Here is an explanation of one of the biggest factors in the rising rates due to the coronavirus…..
The $2 trillion stimulus package that passed the US Senate Wednesday will allow homeowners hurt by the health crisis to postpone mortgage payments for up to 12 months. That mirrors moves announced last week by mortgage giants Fannie Mae and Freddie Mac. The goal is to make sure the millions of job losses caused by the social distancing restrictions imposed by governments don’t spark a wave of foreclosures. That domino effect would crash the real estate market, amplifying the considerable economic pain inflicted by the health crisis.
The problem is that mortgage servicers, even after granting homeowners forbearance, are still on the hook with investors to continue paying principal and interest on the mortgages. They also must make payments to mortgage insurers, property insurers and local tax authorities. And that could be a hefty sum given the economic carnage caused by the coronavirus pandemic. Initial claims for unemployment benefits skyrocketed to record highs.
Mortgage servicers don’t have enough cash to cover the coming wave of missed mortgage payments. And a series of defaults by servicers would cripple a key part of the economy.
In light of what is coming in the months ahead, Investors and servicers are pulling back. Investors are pricing the rates very high, as they want to discourage new loans due to the risk they are already facing with existing mortgages. Several local lenders have stopped originating government loans altogether. Some of your buyers will be furloughed or laid off. Some companies cannot verify employment at this time. Some appraisers are not doing inspections and the IRS just announced they are no longer taking requests for tax transcripts.
I want to share with you what agencies are doing to adjust to our new realities:
- All agencies offer some flexibility in obtaining employment verification. We will obtain all employment verifications within 3 business days of the note date. If a self-employed borrower’s business is closed due to the pandemic, no income can be used in qualification. In order to confirm continuity of income, we must obtain the most recent YTD pay stub from the pay period immediately preceding the note date. The paystub must be reviewed to confirm earnings remain consistent with those used to qualify. . In order to confirm continuity of income, we must obtain the most recent YTD pay stub from the pay period immediately preceding the note date. The paystub must be reviewed to confirm earnings remain consistent with those used to qualify.
- All agencies have offered flexibility on appraisals. Below are the highlights:
FHA (expires May 17, 2020)
- Purchase transactions (forward and HECM for purchase transactions)
- New Construction and 203(K) transactions require full interior/exterior appraisals
- For other property types, Exterior-Only or Desktop-Only are acceptable provided they contain adequate information to enable the intended users to understand the extent of the inspection that was performed.
- Both inspection types must be reported on FHA approved appraisal forms. (FNMA 2055 Forms are NOT acceptable)
- Refinance and traditional HECM transactions
- Cash-out refinances and 203(k) refinances require a full interior/exterior inspection
- Other refinances allow for an option Exterior-Only Scope of work.
- Final Inspection Reports
- No flexibility for new construction properties or 203(k) transactions.
- For other transaction types, a letter signed by the borrower confirming that the work has been completed is acceptable. In addition, evidence of the completion must be provided which may include photographs of the completed work, paid invoices for the needed repairs, occupancy permits or other substantially similar documentation.
USDA (expires May 27, 2020)
- Purchase and non-streamlined refi transactions (except New Construction)
- If an appraiser is unable to complete an interior inspection due to concerns about the COVID-19 pandemic, and “Exterior –Only Inspection Appraisal Report” (FNMA 2055 Form) is acceptable.
- Repair Inspections
- When the appraiser is unable to complete the final inspection due to COVID-19, a letter signed by the borrower confirming that the work has been completed is acceptable. In addition, evidence of the completion must be provided which may include photographs of the completed work, paid invoices for the needed repairs, occupancy permits or other substantially similar documentation.
VA (applicable until circular is rescinded)
- Interior/Exterior Inspections are required for the following:
- Purchases of vacant property (unless appraiser is limited by a mandatory quarantine or shelter-in-place order)
- Purchase or Refi (property is occupied) – when the jurisdiction is not subject to restrictions imposed by authorities prohibiting individuals from leaving their domicile, such as a mandatory quarantine or shelter-in-place order
- Exterior-Only Inspection is allowed if all parties do not agree to an interior inspection. Lender may not direct the appraiser to complete an interior inspection. Exterior-Only Appraisal with enhanced assignment conditions will be limited to the maximum 2020 Freddie Mac Conforming Loan Limit for a one-unit limit for the county or county-equivalent area.
- Exterior-Only Appraisal. This report option with enhanced assignment conditions will be completed on the FNMA 2055/1075 URAR form. For manufactured homes and multi-unit (2- to-4 unit) properties, appraisers will use the 1004C or 1025 form. Appraisers are to boldly and inconspicuously state “Per Department of Veterans Affairs, no interior inspection was provided due to COVID-19.”
- Purchase or Refi (property is occupied) – when the jurisdiction IS subject to a mandatory quarantine or shelter-in-place order
- LENDER must agree in the “public” notes in WebLGY and by e-mail to the appraiser if they will accept a Desktop Appraisal. If the lender does not agree to the desktop appraisal, the appraiser will place the assignment on hold for 30 days and then subsequently cancel if the status has not changed.
- Desktop Appraisals are allowed (on FNMA 1004, 1073, 1004C, or 2025 Form, as applicable), limited to the maximum 2020 Freddie Mac Conforming Loan Limit for a one-unit limit for the county or county-equivalent area.
- TOWNEBANK MORTGAGE POLICY – when ordering a VA appraisal, we will add notes to the WebLGY system if under mandatory quarantine or shelter-in-place order, we will accept a Desktop Appraisal
- Reconsideration of Value (ROV)
- Purchases – ROV will be limited to no more than 5% from the appraiser’s original opinion of value. ROV’s are still completed by the RLC and not the lender.
- Cash-out refinances – ROV’s are suspended.
- Final Inspections
- If the appraiser can’t complete the repair inspection, a lender certification of repairs may be acceptable. This is preferable with repairs done by licensed personnel (structural inspector, electrician, etc.).
- TOWNEBANK MORTGAGE POLICY – if the appraiser may not conduct the final inspection, obtain a letter from the borrower that they are satisfied that the repairs are complete along with additional evidence (pictures, receipts, etc.) and discuss with the Operations Manager or Underwriting Manager. Only managers can make the lender certification of completion. All evidence to be retained in Encompass.
- Termite Inspections
- When a termite inspection is required and can’t be provided due to COVID-19 restrictions, the seller and realtor must provide a written certification that there is no known or visible evidence of termite infestation present. Borrower should sign to acknowledge and accept this certification.
The Agencies and Investors are putting their heads and resources together and providing constant guidance/workarounds. For those of you who remember the financial crisis in 2008, you may remember major changes in the ability to borrow money, and much more restrictive guidelines were put into place…. Yet, people still bought homes and the strong lenders and realtors were left standing! We are still here and will press on.
The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend. Information provided courtesy of TowneBank