THE BASIS POINT

List of Financial Reform Impacts Yet To Play Out For Mortgage Borrowers & Lenders

There sure seems to be a lot of confusion and unanswered questions out there, and unfortunately almost every answer lies in the halls of Congress—and it appears this morning they’ve reached some agreement. Here are summaries from Bloomberg and CNNMoney, which still leave this open list of questions for mortgage borrowers and lenders:

Will Congress thumb their noses at the basics of bond mathematics by eliminating mortgage broker yield spread compensation?

Will the June 30th deadline for the approval of loans for the First Time Home Buyer Tax Credit be extended?

Will residential home appraisal regulations implemented May 2009 be eliminated, with the comment, “It had good intentions, but poor execution”, and will appraisals again be portable?

Will securitizers be required to keep 5% of MBS volume in reserves as risk retention?

When will the USDA Rural home loan program be reinstated?

When will the flood insurance program be extended?

It’s really a travesty when every bill, in order to pass, seems to have to have dozens of amendments tacked on in order to appease the opposition. Everything freezes. And everyone involved is negatively impacted – not the least of which is the American consumer looking for a home loan. And aren’t we in this business to help folks buy homes?

What difference does it make that mortgage rates are as low as they were in the mid-1950’s if appraisals are frozen? As one experienced agent wrote:

“I have one lender that will do a $75 desk review prior to the full appraisal (and if they move forward this gets applied to the appraisal cost of course) to get a ballpark, but only one lender. I’ve told a few other lenders that if they would implement this they’d see a spike in business. But I’ve seen too many clients lose $300 or $400. I had one loan depending on a property value of $1.2 million, but the appraisal came in at $910,000. How did I get the appraiser who didn’t do any comp work before going out to do the appraisal, and didn’t know it’d be 75% of expected value?”

Another experienced loan officer wrote:

“We were going to do an FHA streamline refinance (no appraisal required) lowering the borrower’s rate ½ of a percent and there were no recurring closing costs that the borrower was paying. The only thing they were paying for upfront was the money necessary to re-establish their impound accounts – when they pay off their existing loan most of the impound money goes back to the customer. They would lower their rate by .5, but it wasn’t costing them any money nor were they using equity to pay for the refinance. In addition, the borrowers were going to keep this house a long time and it made sense to us and them, but not to our government. We fell into a booby-trap, an FHA streamline refi requires a 5% reduction from the current PITI to the new PITI. One work around is not to go streamline and get an appraisal. Normally this would work except in cases where the value has decreased from the date of purchase to the date of the refinance. OK, we will not forget the 5% rule.”