of Conduct (HVCC) that was part
of a settlement involving New York Attorney General
Andrew M. Cuomo, and Freddie Mac (FHLMC) and
Fannie Mae (FNMA). It is scheduled to go into effect
May 1, 2009.

This came into play because Cuomo wanted to
investigate FHLMC and FNMA for alleged appraisal
overvaluations, and evidence of illicit pressure on
appraisers to "hit the numbers" needed to close loans.
Appraisers found themselves facing the prospect of
delivering appraisals at predetermined values, or not
being hired again to perform appraisals by unscrupulous
loan originators.

Part of the standards was to create Appraisal Management
Companies (AMC) to insulate the appraiser from any one
having a direct interest in the valuation and the outcome
of the process, including lenders, mortgage brokers, or
real estate agents.

The HVCC will effectively eliminate all of the business
relationships that have developed over years of working
together. Instead, mortgage loan officers, who tradit-
ionally would be the one to make the appraisal assign-
ment, will be forced to shift the assignment to third-
party AMCs.

It actually bans brokers from any involvement in
selecting appraisers, or having conversations with them
that could be construed as trying to influence the value.
Even the innocent practice of asking an appraiser to give
a range of what the raw data indicates before asking the
borrower to pay for a full appraisal will not be allowed.

There are some significant consequences for borrowers
if the HVCC goes forward and is implemented.

* The fee that you pay for the appraisal will actually
be split between the appraisal management company and
the appraiser. A professional appraiser typically
earned about $400 for a single-family (non-custom)
home appraisal. Now, the AMC will receive a good
portion of the fee, and the appraiser will probably
be asked to work for about half of what they earned
before. Or, the AMC will add their fee on top of the
traditional fee and the cost to you, the borrower,
will go up.

* Experienced, career appraisers may be priced out of
the market if they are not willing to work for about
one half of what they normally earned. This will
put many more inexperienced appraisers on the rosters
for the AMCs to select from. Appraisers who are
less experienced may create less reliable valuations.

* The AMC is selling their value by expediting the process
and offering quick turn-around times. If Appraiser A
does not respond quickly to a request, they will move
down to Appraiser B, and so on until they find someone
who can get the job done within their time frames. The
appraisers who are the busiest, which may translate to
being the most experienced and in demand, may not get
the assignment. The appraiser waiting for the phone to
ring will get the business.

* The appraiser may be asked to complete their evaluation
more quickly and not have an opportunity to do all of the
research that is warranted to assess the comparable proper-
ties, sales contracts and local market trends. This
will not lead to a better valuation process.

* Professional appraisal groups have argued that the AMCs
place quality last while they press appraisers to finish
the appraisal quickly, many times within 24 to 48 hours
from the time of the assignment. If the appraiser does
not have time to verify the important details of their
assignment, the result will be unreliable.

* Low appraisals will reduce a borrower's ability to
negotiate an acceptable refinance, and force buyers
to come up with larger down payments. It is much less
likely that an appraiser will err on the side of being
too high on a valuation.

There are still steps being taken before the HVCC proposal
takes effect. The appraisal groups and the National
Association of Mortgage Brokers plans to appeal to
Congress to change what they find most objectionable.

The old system worked very well for honest loan originators
and appraisers. If the lender used their quality control
systems to discover a concern over the valuation presented,
they always had the opportunity to request a review
appraisal by someone that they trusted and compare the
results.

This new AMC system puts more barriers in place to have
business conducted with effective communication, and it's
hard to believe that any of us will be happier with less
communication about something as important as your home
financing.

Interest Rates Are Crazy Good Right Now!

If you have been subscribed to this newsletter
for a while, you know that I try to use it
keep you informed about the latest mortgage
trends, and educate you on the basics of the
mortgage business.

This edition, however, I am going to depart
from that pattern to let you know what is
going on with interest rates right now.

As you may recall, there are three categories
to conventional lending right now: conforming
loans, conforming-jumbo loans, and jumbo loans.

