Lenders have dealt an unexpected blow to those in the market looking to buy or refinance a home now for more than $548,250, ahead of the expected loan cap increase in November.
Many aggressive mortgage companies are handing out large balance loans to customers without the quarter-percentage difference between a conforming loan and a high-balance loan.
United Wholesale Mortgage, PennyMac and Rocket/Quicken Mortgage are offering similar Fannie, Freddy’s with tailored pricing for loan amounts of up to $625,000. That’s a 14% jump, or $76,750 higher than the current $548,250 mortgage cap set by regulators at the Federal Housing Finance Agency.
In its September 30 press release, United Wholesale Mortgage also said it would accept high-balance loans of up to $937,500, an increase of $115,125 over the current high-balance or so-called Fannie Mae Jumbo high-cost limit of $822,375. Is. Areas such as Los Angeles County and Orange County.
It is worth noting that home prices have increased at a record-breaking pace in a pandemic year. Jeff Collins, a housing reporter for Southern California News Group, reported Thursday that price gains have been in double digits for two years, rising 11.3% in 2020, and an estimated 20.3% this year. The average price of an existing single-family home has risen by more than $200,000 over the same period — about $2,000 a week.
True jumbo-sized mortgages (over $822,375 for Fan-Fred or over $937,500 for UWM) come with high interest rates.
Big Opportunity Fannies and Freddie’s usually reduce the required purchase down payment money or equity (in the case of refinancing) than most jumbo lenders.
Jumbo lenders usually require a minimum of 10.1% or up to 20% as a down payment. The increased high-balance loan amount, however, would allow a 5 or 10% reduction on the $750,000 or $800,000 listed asset, according to UWM CEO Matt Ishbia.
And running loan application data through Fannie’s or Freddy’s underwriting engines allows for a much higher debt-to-income ratio (about 49%) than actual jumbo underwriting rules (about 43%). For example, take your principal, interest, taxes, insurance, association fees, monthly credit report bills and other bills such as alimony or child support. Divide that dollar amount by your monthly gross income to calculate the debt-to-income ratio for good credit borrowers.
None of the other lenders offering the new $625,000 loan limit announced an increase in their high-balance cap.
(Full disclosure: My firm’s mortgage grader is a Rocket customer and former UWM customer.)
Almost always, Fannie and Freddie’s offer the best fixed-rate mortgages in the entire US, as long as the desired loan amount does not exceed $548,250. Or, for the so-called agency high balance, it cannot exceed $822,375.
At the end of November each year, the FHFA announces a new F&F loan limit for the coming year. According to the FHFA, the Housing and Economic Recovery Act 2008 (HERA) created a permanent formula for calculating the new loan limit. Once the FHFA is announced, most lenders accept an immediate rate lock and fund mortgage based on the newly announced loan limits.
So, what gives? Why and how are these mortgage lenders jumping ahead of the mandatory calculation and official FHFA announcement?
“It’s a marketing ploy,” said Guy Sekala, CEO and publisher of Inside Mortgage Finance. “It’s a way to attract someone who isn’t already a customer.”
Cecala believes the FHFA number due in November will exceed the loan amount of $625,000. “We think (in line with the loan amount) it’s going to be higher, $635,000, $638,000,” Cecala said.
Another mortgage insider feels that lenders are now safe to know their numbers.
“The big lenders do the math on their own and they know the law,” said Dave Stevens, president and chief executive officer emeritus of the Association of Mortgage Bankers.
my advice to you? Don’t fret about finding a lender for your jumbo mortgage. Put on your internet spy hat and search the web.
For the first six months of 2021, Rocket/Quicken was the top loan seller for F&F at 10% of the market share (70% was original consumer direct and 30% was by mortgage brokers). According to Inside Mortgage Finance, PennyMac was second with a 7% market share, and UWM was at number three with 5%.
Most mortgage brokers have a relationship with UWM or Rocket/Quicken. According to the IMF, some mortgage bankers (or “correspondent lenders” in industry jargon) may sell their closed loans to PennyMac because 81% of its business is correspondent-based.
There could be other entrants to this new super-sized analog loan limit of $625,000 such as digital lender Sage Mortgage.
“Agencies have established guidance on their methodology to update loan limits in line,” said Brad Seibel, head of mortgages at Sage. “This guidance allows us to go ahead and bring savings to the consumer now rather than waiting.”
Freddie Mac Rate News
The 30-year fixed rate averaged 2.99 per cent, two basis points lower than the previous week. The 15-year fixed rate averaged 2.23%, which is five basis points lower than the previous week.
The Mortgage Bankers Association reported a 6.9% decrease in mortgage application volume from last week.
Bottom Line: Let’s say a borrower gets an average 30-year fixed rate on a $625,000 loan, last year’s payment was $41 less than this week’s payment of $2,632.
What I Look For: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: a 30-year FHA at 2.25%, a 15-year traditional at 2.25%, a 30-year traditional at 2.875% , a 15-year traditional high balance ($625,000 to $822,375) fixed at 2.5%, a 30-year high balance at 3.125% and a jumbo 30-year high balance at 3.375%.
Note: The 30-year FHA compliant loan is limited to loans of $477,250 in the Inland Empire and $548,250 in LA and Orange counties.
Eye-catching Loan Program of the Week: 15-year fixed rate at 1.875 percent with two-point cost.
Jeff Lazerson is a mortgage broker. He can be contacted at 949-334-2424 or [email protected]