How the new Jan 10 mortgage guidelines effected buying power

Question

This is a sample with a 4.5% rate 30 year fixed payment qualification includes tax and insurance and $500 in borrower monthly debt (car, credit cards...) DTI ratios at 43% after Jan 10 and 50% before Jan 10

Maximum Loan Amount based on DTI ratios

Yearly Income...............before Jan 10.................after Jan 10

$25,000............................$73,272 ..........................$50,374
	    50,000..............................236,826...........................191,031
	    75,000..............................400,000...........................331,688
	  100,000............................563,935...........................472,344
	  125,000............................727,489...........................613,001
	  150,000............................891,043...........................753,658

edit: sorry for all the .......... but it's the only way I could make some sort of table for this post.

Dana Anghel · Answer

Nobody panic.

Neither Freddie or Fannie have changed DTI requirements in LP or DU, and both underwriting engines accept some loans with DTIs greater than 43%.

Both agencies have been granted an exemption from "pure" QM requirements for seven years or until they come out from under conservatorship.

Dana Anghel · Answer

@Ed Wood  Provident Funding is far from being the lender of choice, unless a loan is a cookie-cutter. I have not personally worked with them, but various loan officers have told me how they will knit-pick your loan to death (thou the pricing is very good).

It would not come as a surprise if they don't make any exceptions to their tight guidelines, but that has little to do with new regulation.

Bill Gulley · Answer

Dana is correct, Fannie, Freddie, USDA, FHA and VA will assume to be QM following those respective guidelines.

Ratios can still go to 50% with compensating factors and there are exemptions for regulated lenders where the assumption will be made that a mortgage falls in the QM guidelines or they may originate a high risk mortgage with limiting loan conditions.

There is a myth that loans will be hard to get, they won't be except to those who shouldn't qualify to get a loan. The standard is higher than fogging a mirror for sub-prime loans.  .It's a law, there are political and business angles to it, those who don't want the law are making all kinds of claims, loans no longer available, hard to get, cost more, etc. There can be some truth in some of it, but I'd say it's blown out of proportion to justify an agenda.

Many folks are reading articles and getting excited over things that aren't there. I mentioned before, conventional loan ratios use to be 24/36% so it's gone up, way up, making it a lot easier for many to qualify from what the old standard was. :)

Dana Anghel · Answer

@Ed Wood   What I meant to say was that the other loan originator's compensation was a point higher than what my company was charging. So I was more competitive with any of my lenders than the other LO with Provident.

I was just making a point that a lender's pricing is only as good as the lender compensation is charged - even the best rate sheet benefit can be offset by a high lender paid compensation.

@Tomasz Strzemecki most loans (except government loans like FHA, VA and USDA) are sold to either Fannie Mae or Freddie Mac (which is the secondary market). This frees up lender money so that they can keep lending. You can check the status of your current loans by using these loan lookup tools:

[url] https://knowyouroptions.com/loanlookup [/url]

[url] https://ww3.freddiemac.com/corporate [/url]

Bank of America for example is big enough and has enough funds to keep their own loan portfolio - and a lot of times they will chose to do so. They also service their loan (collect payments), so that's extra money. They still personally own a lot of the funky loans from before the market crash, such as stated income loans, as Fannie Mae and Freddie Mac will not purchase them.

Like Ed said, if you're providing full loan documentation and a solid downpayment.. your loan most likely fits Fannie Mae/Freddie Mac standards, and will eventually get sold to them.

Tomasz Strzemecki · Answer

@Ed Wood Thank you!

Ed Wood · Answer

@Tomasz Strzemecki

If your going full doc 25% down more than likely your loan are fannie/freddie.  You can ask the LO they'll be straight with you.  If your in the 4's or low 5's on a 30 year fixed more than likely your getting a fannie/freddie loan...

Ed Wood · Answer

Compensation is pre-set so the borrower receives savings benefit not the LO the very reason for the 2010 ruling. In your example if you would have went with Provident vs the other lender the you would have gotten the 1/2 rebate, not the LO.

If you are saying the LO has 1 point lender paid compensation higher than the other lenders they work with, or different compensation levels with many different lenders, this could be looked upon as steering by the CFPB.

If the borrower qualifies for Provident and the originators compensation is equal to all other lenders they work with Provident would be the borrowers best opportunity then the originator should send the loan to Provident because it's in the best interest of his/her client and not because the LO has to work harder.

Tomasz Strzemecki · Answer

@Dana Anghel @Ed Wood  Thank you both for great information.  I have been using a mortgage broker for my last couple of deals.  How do I know whether or not the loans that get originated by him will be sold to Fannie/Freddie? It seems like it would be of benefit to me, for the loans to be sold to those entities.  I usually put down 25% down to acquire them per investment property guidelines.  Any thoughts?

Dana Anghel · Answer

Last time I saw Provident's rate sheet, the difference was almost half a point better than my best lender ($4,000 on an $800,000 loan).

But the mortgage company that the LO worked for  also charged 1 point more in origination( lender paid compensation). So the savings were really going into a different pocket.

But I agree - high loan amount, great credit borrower, and decent lender paid compensation - they can make for a great deal, there is no doubt about it. Especially if every loan officer would go the extra mile to make that submission perfect ;)

Ed Wood · Answer

Being in a high cost area 600-800k range on units the price differences is huge 5-$8000 in fee so if the loan fits Provident's guidelines we'll submit there. If we're going to ask for exceptions we'll use another lender who we know will do the loan. We get the letters of explanations up front prior to submission, title supplements, VOEs, insurance, CPL letter, etc prior to submission. So we have a pretty good idea of which lender is best for the file before submitting.

How the new Jan 10 mortgage guidelines effected buying power

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