A Relaxed Arizona Mortgage Market
January 24, 2017
President, National Association of Mortgage Professionals
The year 2017 brings many changes to the Arizona mortgage industry. As the economy and real estate market recover and thrive, the mortgage industry is relaxing and advancing. Fannie Mae and Freddie Mac are helping with this by making more modifications to the mortgage process to improve the consumer experience.
The state of Arizona ranked #2 in the nation for the number of transactions “falling out” in 2016, primarily due to application errors. This year, Fannie Mae is introducing a streamlined program called Day 1 Certainty. The aim of this program is to provide approval “certainty” at a much earlier time within the transaction period and reduce borrower errors. If a mortgage loan originator chooses this program, Fannie Mae will electronically verify the borrowers’ income, employment and asset accounts. In addition, many more transactions will receive appraisal waivers. When an appraisal is required, the data submitted by the appraiser will be verified and approved versus having the underwriter and lender review and warrant the value to Fannie. With less concern about having to buy the loan back, the lender can move to closing quicker — Day 1 Certainty. The borrowers’ income is documented by the IRS, The Work Number and the Social Security Administration. Income will also be verified from self-employed schedule C borrowers. Assets will be documented and verified eliminating issues arising from bank statements. The program requires less documentation from the borrower, creating less room for error and a higher rate of the transaction going through.
As a result of this program, the flow of the mortgage process will change. The mortgage loan originator will be required to ask the borrower’s permission to use the Fannie Mae electronic verification system upfront in order to complete the loan application. The information will be checked against what the borrower provides, assuming no discrepancies, the file will be submitted to automatic underwriting. If the file comes back approved with an appraisal waiver, then the file is ready to be placed in the pending status for title work and disclosure requirements. If an appraisal is needed, the order will be submitted by the mortgage loan originator. When the appraisal is returned the data set can be reviewed and approved by the Fannie Mae desktop underwriting system. This process will reduce the number of appraisal reviews and second appraisals since the lender is no longer responsible (in most cases) for warranting the value of the property to Fannie Mae. The end result is projected to be fewer fall outs and less time required to close.
Freddie Mac has similar initiatives in the works by accepting electronic documents as well as more relaxed requirements for the borrower’s income and assets. With this program, a loan qualification can occur using income beginning within 60 days of closing versus the case where lender required the borrower to actually be on the job before closing the loan. This will be helpful to the employment market by allowing those who are relocating to purchase a new home before actually starting a new job. Freddie Mac has also announced a new, no-cost automated appraisal option along with an automated income and asset verification option. Furthermore, certain loans may be able to be underwritten without a borrower’s credit score.
Conventional loan limits have increased to $424,100 for both Fannie and Freddie Mac — this is the first increase since 2006. The limit adjustment supports home prices that continue to rise year over year in Arizona.
As a result, FHA has also increased its loan limits and will reduce the annual (paid monthly) mortgage insurance from .85 to .6. FHA will once again create a competitive position with conventional loans with these modifications. Conventional loans have been decreasing their mortgage insurance rates for some time.
Many down payment assistance programs continue to be available for conventional and FHA loans though the popular Pathway to Purchase program. This program is expected to deplete its $48 million commitment in late February ’17 to early March ‘17. Many lesser programs are also available — allowing first-time homebuyers the option to purchase with as little as 0 – 1 percent down — depending on rate and possible seller contribution.
Jumbo financing is increasing with most lenders requiring as little as 10 percent down and going to much higher loan amounts than in the recent past.
The Arizona mortgage market is returning to a semblance of normalcy. However, balance is still in the works especially for the large number of Arizona homeowners who continue to be underwater on their existing financing. On the very bright side, builders are building, lenders are lending and real estate agents are selling.
What a welcome change.