This program was designed by Fannie Mae to provide low rates, minimal risk-based price adjustments, and reduced mortgage insurance costs to home buyers who meet a few requirements. In this post, we’ll discuss the benefits, how to qualify and how to determine your eligibility.
There are three major benefits to this program.
LOW RATES AND RISK-BASED-PRICE-ADJUSTMENTS
First, this program has no loan-level-price adjustments (also known as LLPAs). LLPAs are all of the reasons you may have to pay more for your loan due to risk to the lender. These LLPAs can include:
- FICO score – Whether you have a 620 or 820 FICO score, everyone who is approved gets the same interest rate pricing
- Down payment – On a regular conventional loan, Fannie Mae will adjust your pricing based on the size of your down payment. Larger down payments will result in better pricing. On a My Community Mortgage you get the same rate regardless of your down payment.
- Property type – Fannie Mae will increase the cost of the loan if the property type is considered a higher risk. This is common for condominiums, duplexes, triplexes, or fourplexes. However, these adjustments do not apply on this product, making this product a go-to product if you’re buying one of these property types. This is very common for homebuyers who are buying a condominium and not putting 25% down, which normally results in an extra cost of .75% in fee.
- Subordinate Financing or Second Mortgages – Fannie Mae charges more on loans if there is a second loan being used, which can reduce a buyer’s minimum down payment. This product does not have any additional charges if there’s a second mortgage.
AFFORDABLE PRIVATE MORTGAGE INSURANCE
Second, these loans have reduced mortgage insurance costs. When a lender orders mortgage insurance for a conventional loan (also known as private mortgage insurance or PMI), the cost is determined by many factors. One of the factors is the “coverage” requirements. On My Community Mortgages, the coverage requirement by the lender is substantially less, resulting in cheaper mortgage insurance costs. Below is a table comparing the PMI coverage for a regular conventional loan versus a My Community Mortgage.
PMI Coverage for Fannie Mae loans (includes 25-year, 30-year and 40-year loan terms)
||Less than 5% down
|PMI Coverage Amount for a regular Conventional Loan
||12% PMI Coverage
||25% PMI Coverage
||30% PMI Coverage
||35% PMI Coverage
|PMI Coverage Amount for a My Community Mortgage
||6% PMI Coverage
||12% PMI Coverage
||16% PMI Coverage
||18% PMI Coverage
To see how this lower PMI coverage can reduce your PMI, you can read more about pricing the PMI here:
REDUCED DOWN PAYMENTS
Third, this program has reduced down payment requirements. This program allows DPA’s (Down Payment Assistance) to assist in a down payment that can provide as little as zero down on a purchase. Without a DPA, this program allows 5% down like a regular conventional loan. However, it does allow as little as 5% down on a 2-4 unit property, which is less than a regular conventional loan. When there is a DPA, the mortgage and DPA can reach as high as 105% of the home value to include closing costs if the DPA is allowed to cover settlement charges in addition to the down payment.
For those who are unfamiliar with DPA’s, they are small community loans recorded in conjunction with a first mortgage. In this case, it would be a small DPA loan funded with a My Community Mortgage.
Fannie Mae will be updating their underwriting engine (Desktop Underwriter, also known as DU) on November 16th. The standard waiting period and re-establishment of credit criteria following a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale is being removed for DU Refi Plus loan casefiles. DU will issue a message on loan casefiles for borrowers with a previous bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale advising that DU did identify the event and that the loan casefile would be eligible for delivery to Fannie Mae, regardless of when the event occurred.
DU will also not require investigation of judgments, bankruptcies, foreclosures, or lawsuits declared by the borrower in the Declarations section of the loan application on DU Refi Plus casefiles.
This will help many people qualify for a DU Refi Plus HARP refinance if they had one of these events on their credit. Save the date and apply after this date if this is something that has kept you from qualifying in the past.
This is a quick tip that should help investors or prospective investors.
Many lenders, local banks, and credit unions are happy to offer homeowners a home equity line of credit (often referred to as HELOC’s) on a primary residence, but very few lenders offer them on rental properties. The lenders I’ve listed below (which I’m not affiliated with) all offer this product. If this is something you need for upkeep of properties or for other purposes, look into these banks. If it helps you to have a personal referral to one of these banks, please let me know and I can help you find a trusted professional.