Conforming loans are those that conform to
Freddie Mac and Fannie Mae (FHLMC and FNMA)
standards and where the loan amount does not
exceed $417,000 on a single family home.

Conforming-jumbo loans are eligible for FNMA
and FHLMC to purchase, but the loans amounts
exceed $417,000. In San Diego County, the
conforming-jumbo loans will fit within $417,000
and $546,250. Other counties will have
different limits above the $417,000 amount to
a different maximum.

Jumbo loans, strictly defined, used to be those
loans above $417,000. But now that the conforming-
jumbo category exists, jumbo loans are those above
the conforming-jumbo limits based on the county
maximums. In San Diego, it would be loans above
$546,250.

The following loans were based on a loan request of
80% of value, a credit score for the borrower of
740 or higher, on an owner-occupied single-family
home purchase. If any parameters are different than
this, you may expect a different quote based on
risk-based pricing that I explained in my newsletter
dated December 17, 2008. If you would like to
review that material you can see it at
dougbrennecke.blogspot.com.

Conforming, 30-year fixed rate loan

4.625% Loan fee of 1 point. (1 point equals 1% of the
loan amount.)

Conforming, 15-year fixed rate loan

4.375% Loan fee of 1 point.


Conforming-jumbo, 30-year fixed rate loan

4.875% Loan fee of 1 point.

Conforming-jumbo, 15-year fixed rate loan

4.625% Loan fee of 1 point.


Jumbo loans have been more difficult to price
favorably in this market. There has been less
willingness for investors to purchase these
loans, and this lack of liquidity in the market
restricts the availability of these loans and
makes the pricing (rate and fee combination)
higher. These quotes go to $625,500.

Jumbo, 30-year fixed rate loan

7.375% Loan fee of 1 point.

Jumbo, 15-year fixed rate loan

7.375% Loan fee of 1 point.

Jumbo, 30-year loan term, 1st 10 years fixed

6.000% Loan fee of 1 point.

Jumbo, 30-year loan term, 1st 7 years fixed

5.750% Loan fee of 1 point.


Other programs are available, and the interest
rate and fee combinations can be modified to
obtain lower rates or lower fees.

Please contact me at 619-846-4322 to discuss your
particular situation. Rates can change at any
time, and right now they are as low as they have
been in about the last 40 years.

Make sure that you research what is possible for
you so you don't overlook a money-saving opportunity.

Look For Gifts This Holiday Season

Interest rates are the lowest they have been all year,
right now!

Every year during the holiday period, I find that
borrowers don't want to engage in business between
Thanksgiving and New Year's.

With the distractions of the season, and their focus
on the fun things, many borrowers fail to recognize
that there are opportunities to improve their home
loan situation.

30-year fixed rate conforming loans (up to $417,000)
are currently running about 5.0%, with favorable
credit scores and with sufficient equity or down
payment in the home.

There are plenty of borrowers, maybe even you, that
could benefit greatly if we were able to obtain those
terms for them.

Be aware that when you hear about interest rates in
the media, or even if you are getting loan quotes
from lenders, that there are a number of moving parts
that affect the terms being quoted to you.

It's called risk-based pricing. And if the lender is
not asking you sufficient questions, you may find that
the loan quote is overly optimistic, and that you may
be set up for disappointment.

Let's take a look at some of the moving parts that need
to be explored to provide you with reliable information:

Loan-To-Value (LTV) Ratio:

The larger the loan is in relation to the value of the home
will create higher risk situations for the lender. You
will find that the interest rate and loan fee combination
will be higher for the higher risk categories.

For example, if the loan is 60% or less of the value of
the home, the pricing is very favorable. There will be
incremental increases in the loan fee charged at a specific
interest rate if the loan request falls between 60%-65%,
65%-70%, 70%-75% and 75%-80%. If the loan request is
higher than 80%, the lender will typically require private
mortgage insurance. This mortgage insurance will replace
the lender's need for increasing their fee for the higher
risk, because they now will have insurance for the higher
risk.

