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

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.
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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 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.

Last Week in Review: Why home loan rates will stay low
The Fed met this past week. As expected, they didn't hike rates and the Fed Statement was very dovish, suggesting that rate hikes will be off the table for most, if not all, of 2019.
The Fed looked to muted inflation and slowing economies abroad as reasons to show patience in hiking rates further.
In response, home loan rates revisited the best levels of 2019 this past week.
This new position by the Fed is a complete departure from where they were just a few months ago, when Fed Chair Powell was forecasting 3 rate hikes this year.
People owning Stocks are feeling wealthier as shares hit a multi-month high this week after rallying 14% since Christmas. This is good for housing.
Job creations and wage growth are also fundamental to a healthy housing market and last week's terrific Jobs Report showed steady growth in both.
More good news -- the Mortgage Bankers Association just released a forecast suggesting that 30-year mortgage rates will remain below 5.00% through 2020!!!

Last Week in Review: Rates touch 2019 highs this week
Despite bond friendly news with the unresolved US/China trade relations and the ongoing government shutdown, rates actually touched 2019 highs midweek...this as stocks continue to move higher.
Home loan rates have been on the rise ever since the last Jobs Report and Fed Speech back on Friday Jan 4th -- next week we are seeing another Jobs Report and Fed Meeting...more on those big events below.
The Housing market showed a surprising decline in Existing Home Sales in December. Despite the poor reading to finish the year, 2019 is setting up to be a good year. Historically low home rates, a slowing rate of home price increases along with the highest wage gains in a decade will see to that.

Last Week in Review:
Stocks continue their winning ways.
Home loan rates finished this week near unchanged and remain near 9-month lows -- so we have that going for us.
Most of the week's news was pretty bond friendly, including Brexit uncertainty, ongoing Government shutdown, ongoing US/China trade dispute, low inflation and more.
So why haven't rates improved further with these bond-friendly tailwinds?
The first Friday of 2019 was the day things changed for the Bond Market when a blockbuster Jobs Report and overly dovish Fed Chair Powell speech were delivered, which has helped Stocks move steadily higher at the expense of Bonds.
Here's an important word to consider as we head into the Spring home buying season and that's disinflation, which means a slowing growth rate of inflation. We are seeing signs of this today and if the trend continues, home loan rates will benefit as 2019 progresses.

You Asked … We Answered! With Expanded Carrington Flexible Advantage^SM Guidelines so you can expand your business!

Carrington Mortgage Services, LLC (CMS) is pleased to announce the below guideline changes for the Investor Advantage, Carrington Flexible Advantage and Carrington Flexible Advantage Plus products.

Guideline Improvements

• Updated the Maximum DTI from 43% to 50% on 12-month bank statements and 1-Year Alt Doc types for Carrington Flexible Advantage and Carrington Flexible Advantage Plus
• Reduced the 6 month reserve requirement to 3 months for $1M+ on Carrington Flexible Advantage
• Reduced the 12 month reserve requirement to 6 months for $1.5M+ on Carrington Flexible Advantage Plus
• Increased the maximum loan size to $3M for Carrington Flexible Advantage Plus
• Reduced the minimum Debt Coverage Ratio (DCR) to 0.75 from 1.00 for Investor Advantage

Pricing Improvements

• To coincide with the guideline changes described above we’ve also enacted the following pricing changes:
• Carrington Flexible Advantage and Carrington Flexible Advantage Plus: 12-month bank statement pricing adjustment is eliminated and there is no longer a separate add-on to 24-month pricing. 24-month bank statement gets a price improvement with a 12.5% price improvement!
• Carrington Flexible Advantage Plus: Loan size maximum increase to $3M with additional pricing adjustments for the $2-$3M range.
• Investor Advantage: Debt Coverage Ratio (DCR) pricing down to 0.75 DCR down from minimum DCR of 1.00 along with new pricing tiers that are more favorable.

NOTE: Loans already locked will not be impacted by these price changes.

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. 

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. 

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.

Last Week in Review:
Spring rates revisited.

It was all about the Fed this past week. On Wednesday, they hiked the Fed Funds Rate by 25 basis points (0.25 percent). That rate affects short-term loans like auto and credit cards – what it doesn't affect are home loan rates. 

Home loan rates actually improved to the best levels since April. Why? 

The Fed Statement suggested that inflation is moderating and remains beneath the Fed's target of 2 percent year over year.

If Inflation remains low, long term rates - like mortgages, will also remain relatively low. 

Also helping home loan rates improve was a big sell-off in Stocks. The Stock market hated the Fed Monetary Policy Statement which suggested more hikes next year, despite acknowledging low inflation and slowing economic conditions around the globe. 

Stocks don't like Fed rate hikes as they weigh on economic growth due to added costs of financing. 

Bottom line - home loan rates moved nicely lower this past week representing the best time since spring to either purchase or refinance a home.