Mortgage Products Take Cue From iPhone, Rates Down, DAP Phaseout Starts With Citi

What kind of loan do consumers want? Is that like asking, “What kind of camera do you want?” “Feature creep” is a common problem with items like cameras and phones, with appliances, cars, etc. having user manuals over a hundred pages long and so many feature that consumers give up. Average consumers just couldn’t figure out how to use all of the “functionalities”. Remember that the people who design and sell products (engineers and marketers) are not usually the ones who buy and use them.

Consumers find added features attractive yet unmanageable: the more the better, right? Wrong – folks are usually happier in the long run with a simple product. The successful iPod has one dial, the iPhone easy to use. Can this be applied, to some degree, to products like Option ARM’s, or various equity products that allow borrowers to tap into their bank accounts? You bet it can – this is part of the reason that investors and borrowers have renewed their focus on the simple 30-yr fixed rate mortgage.

MORTGAGE INDUSTRY ROUNDUP

• Some good news!? Toll Brothers, the largest U.S. luxury homebuilder, reported revenue for their fiscal third-quarter homebuilding revenue declined 34% to $796.5 million, the company said its cancellation rate improved, and it exceeded analysts’ projections.

• According to a source at Citi, they that Nehemiah will be going away for them on September 1st. This means no more down payment assistance (DAP) on FHA loans through Citi. This will be the case soon enough for all lenders since the Economic & Housing Recovery Act eliminated DAPs because those loans were defaulting at alarmingly higher rates than their non-DAP loans.

• This from a loan agent: “My clients and I both heard that the new HR Bill will allow borrowers who are upside down on mortgage to refinance through FHA, and FHA will bring the LTV down to 90%. Can we provide this type of FHA loan to our clients?” Answer: “Provisions of the new bill are not in force yet. FHA will not be reducing the LTV, the lender holding the note will be reducing the payoff to provide for FHA financing. Details have not been established as of yet by HUD and we should expect further announcements in the form of a Mortgagee Letter to give us the details.”

• Chase announced a change to their FHA Policy: Non-Traditional Credit is no longer permitted All borrowers on FHA loans must have traditional credit history and qualifying FICO’s, with the exception of non-credit qualifying streamline refinances Seller funded down payment assistance programs are no longer eligible (i.e. Nehemiah, AmeriDream). Chase also announced that for their Non-Agency Products, the elimination of Second Home and Investment properties and the removal of 40 Year Loan Terms.

• Wells’ correspondent group announced a change to their maximum Debt to Income ratio for loans with Self Insurance: Effective on or after Aug. 18, “Wells Fargo Self Insurance will no longer be available for conventional conforming loans submitted utilizing either a LP or DU for loans with a Debt To Income (DTI) ratio greater than 55%. Effective with Mandatory registrations and Best Effort locks on or after Aug. 18, 2008, Wells Fargo’s Self Insurance will no longer be available for loans originated in conjunction with Affordable or Community Second Programs.” And just when I was going to use them to buy that retirement condo on the beach in Key Biscayne, “Effective with Mandatory registrations and Best Effort locks on or after Aug. 18, the following changes are effective for condominiums in Florida: Conforming condominium transactions, including the High Balance Conforming Loan Program, will no longer be allowed with LTVs greater than 80%, and Non-conforming condominium transactions will no longer be allowed.”

• Mortgage applications in the U.S. declined last week 1.5% as higher interest rates hurt refinancing. The Mortgage Bankers Association’s purchase index was unchanged and its refinancing gauge fell 4.2 percent.

MARKET UPDATE
Some even better news? Rates continue down. This morning the Commerce Department reported that sales at U.S. retailers dropped in July by .1% – the first time in five months as record gasoline prices and tighter credit reduced automobile purchases. Sales excluding automobiles rose 0.4 percent, less or equal to what was expected. After the news the 10-yr sank below 3.90% and 30-yr mortgage prices improved by .125 in price over yesterday afternoon’s levels.

JOKE OF THE DAY
I sent my 85 year old Dad to Las Vegas to celebrate his birthday.

After arriving at his room the old man hears a knock at the door and a beautiful scantily dressed woman is standing there. She says, “I am here to offer you super sex!”

My Dad responds, “I better have the soup, the sex could kill me!”