Credit Scores:

When we obtain a credit report, we usually are able to
obtain information and scores from the three major bureaus:
Equifax, TransUnion, and Experian. The lender will usually
use the middle of the three scores for evaluation purposes.

In today's market, a score above 740 will allow us to fit
within the most favorable pricing model. As with the LTV
model, there will be incremental increases in the loan
fee for a specific interest rate if the score falls between
720-739, 700-719, 680-699, 660-679, 640-659 and 620-639.

Loan Points:

In the past, before the mortgage market upheaval, it
was common for lenders to offer "no point" or even
"no point, no cost" loans. The market factored in a
value for interest rate changes. On a 30-year fixed
rate loan, a good rule of thumb used to be that for
adding a loan fee of .50 points, you could save .125%
in interest rate. This scale worked both directions,
so that if you wanted to do a "no point" loan, your
rate would be approximately .25% higher than if you
were willing to pay 1 point in loan fee.

In today's environment, lenders are assessing higher
risk to loans where the borrower puts as little into
the transaction as possible.

Lenders are no longer willing to offer "no point" loans
with such a small differential to the interest rate.
As an example, taken from today's rate sheet, an interest
rate of 5.0% is available at a loan fee of .25 points,
but to obtain a "no point" loan is at 5.125%. So, the
market is saying that .125% in interest rate is only
worth about .25 points in loan fee. This requires
a credit score of 740, with a LTV at 80% or less.


When you combine these factors, there is a huge range
of interest rate and fee quotes that a borrower could
encounter. A loan request of 80% with a credit score of
630 will be significantly higher than a 60% loan with a
credit score of 740.

If you are not advised of this information when you are
shopping for your loan, there is every likelihood that
the interest rate and fee that is finalized for you will
be more expensive than the original "quote".

So, if you are hopeful to obtain 30-year or 15-year fixed
rate financing, and maybe get away from an adjustable
rate loan that will be coming up for recast in the near
future, don't go through the holidays without checking in
with me.

A small investment of time to get paperwork started will
allow me to discuss locking in the loan for you, and
working toward completion in January.

What a great way to start the New Year - giving you some
peace of mind about your mortgage payments!

Happy Holidays.

A Special Announcement and A Correction

First, the Special Announcement:

After 19 years with Mike Dunn + Associates, I have a
new company with whom I am working.

Mike Dunn decided to merge his operations with Rancho
Financial Mortgage Center in Rancho Bernardo, and most
of us who served as loan originators with Mike, also
made the move effective December 1.

My new contact information will be:

Rancho Financial Mortgage Center
16456 Bernardo Center Dr.
Suite 201
San Diego, CA 92128

Office: 858-451-0620
Cell: 619-846-4322
E-mail: dbrennecke@roadrunner.com

Rancho Financial offers the full array of mortgage
brokerage choices that I have previously enjoyed, and
they also offer mortgage banking relationships with
GMAC, Suntrust, CitiMortgage, Amtrust, Chase, Wells
Fargo and Flagstar Mortgage. As a mortgage banker,
they offer expedited service with these lenders
for underwriting, loan document preparation, and
funding of the loan.

In addition, I have access to more extensive FHA
and VA programs.

Please make sure to give me a call with any of your
loan scenarios and I can see how my enhanced product
and service options can assist you in closing your
next transaction.


Second, the Correction.

Last issue I announced the changes to the FHLMC and
FNMA conforming loan limits, and I misinterpreted the
memo that I read.

Currently, the conforming limits are $417,000 for a
single-family home. Until the end of the year, the
Stimulus Act created a category commonly called
conforming-jumbo which allows loans to be created
up to $697,500 in San Diego, and FHLMC and FNMA can
purchase loans to that temporary limit.

I interpreted the announcement that the new conforming
limit for San Diego will be going to $546,250, and
that the conforming-jumbo category was expiring.

