Updates to FHA TOTAL Mortgage Scorecard

Overview

Over the past several years FHA has seen a continued increase in certain higher-risk credit characteristics in mortgages it insures, including an increase in cash out refinances and mortgages with high debt-to-income (DTI) ratios, a decrease in average borrower credit scores and an increasing concentration of credit scores less than 640 combined with DTI ratios greater than 50 percent.

To address mortgages with higher-risk characteristics particularly when multiple risk factors are present, FHA has updated the TOTAL Mortgage Scorecard to manage the decrease in average borrower credit scores and the excessive risk layering that results when multiple risk factors are present.

Effective for all case numbers assigned on and after March 18, 2019, when Carrington Mortgage Services, LLC (CMS) submits a mortgage loan to the TOTAL Mortgage Scorecard via an automated underwriting system (AUS) CMS may receive feedback results indicating the loan file must be manually underwritten. In these cases, CMS must document the final underwriting review decision in accordance with existing FHA requirements for manually underwritten mortgages.

U.S. Economy showing solid growth

Last Week in Review: U.S. Economy showing solid growth.

This past week, the Bureau of Economic Analysis (BEA) reported the U.S. economy, as defined by Gross Domestic Product (GDP), grew at a 2.6% rate in the fourth quarter of 2018. Economists and the markets were expecting 2.0% to 2.3%, so this was a nice upside surprise.

This left GDP for all of 2018 at 2.9%. Consumer spending, which makes up nearly two thirds of GDP, expanded by a solid 2.8% in the fourth quarter – yet slower than the previous quarter.

Another solid number within the report was business investment which grew at a swift 6.2% pace.

This Q4 GDP reading was the first of three – so we will see some revisions in the months ahead.

Seeing the economy grow at such a nice clip despite high stock market volatility and the U.S. government shutdown is a good sign as we head into the spring housing market.

The increased wealth effect caused by the recent rally in Stocks along with one-year lows on home loan rates, rising wages and increased housing inventory sets the stage for an improved 2019 housing market.

March Special – No Underwriting Fee + Same Day Turnaround

Back by Popular Demand!

Carrington Mortgage Services, Wholesale Lending Division is offering to waive the underwriting fee on ALL Non-QM* submissions in the month of March. Whether you submit 1 or 100 loans, the underwriting fee ($650 in most states) will be waived!

Bonus: The Slamdunk Offer!

In by 10 and out Same Day**

For any full submission*** received in underwriting by 10 a.m., we will commit to have a same day turnaround and have a response to you by the end of the day. How’s that for fast?

With lower costs and faster service, the Carrington Team is committed to making March very successful for all.

Become an Approved Broker

Already an approved broker?

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*Carrington Flexible Advantage (Non-QM) product requirements vary depending on the consumer’s credit grade, LTV, DTI, and FICO scores and may require reserves from 3 to 6 months. Ask your Account Executive for additional details and requirements. Not available in MA and ND. No cash out in TX.

**Submissions to our Windsor office by 10 a.m. Eastern Time will be completed by end of day (EDT); submissions to our Anaheim office by 10 a.m. Pacific time will be completed by end of day (PDT).

***Please see the Carrington Advantage Products Loan Submission Form.

Retail Sales hit a shocking 9-year low

Last Week in Review: Canary in the coalmine.

The financial markets are sensing a government shutdown and protracted trade war with China will be averted. This is good news and a reason why Stocks have continued to push higher and home loan rates have capped for the past few weeks.

But last Thursday, Retail Sales was reported at a shocking 9-year low. Combing through the report, a 3.9% decline in internet purchases was a huge negative surprise. With consumer spending making up nearly 70% of GDP, there is fear in the markets that this very poor Retail Sales number is an early warning sign that both consumer spending and thus economic growth are indeed slowing.

One thing we know for sure — Bonds love uncertainty and bad news. This Retail Sales report brought both and, as a result, pushed prices and home loan rates near the best levels in a year.

We will be watching future Retail Sales reports to see if this is just one bad report or the start of a negative trend.

In any case, reports like these support the Fed to not raise rates in 2019.

Presidents Day Holiday Lock Desk Hours

Overview

The Carrington Mortgage Services, LLC (CMS) Lock Desk will be closed on Monday, February 18, 2019 for Presidents Day, which is a Federal Holiday. Normal lock hours will resume on Tuesday, February 19, 2019.

