HomePath mortgages are available in most of the “normal” flavors available for other conventional mortgages (e.g. 15-, 20-, and 30-yr fixed rate, and 3/1, 5/1, 7/1, and 10/1 adjustable rate); they allow up to 97% LTVs (i.e. only 3% down) for buyers intended to occupy the property as their primary residence, or up to 90% LTV for second-home or investor buyers. Among the advantages of HomePath mortgages are:

• They don’t require an appraisal; the negotiated sales price is used as the property value. Since appraisals are one of the biggest unknowns in the underwriting of most modern purchase loans and the piece of the process whose timeline is least predictable, not having one makes the mortgage financing process both more certain and faster.

• They have lower upfront costs. As noted above, the buyer does not have to pay for an appraisal, and most HomePath lenders also have lower overall fees on HomePath loans versus conventional mortgages.

• They do not require mortgage insurance, which usually lowers the effective rate of HomePath loans. HomePath loans do have slightly higher base rates than conventional mortgages, but for LTVs up to 95%, the effective rates when looking at total monthly payment as compared to FHA loans or conventional loans with MI are usually much lower to HomePath.

• They do not require mortgage insurance. which smooths the underwriting process. Conventional loans that require mortgage insurance usually must go through two rounds of underwriting–once by the lender, and again by the mortgage insurer; HomePath mortgages can skip that second round of underwriting, which can often be more stringent than regular mortgage underwriting.

• They allow LTVs up to 97%, which is slightly higher than FHA. Due to recent changes, FHA loans normally have a maximum LTV of 96.5%; thus, while FHA often has a better rate for borrowers with LTVs of 95% or higher, for borrowers for whom that extra 0.5% down payment to bring the LTV from 97% down to 96.5% would be a deal breaker, HomePath can often save a purchase that would otherwise fall apart.

• They have slightly looser underwriting guidelines for condo developments. Issues with budgets, delinquent association fees, and/or high investor ratios at condo developments are one of the biggest reasons that purchase loans in the DC area don’t get approved these days, and HomePath’s condo guidelines are slightly less stringent than those for other conventional mortgages.

For all of these reasons, HomePath mortgages can be a great tool for borrowers interested in FNMA-owned REOs. How can you tell if a property is eligible for HomePath financing? Most agents listing FNMA-owned REOs will advertise that they are HomePath-eligible, but you can also always double-check (or search for FNMA-owned REOs in your area) at Fannie Mae’s HomePath.com website.

Once you’ve found a HomePath-eligible property, feel free to contact us about getting HomePath financing; our wholesale lending sources are among the strongest in the country, and we are thus on the select list of mortgage brokers who can provide HomePath mortgages.

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The Ethical Homes team offers construction/A&D loans for terms of up to 2 years, on loan amounts of between $500k and $500 million. Interest rates for these loans generally run between 1-9 percentage points higher than conventional residential mortgage rates (depending on the specifics of the scenario). Borrowers generally need to contribute at least 20% of the initial acquisition costs (30% preferred), and the eventual stabilized post-construction value of the property should provide a final LTV of no more than 75% (65% preferred).

If you have acquisition & development funding needs, please do not hesitate to contact us and we would be glad to review your scenario for you.

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In particular, bridge loans are useful when “coinciding settlements” fall apart. For example, if the buyer of Property A was expecting to use money earned from closing on another transaction such as the sale of Property B as their down payment on Property A, and was planning on having the sale of Property B happen shortly before the closing for Property A, and then for whatever reason the sale of Property B gets delayed, then normally, the buyer of Property A would be in default on their contract since they would not have the money available to close on that purchase. As an alternative, a bridge loan would give them the money to close on the purchase of Property A as scheduled, and then they could pay off the bridge loan with the proceeds of the sale of property B when that eventually occurred. (Bridge loans usually have interest rates significantly higher than the rates available for traditional residential mortgages–generally about 5-9 percentage points higher–and somewhat higher than for commercial/investment mortgages.)

The biggest requirement for a bridge loan is that it does actually need to be a “bridge”, spanning the gap between two transactions; the underwriters for a bridge loan will need to see paperwork confirming where the funds to pay off the bridge loan will be coming from, as well as evidence that it’s likely that those funds will eventually show up within a relatively short period of time (generally no more than 36 months).

In addition, bridge loans usually require that the borrower have at least a 25% down payment on the bridge loan.

Finally, bridge loans are generally easiest to obtain for income-producing properties (existing, under construction, or for rehabilitation), such as:

• Hotels/Motels
• Office Buildings
• Retail Space
• Warehouses
• Hospitals
• Multifamily buildings
• Single-family Rentals
• Assisted Living
• Mixed-Use Properties

Bridge loans are harder to obtain for non-income-producing properties such as single-family owner-occupied properties, but they are still available for well-qualified borrowers.