In fact, the conforming limit is remaining at $417,000.
In San Diego, the conforming-jumbo limit is set at
$546,250 for 2009.

The reason this makes a difference to you is because
there are underwriting and pricing differences that
can exist between the conforming and conforming-jumbo
loan programs.

So, as we offer mortgage loans through 2009, we will
still have three general categories of lending options:
conforming (up to $417,000), conforming-jumbo (between
$417,000 and $546,250 in San Diego), and jumbo loans
(those above $546,250 in San Diego).

As I've mentioned previously, there are limited choices
for jumbo loans at rates and fees that most would find
acceptable. The 30-year and 15-year jumbo fixed rate
loans are particularly expensive due to investor
reluctance to purchase these loans.

Explore any loan scenarios with me before you make a
final decision. My resources may be able to help yousave significantly.

New Conforming Limits Announced

Every year about this time, FHLMC (Freddie Mac) and
FNMA (Fannie Mae) adjust the limits on loans that
they will purchase from lenders.

These are called conforming loans because the loans
that are created for purchase by FHLMC and FNMA are
underwritten to a standard that conforms to their
guidelines. Mostly, these loans are for 30-year
and 15-year fixed rate loans.

The new limits for 2009 for San Diego County are:

1-family home $546,250
2-family home $699,300
3-family home $845,300
4-family home $1,050,500

The limit that was set for 2008 was $417,000 for a
1-family home. These new limits reflect a recognition
that San Diego needed a higher limit so that our market
could be better served.

You may recall that the Stimulus Act that was passed
earlier this year allowed for a temporary increase in
the loan limits that is scheduled to expire December 31,
2008. In San Diego, the temporary limit was $697,500.

There was some speculation that Congress may have
extended this temporary limit past the end of the year,
but the announcement of the new limits seems to put
this speculation to rest.

The lenders, for the most part, have already begun to
accept loan requests using the new loan limits.

What this means for you is that larger loan amounts
can now be eligible for the lower interest rates and
fees that conforming loans offer.

Loans above the conforming loan limits are known as
jumbo loans, and instead of these loans being sold
to FHLMC and FNMA (they are not eligible because of
the loan size) they are sold to investors.

These investors usually purchase these loans through
Wall Street when the jumbo loans are packaged into
bundles known as Mortgage-Backed Securities (MBS).

Recently, there has not been any investor appetite
for purchasing jumbo loans. This is because investors
purchased MBS in the past that included many loans
that were rated as good risks that turned out be much
higher risks.

The investors lost money in these MBS because the
quality was not what it was advertised and promoted to
be.

Until the investors are satisfied that the quality of
the loans that are bundled into these MBS are rated
fairly and the interest rates are commensurate with
the risks, they will not provide funds that flow
through the lenders to make jumbo loans.

So, at the present time the enhancements in the
conforming loan limits allow us to serve a larger
segment of the market at the most affordable terms
that are offered.

Keep in mind that there are 30-year jumbo loans that
are available where the interest rates are fixed for
the first 3, 5, 7, and 10 years. These have been
effective mortgage solutions and have been worthy of
consideration.

When 30-year and 15-year fixed rate jumbo loans are
offered at reasonable and competitive rates again,
we can then have a fuller menu of resources to serve
the entire market.

Please get in touch with me so that we can see how
these tools can be of benefit to you.

Update On The Agency-Jumbo Loans

When the Stimulus Bill was passed earlier this year,
it included a provision for FNMA (Fannie Mae) and
FHLMC (Freddie Mac) to purchase loans above the
conforming limit of $417,000.

This provision allowed for loan amounts up to
$697,500 in San Diego County (up to $729,750 in some
counties). It has an ending date of December 31, 2008.

Some of our lenders have stipulated that they want
these loans closed as early as December 1 to December
15, so that they have time to finalize the sales of
these loans to FNMA and FHLMC.