Columbia Bank’s website states this product is for owner-occupied Single-Family residences but I’ve confirmed that Columbia Bank will do a HELOC on a rental. They will only do a fixed-rate second mortgage if the property is a multi-family, in the event you have a duplex/triplex/fourplex. The same product appears to be available for commercial multi-family homes. Columbia Bank is a local bank that serves the Washington and Oregon state communities.
Citizens Savings Bank
Citizen’s Savings bank states they offer they offer HELOC’s on rental and vacation homes per their website. Their site indicates that they serve the state of Pennsylvania only.
Union Bank is the largest of the group. Union Bank offers HELOC’s through broker channels and directly from the bank. However, brokers do not have access to HELOC’s for rentals. Union Bank’s website may indicate otherwise, but my experience is that mortgage brokers cannot provide this product and you will have to contact a Union Bank branch directly. Union Bank is based in California and has locations in California, Illinois, New York, Oregon, Texas and Washington State.
If you’re in a state not served by one of these three banks and need to find one in your state, you will have more luck by finding a local bank that specializes in equity loans as the large national banks do not offer this product for rental properties from my experience. Good luck investors!
One of the problems I’ve seen homeowners face when applying for HARP is discrepancies on addresses.
It can lead to multiple problems such as:
- Improper eligibility indications when searching the Fannie Mae and Freddie Mac websites
- No appraisal waiver because the address is misidentified
- Denied loan applications because the lender’s system doesn’t recognize the address
Luckily, Fannie Mae and Freddie Mac have made improvements to their automated underwriting engines. Freddie Mac is already showing results, now recognizing the address even with slight variations. Fannie Mae is releasing an update in November of this year (2013) to make a similar improvement.
There are a few tricks to fixing this problem if you run up against it:
- Have the lender read the comments on the credit report. The lenders credit report will often say if the loan is backed by Fannie Mae or Freddie Mac. This will clear things up for the lender immediately
- Pull the address from the original loan documents. There are times that the address on the “Note” of your original loan documents are incorrect and if you enter the address on that document, the Fannie Mae and Freddie Mac systems may recognize it.
- Call the servicer directly to confirm who owns the loan
Comment below if you have a question or have additional information that a reader may benefit from.
The impact of the 2013 government shut down will be similar to what was planned for the near shutdown of April 2011. In addition to the changes planned before, the Social Security offices may not be available to do social security verifications, which lenders require before closing. Add this to the list of potential delays along with the items listed previously. Here is the text of my 2011 post on the topic:
As we get closer to a potential government shut down, I’ve seen several reports on how this will affect the housing market and the mortgage industry. Some of the information is accurate but there are some consequences that have not been mentioned.
The largest impact will be directly to mortgage loans that are being contracted to close during the shutdown. Many new applications will sit stagnant while we wait for congress to come to a resolution. How badly this will affect the housing market will depend heavily on how long the shutdown is. For all the work the government has done to avoid a double-dip housing recession with bailouts and government programs (such as the Making Home Affordable programs) their inability to resolve budget disputes may be the direct cause of another drop in house values.
WHAT FEDERAL AGENCIES WILL BE AFFECTED AND HOW WILL IT IMPACT THE MARKET?
Specifically, FHA is getting a lot of attention and rightfully so. FHA has been a savior to the mortgage industry since 2008 at the beginning of the recession providing affordable loans with reasonable credit guidelines. From 2005 through 2007, FHA never represented more than 4.25% of all the home loans originated. In 2010, FHA represented over 19% of all home loans and a whopping 30% of new home sales. These statistics have been published directly by the Department of Urban and Housing Development. FHA will not insure home loans during the shutdown. Lenders may choose in their own discretion to fund the loan and request insurance after the shutdown is over.
As of right now, most reports show that the Department of Veterans Affairs will not be impacted. This is good news for veterans who are currently looking to buy a home.