If you may have need of a bridge loan, please don’t hesitate to contact us. In particular, the Ethical Homes team specializes in placing bridge loans between $500,000 and $75 million for acquisition, refinance, and construction needs, as well as providing “mezzanine” financing and funding for bankruptcy and foreclosure situations, and can often close such loans in as little as 10 days.

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(These scenarios are for example purposes only, and are not an offer of credit. All scenarios, unless otherwise noted, presume a borrower with at least a 780 median FICO score and sufficient income, assets, and employment history to qualify for the loans in question, purchasing a detached single-family property in Virginia and planning to occupy that property, with a fully-amortizing mortgage. Rates and guidelines are currently changing very rapidly, so scenarios from even a few days ago may not reflect current market conditions; again, all scenarios below are provided for historical example purposes only and are not an offer of credit under any of these terms.)

• $1.5 million purchase, $1.2 million loan (20% down), 5/1 ARM: 4.125% paying 0 discount points, for a monthly PI payment of $5,815.50.
• $1.2 million purchase, $960k loan (20% down), 10/1 Interest-Only ARM: 4.750% paying 0 discount points, for a monthly Interest-Only payment of $3,800.
• $250k HARP PIW refi–no appraisal/LTV required, 30-yr FRM: 4.750% paying 0 discount points, for a monthly PI payment of $1304.12.

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The “investor ratio” for a condominium development is simply the number of units in the development that are currently “non-owner occupied” (i.e. rented out) divided by the total number of units in the development, expressed as a percentage; if a condo development has 200 units, of which 40 are rented out and the remaining 160 are owner-occupied (as either a primary residence or a second home), then the investor ratio would be 20% (40 divided by 200).

For conventional mortgages that fall under Fannie Mae and Freddie Mac guidelines, loans generally cannot be made on condos in developments where the investor ratios are higher than 40%. (Fannie Mae technically no longer has an official maximum investor ratio guideline, but I have never heard of a Fannie Mae loan being approved with a ratio above 40%).

Loans requiring private Mortgage Insurance (MI) are handled much the same way as other conventional mortgages, but all MI companies currently also impose a 30% cap on investor ratios; since MI loans must meet all conventional underwriting guidelines as well as all MI guidelines, that 30% cap supercedes the 40% cap.

Many lenders, moreover, impose their own more-stringent restrictions on conventional mortgages, and usually cap investor ratios in the 20-30% range (with some having caps as low as 15% or even 10%).

The traditional fallback solution for developments with high investor ratios has been to use an FHA loan, as FHA loans allow investor ratios as high as 49%, and most lenders do not impose their own restrictions on the investor ratios for FHA loans. (FHA loans do have slightly higher fees and rates than conventional mortgages, but for many high-investor-ratio developments, they are often the only available mortgages.)

For developments with investor ratios above 49%, other options do exist; the Ethical Homes team can place loans with certain lenders, for example, who can approve loans on properties with investor ratios 60% or higher. Note that these approvals are not guaranteed; they depend on many factors, including the specific condo development as well as the size of the down payment (which needs to be at least 20% of the value of the property), and need to be evaluated on a case-by-case basis.

We strongly advise borrowers to work with their agent and mortgage broker to find out what the investor ratios are for a particular condo unit before submitting an offer on it; if you find yourself needing to put an offer on a property that does have a very high investor ratio, feel free to contact us and we can help you determine whether a loan on that property might be possible.

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FHA insures nearly 1/4 of all mortgage loans currently originated, and 50% of all first-time home buyers’ mortgages, so any changes in those loans will have potentially widespread impacts.

FHA is required by law to keep a reserve fund to pay out on loans that they’ve insured, equal to at least 2% of the total amount of all loans currently insured by FHA; a recent audit of FHA’s books, however, found that this year, those reserves dropped as low as 0.53%. Secretary Donovan’s prepared remarks were designed to explain to Congress how FHA intends to get that reserve back up to the required level. Those plans boil down to continuing a few trends that FHA had started in 2008, when it became clear that they would probably drop below the 2% threshold: insuring fewer risky loans, and collecting more money on the loans that they do insure.

Donovan proposed 5 specific changes to FHA’s policies; the first is fairly non-controversial, but the others are all potential game-changers for the real estate market given FHA’s huge share of current mortgage originations.

The common sense proposal involved stepping up enforcement against lenders who issue FHA loans that end up not actually meeting FHA guidelines, including punishing parent companies of branches that violate FHA rules (since FHA can currently only punish individual branches).