There is still time to process loan requests and meet
some of these deadlines for this loan program. It will
take everyone pulling in the same direction to handle
it as efficiently as possible.

But, there is always the chance (and many of think of
it as likely) that Congress will extend the date and
establish a new conforming limit.

Now that the elections are over, we can hope that
Congress can get back to doing the work for the people
and facilitate an extension. A new loan limit that
has been floated is $625,000, but we will have to wait
and see if Congress acts and to what degree.

If Congress does extend the expiration date, it will
remove some of the urgency that we are facing on the
mid-December deadline.

When the Agency-Jumbo loans were first announced, we
had high expectations that they would allow borrowers
to obtain jumbo loans at conforming interest rates.

As the shake-out occurred, conforming rates behaved in
a normal fashion, but jumbo rates skyrocketed. This
was because investors were no longer willing to buy
financial instruments that were backed by high-balance
loans. The investors that were willing to engage
demanded higher rates of return in exchange for the
higher perceived risk.

What developed was conforming rates that went up and
down in relation to market forces. Jumbo rates were
very high. And the Agency-Jumbo loan program had
rates that stayed in the middle. Currently, the
Agency-Jumbo rates are marginally above the conforming
rates.

The adjustment that FNMA and FHLMC have made, instead
of having interest rates reflect the increased risk, is
to be very stringent on the qualification process.

The good news is that the guidelines are pretty well
defined, so that we have a good opportunity to know
the likelihood of your request being approved.

If you have an interest in this loan program, give me
a call so that we can strategize about what it takes
to get things done for you.

I Work For You

As a mortgage broker, I have access to lenders and
programs that you as a borrower are unable to find
on your own.

For the most part, many of the big lenders that have
a local presence allow us to represent their loan
products as well.

When you apply to the local lender, you are putting
your eggs in that basket. If that lender is unable
to approve your loan request, you will need to
re-apply with another lender. This will probably
result in duplicate fees for appraisal of the
home and for credit reports.

Additionally, when you apply with the one lender,
your request will need to fit into that lender's
available loan programs and underwriting pattern.
The representative there will be working for the
lender and asking you to adapt to their policies.

Because I have the availability of many lenders and
many loan programs, I serve as an advocate for you
with the lenders.

When you complete an application with me, I am
going to package your loan request and select as
many potential lending prospects as possible.

If your qualifications are strong and many lenders
will be willing to approve your loan, I can select
among the lowest in price - that is interest rate
and loan fee - to get you the best terms possible.

The big advantage of this approach is that one
loan application with me makes available to you
the market of available loan products that I
represent.

If Lender A expresses an unwillingness to consider
some aspect of your loan request, I can roll your
loan application to Lender B, and so on.

You would not need to obtain a new credit report or
appraisal to gain access to the additional lenders.

If you have a borrower profile that limits my
choices, it will probably be necessary to have your
loan file submitted to any number of lenders who
provide loan products that fill a particular niche.

Once your loan application is in process, we have
the ability to get electronic loan approval through
our lenders. We submit the data from your file,
the automated underwriting system renders its
decision, and we receive a list of conditions that
must be satisfied to finalize the approval.

The list of conditions will include the lender's
review of the physical file so that they can
validate the data that we submitted.

The approval will typically notify us of the
maximum interest rate up to which the approval is
valid.

Because underwriting guidelines have tightened
recently, it is in your best interest to complete a
loan application early in your time frame for wanting
to purchase or refinance. This early action on your
part will allow us to get the preliminary loan
approval, and to have a list of conditions from the
lender that we can satisfy.

When the time becomes right - either the right home
you want to purchase presents itself, or when loan
pricing is where you want it to be - we can then
be in a position to move quickly on your request.
And, we will already know just what the lenders are
looking for to avoid surprises.

Give yourself every advantage to have your financing
of your home go smoothly. Give yourself lots of
choices, lots of flexibility, and be pro-active
in the process.

Start your loan application with me, and let me work for you!