The USDA (US Department of Agriculture) insures affordable home loans for rural areas. The USDA will not insure new home loans and I’ve received reports that their automated underwriting engine (Guaranteed Underwriting System) will not operate. This not only halts the funding of some USDA loans, but will prevent lenders from pre-approving buyers for this program. Although USDA represents a much smaller percentage of loans than FHA, this program is hit the hardest of the three. Lenders can still manually underwrite the files but most will require the assurance of USDA’s program to approve a client. This is unfortunate after the government spent months working on a budget to fund the USDA after they ran out of loan funds for a portion of 2010. It does sound like USDA lenders will be able to close loans with a conditional commitment up to 90 days of the commitment, but new applications will not be processed and new prospective buyers won’t be able to get pre-approved. Like FHA, lenders may choose to close the loan and wait for the shutdown to end before sending the loan to the USDA at their own discretion.
Now, let’s talk about the big entity nobody is talking about when talking mortgages, the IRS (Internal Revenue Services).
Many of you are wondering, “How does the IRS have an effect on the mortgage industry?” There’s many ways the IRS can affect home loans since we use tax documents to verify income, but not in the most obvious way.
Mortgage lenders rely heavily on tax documents to calculate and verify a homebuyer’s income. Most homeowners will have their tax documents on hand, but the mortgage industry needs more than a copy of the documents.
Prior to the mortgage meltdown, mortgage lenders trusted their consumers that the tax documents they received were accurate and complete. Lender guidelines have since changed. To avoid fraud and also catch amended tax returns, mortgage guidelines require verification from the IRS that the tax documents the lender has reviewed were accurate and complete. These verifications are done by tax transcripts ordered by the lender to the IRS. You can read more about why transcripts are required here.
Lenders are now requiring transcripts on virtually all loans being processed. Specifically, Fannie Mae and Freddie Mac require transcripts for every loan file. I’ve found some reports that state Fannie Mae and Freddie Mac will remain operational, indicating that consumers can obtain a Fannie Mae or Freddie Mac conventional home loans with no issues. That is only partially true. If the government were to shut down, any consumer who’s applying for a Fannie Mae or Freddie Mac loan will not be able to close on a loan unless the lender had already verified the tax transcripts with the IRS. Any Fannie Mae or Freddie Mac loan not including transcripts cannot be closed.
This is an issue that appears to be overlooked and will have a larger impact than many have considered. Yes, FHA will have a huge impact, but adding Fannie and Freddie to the mix is a whole different story. According to Fannie Mae, they are the largest issuer of mortgage related securities in the second market representing 44% of the marketplace in 2010.
Fannie Mae and Freddie Mac represent more than 60% of the home loans originated today, plus FHA represents over 15%. Not including USDA loans, those three entities already represent more than 75% of all home loan issued today. If gone unnoticed, this government shutdown will have a much larger impact than many are expecting.
Do I think this will destroy the housing market? Honestly, I don’t. At one point, the government will realize the size of this impact and implement some type of action plan. I just hope this is noticed before there’s a government shutdown, not after.
TIPS FOR HOMEOWNERS:
Here are a list of items I would recommend be completed based on the type of loan you’re looking to close.
· Order your tax transcripts immediately.
· I haven’t been able to find exact details, but I would order any outstanding flood certifications if you haven’t determined if the property is in a flood zone.
· FHA Connection will still be up to order case numbers but CAIVRS (a program that does a background check on all parties involved in the transaction)will be down, so have your lender order your CAIVRS Reports right away.
· USDA will only insure loan commitments already issued (90 day expiration). If you still have time, try to get your commitment approved prior to the shutdown.
· GUS will not be operational, so all buyers looking to get pre-approved on USDA should process their pre-approval right away and new loans should be ran through GUS if they haven’t been done yet.
UPDATE: CNBC posted an article on how the shutdown impacted a family who planned on closing on a USDA home loan. http://www.cnbc.com/id/101110377?__source=realestate|news|&par=realestate
Fannie Mae has temporarily removed the requirements for tax and social security versification requirements during the loan process. The lenders will be allowed to order the verification forms after closing and still meet Fannie Mae guidelines. This does, however, pose a risk to the lenders, in the event that the verified forms are different than what the funded loans have on file, so don’t be surprised if this isn’t embraced by lending institutions.