The more controversial proposals were:

• Reducing the maximum seller contributions from 6% of the loan amount to 3% of the loan amount. That 3% cap is the cap that is in effect for most conventional loans, and 3% can usually cover most if not all of a buyer’s closing costs, but the ability of the seller to provide extra assistance over and above the regular closing costs to “buy down” a purchaser’s interest rate is a very important factor in whether many buyers are actually able to afford the payments on the properties that they buy. As a result, the risk reduction effects of this move are questionable; it’s not immediately self-evident that reducing the ability of a buyer to get a lower rate wouldn’t actually increase the number of defaults that result as buyers stretch themselves too thin making higher payments.

• Increasing the minimum FICO score for borrowers. FHA formerly had no minimum score as long as the rest of the borrower’s file made sense; they recently instituted a minimum FICO for automated underwriting approval of 580 and a hard floor for manual underwriting of 500, and Donovan says that those floors will be raised again, although he says that they have not yet determined the new levels. Most lenders have currently set the floor for FICOs for conventional loans in the 640-680 range, so raising the floor for FHA will remove the only remaining option that many borrowers in the high 500s and low 600s have–including many who might otherwise be good candidates to purchase homes but who because of imprudent/unlucky circumstances after the boom years may have had to go through a short sale, which can significantly lower FICO scores.

• Raising the minimum down payment on purchases. Last year, FHA raised that minimum from 2.25% to 3.5%; they are now planning to raise it again, although they again have not yet decided on the exact amount of the change.

• Increasing the mortgage insurance premiums on their loans. Currently, most FHA loans charge mortgage insurance in two parts: a 1.75% upfront fee (usually rolled into the loan by the buyer), as well as 0.55% annual fee (split into monthly payments of 0.04853% per month). FHA is legally allowed to increase that upfront fee as high as 3%, and Donovan implied that they might do so; the 0.55% annual fee is as high as FHA can legally charge at the moment, but Donovan asked Congress to increase that limit so that FHA could increase the annual fee as well.

Even if Congress does not authorize the higher annual fee, increasing the upfront fee to its current statutory maximum would have the effect of making FHA mortgage insurance roughly comparable to privately available mortgage insurance. One of the biggest advantages of FHA loans, and the reason that borrowers are often willing to put up with the sometimes more complicated process of obtaining them, is that they have lower mortgage insurance costs than comparable conventional loans with the same down payment, but if that advantage goes away AND the minimum down payment is increased to roughly the level where the private market is already allowing mortgages (currently a minimum of 5% down), then the advantages of FHA loans will be essentially eliminated.

And if a quarter of all mortgage loans currently are using FHA presumably because they can’t qualify for the conventional option, and then FHA guidelines and rates are essentially brought in line with the private market, then we would expect that quarter of the market to no longer be able to purchase homes; the end result is that purchase volumes would probably drop by about that much.

We’ll be following these proposed changes closely and will keep you informed as more details emerge.

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In particular, the Ethical Homes team can help many types of temporary resident aliens who are legally working in the US to obtain mortgages. The basic requirements to obtain a mortgage for a temporary resident alien are the same as for a permanent resident alien or citizen; in addition, a temporary resident alien must obtain a US Social Security Number (a non-SSN tax ID number is not acceptable, unfortunately), and provide a copy of their work authorization papers as well as one of the following types of visas:

• A Series (Diplomats, Foreign Government Officials, and Foreign Military Personnel stationed in the US)
• E-1 (Treaty Traders)
• G Series (Representatives to Designated International Organizations”)
• H-1 (Temporary Workers, including H-1B specialists)
• L-1 (Intra-Company Transferees)
• TN (Non-Immigrant NAFTA Professionals)

Mortgages can also sometimes be obtained for other types of non-permanent resident aliens, but the qualification requirements are often very strict.

Interested in exploring your options for getting a mortgage as a non-permanent resident alien in the US? Contact us and we’d be glad to help you out.

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MDIA and HVCC are two recent laws that have created fairly significant delays in mortgage processing.

MDIA

The first relevant law is the Mortgage Disclosure Improvement Act of 2008 (MDIA). MDIA affects all residential mortgage loans, and requires that a set of disclosures be issued to a borrower when processing of their loan begins, and no mortgage loan can close until at least 7 business days have passed after those disclosures are delivered. Most lenders are allowed to count Saturday as a business day, which means their initial MDIA “window” of 7 business days translates to 8 calendar days, which in turn means that the fastest a loan could close would be 9 days–the MDIA window must elapse before closing, so closing could only happen on the 9th day.