Locks that expire on the holiday will automatically roll to the next business day.  In addition, there are some important disclosure considerations associated with the holiday:

  • Monday, February 18, 2019 cannot be included in the rescission period for refinance transactions.
  • Monday February 18, 2019 cannot be included in the seven (7) business day waiting period between the date the initial Loan Estimate (LE) was provided to the borrower and the consummation of the loan
  • When re-disclosure of the LE is required, Monday, February 18, 2019 cannot be included in the four (4) business day waiting period between the date the revised LE was provided to the borrower and the consummation of the loan.
  • When re-disclosure of the CD is required, Monday, February 18, 2019 cannot be included in the three (3) business day waiting period between the date the revised CD was provided to the borrower and the consummation of the loan.

Issues related to locks should be sent via email to lockdesk@carringtonms.com.

New VA Rule for Cash-Out Refinances

Overview

On December 17th, 2018, the Veteran’s Administration (VA) published an Interim Final Rule addressing VA guaranty requirements for cash-out refinance loans. The rule will be effective for loan applications taken on or after February 15th, 2019 and applies to all Full Doc refinance loan transactions (even if the existing loan is NOT a VA loan). The rule does not apply to VA IRRRL loans.

This rule change is intended to ensure Veteran borrowers continue to have access to responsible credit options for refinancing. In addition, the rule provides Veteran borrowers with sufficient information regarding the impact of a refinance loan on their current and future financial position. Highlights of the new rule include:

  • New Comparison Disclosure form
  • New Total Loan to Value (TLTV) calculation limited to 100% TLTV
  • Expanded Net Tangible Benefit options
  • Recoupment Certification only required on VA to VA Rate/Term refinances

Note: Loan Seasoning requirements are not changed.

Comparison Disclosure

The Comparison Disclosure within three (3) days of loan application and at closing. The Veteran borrower is required to sign and acknowledge receipt of the form.

The disclosure shows the refinancing loan passes NTB and provides a comparison of key loan characteristics for the existing and refinancing loan, including:

  • Current Balance (UPB) vs. New Loan Amount
  • Amortization type (Fixed/ARM) for Prior and New Loan
  • Interest rate (Prior/New)
  • Loan term (Remaining vs. New Term)
  • Total amount the Veteran will have paid after making all payments as scheduled (Prior/New)
  • LTV (Based on UPB versus Note Amount)
  • Home equity being removed from property

To comply with the three (3) day disclosure requirement:

Broker Disclosed loans: Brokers are required to meet the requirements and provide the Comparison Disclosure dated within three (3) days of application. CMS will ensure compliance at Submission Acceptance or reject the loan submission.

CMS Disclosed loans: CMS will complete NTB form. If any required data elements are missing, CMS will condition the broker and cannot accept the submission until the missing items are received.

Total Loan-to-Value (TLTV)

Under the rule, the LTV is now calculated based on the total loan amount and not the base loan amount, resulting in a higher TLTV when there is a funding fee. VA will no longer guaranty refinancing loans when the TLTV exceeds 100 percent; therefore, it may be necessary to reduce the loan amount to qualify or if the Veteran borrower chooses to close a loan in which the loan amount exceeds 100 percent of the reasonable value of the property, they must pay the amount which exceeds 100 percent of the property value at loan closing.

New TLTV Calculation: Divide the total loan amount (including VA funding fee, if applicable) by the reasonable value on the Notice-of-Value (NOV) of the property determined by the appraiser.
Net Tangible Benefit (NTB) Requirements

All cash-out refinance loans must pass NTB. The refinancing loan must satisfy at least one of the following:

  • Eliminate monthly mortgage insurance
  • Decrease the loan term
  • Decrease monthly (P&I) payments (changes from PITI to PI Only)
  • Reduce the interest rate
  • Maintain TLTV equal to or less than 90%
  • Refinance an interim construction loan
  • Increase monthly residual income
  • Refinance from an adjustable-rate loan to a fixed-rate loan

Fee Recoupment

Recoupment is only required on VA to VA Rate/Term refinance transactions.

Recoupment Calculation – Divide all fees, closing costs, expenses, and incurred costs (excluding taxes, escrow, insurance, and like assessments), by the reduction of the monthly principal and interest payment as a result of the refinance. If the loan being refinanced has been modified, the principal and interest reduction must be computed / compared to the modified principal and interest monthly payment.

Loan Seasoning

The rule does not affect existing loan seasoning requirements and all VA-guaranteed cash-out refinance loans must be seasoned for a period of time. The required seasoning is the later of:

  • The date that is 210 days after the date on which the first payment is made on the loan, and;
  • The date on which the sixth monthly payment is made on the loan

February Special – No Underwriting Fee + Same Day Turnaround

Special February Promotion

We have a sweetheart of a deal for you!

Carrington Mortgage Services, Wholesale Lending Division is offering to waive the underwriting fee on ALL Non-QM* submissions in the month of February. Whether you submit 1 or 100 loans, the underwriting fee ($650 in most states) will be waived.

In by 10 and out by 5**

For any full submission*** received in underwriting by 10 a.m., we will commit to have a same day turnaround and have a response to you by 5 p.m. How’s that for fast?
February is a short month, but with lower costs and faster service, the Carrington Team is committed to making February very successful for all.

Become an Approved Broker

Already an approved broker?

Login to brokerIQ


*Carrington Flexible Advantage (Non-QM) product requirements vary depending on the consumer’s credit grade, LTV, DTI, and FICO scores and may require reserves from 3 to 6 months. Ask your Account Executive for additional details and requirements. Not available in MA and ND. No cash out in TX.

**Submissions to our Westfield office should be completed by 10am Eastern Time; submissions to our Anaheim office should be completed by 10am Pacific Time.

***Please see the Carrington Advantage Products Loan Submission Form.

Inflation is not a threat

Last Week in Review: No rate hikes in 2019. Who wins?

Stocks continued to react positively to Fed Chair Powell’s Jan 4th speech, where he essentially said, “we have your back”…meaning that the Fed will be flexible and may not raise rates at all in 2019. 

There is an old saying in the financial markets – “don’t fight the Fed.” This means that if the Fed is saying or doing something (hinting no rate hikes) that helps Stocks, that theme will continue until the story changes. 

Typically, when stocks move higher, so do long-term rates, like home loans. And this past week, we saw the recent nice trend of lower rates get disrupted. 

Even though the recent trend of lower rates, the lowest since the Spring, is very much at risk – we should not expect long-term rates to move too high. Why? Inflation is not a threat. 

Fed President Bullard, also said he expects inflation to be near current levels for the next FIVE years. If that is the case, home loan rates will remain relatively attractive for longer than most expect. 

Apple helps home loan rates

Last Week in Review:
Apple, Congress negate solid jobs numbers

I-Phone maker, Apple, was a downer this week as the company announced a surprise weak sales and earnings forecast for the first quarter of 2019. 

Stocks and interest rates fell on the bad news, concerned that Apple, the first big tech firm to report weak growth in 2019, is the canary in the coalmine and that more companies will report weaker sales and earnings. 

Regardless of Apple’s current woes, the U.S. economy is still humming along as was evident in Friday’s Jobs Report which showed an eye-popping 312,000 jobs created in December. 

Adding to the good news in the Jobs Report was a 3.2% hike in wage gains year over year – the highest level in a decade. 

Remember, jobs buy houses, not rates, so the positive jobs numbers and wage growth are great for housing. 

But while we are on the subject of rates, the bad Apple news helped rates improve again this week to the lowest levels in nearly a year. 

Rates have been steadily improving since early November. What happened in early November? Congress became divided. Bonds and home loan rates love uncertainty, chaos, stalemates and bad news – Congress can provide plenty of it from time to time. 

Stocks Rally

Last Week in Review:
Headline Risk Highlights Christmas Week.

The financial markets had plenty to cheer about this week. On Wednesday, Stocks rallied a stunning 1,000+ points, enjoying their best one-day gain in history and then rallied over 800 points higher intraday on Thursday, erasing a huge midday loss. All in all, a great and welcome week in what was otherwise a miserable December for Stocks. 

Typically, higher stock prices mean higher home loan rates but that wasn’t the case this holiday week. Yes, Bonds moved slightly lower and home loan rates slightly higher in response to the swift Stock rally, but rates ended the week and head into 2019 near the best levels since spring. 

The high volatility in the markets is likely to continue well into 2019 as Stocks and Bonds continue to bounce around in response to the U.S. government shutdown, U.S./China tariffs, China slowdown, European issues and uncertainty around the Fed. 

Is this good news for home loan rates and housing? Inflation is in line with the Fed’s expectations and bond yields in other parts of the world remain low due to slower economic growth which means that home loan rates should remain relatively low for the foreseeable future.

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