Fannie Mae Guidance on Federal Income Tax Repayment Plans

We’re officially in the midst of tax season (if you haven’t done yours already, consider this your reminder!), which magnifies the amount of borrowers we encounter who owe back taxes to the IRS.

Owed taxes that aren’t paid can result in tax liens, which take superior position to mortgage liens – an item of great concern for lenders.

While Tax Liens will always need to be repaid before a borrower is eligible for a Conventional loan, per a recent change to the Fannie Mae Selling Guide borrowers who have entered into e repayment plan are eligible under the following conditions:

When a borrower has entered into an installment agreement with the IRS to repay delinquent federal income taxes, the lender may include the monthly payment amount as part of the borrower’s monthly debt obligations (in lieu of requiring payment in full) if:

  • There is no indication that a Notice of Federal Tax Lien has been filed against the borrower in the county in which the subject property is located.
  • The lender obtains the following documentation:
    • an approved IRS installment agreement with the terms of repayment, including the monthly payment amount and total amount due; and
    • evidence the borrower is current on the payments associated with the tax installment plan. Acceptable evidence includes the most recent payment reminder from the IRS, reflecting the last payment amount and date and the next payment amount owed and due date. At least one payment must have been made prior to closing.

Note: The payments on a federal income tax installment agreement can be excluded from the borrower’s DTI ratio if the agreement meets the Fannie Mae terms for Debts Paid by Others, or Installment Debt.

DID YOU KNOW? Fannie Mae Pending Sale Option

(this has been around for awhile)

Purchase transactions can be made difficult when the borrower retains or plans to sell their departing residence, but will not be rented or sold prior to closing.

For this reason, Fannie Mae provides an opportunity to omit the liability from the vacated property, as outlined below:

If the borrower’s current principal residence is pending sale, but the transaction will not close with title transfer to the new owner prior to the subject transaction, and the borrower is purchasing a new principal residence, the current PITIA and the proposed PITIA must be used in qualifying the borrower for the new mortgage loan…

However, Fannie Mae will not require the current principal residence’s PITIA to be used in qualifying the borrower as long as the following documentation is provided:

  • the executed sales contract for the current residence, and
  • confirmation that any financing contingencies have been cleared.

Hopefully, when you really need a purchase to close and can’t due to the PITIA debt on their current residence in escrow, and they don’t have to have that cash to close, or can creatively get it (legally, and per guidelines 🙂 somewhere else, then this option foots the bill!

Have a great weekend!

Don

Condo Buyer’s Guide: What you need to know when buying a condo.

Happy Friday! The OC Fair begins…

Please see attached a great brochure to hand out to prospective clients related to buying a condo or townhome. If a first-time buyer, or someone downsizing, this brochure could say a lot about it for you. Attach your card and mail or just e-mail it.  Click here to download a copy.

Keep your eyes peeled for a big announcement in the near future on a new strategy to “wake up” the public and start talking about and wanting to buy real estate! This will rock your boat! (in a good way) 🙂

All the best,

Don

Cancelling Private Mortgage Insurance

Happy Friday and Fourth of July!

Please see attached a great chart on Conventional Mortgage Insurance Cancellation. Feel free to use this in an update to clients and prospects or in any newsletter.  Or, your client can simply call me for the information over the phone.  🙂

Be safe!

Don

Mortgage Rules Eased Again

Happy Friday Again!  Mortgage rules easing again! Debt to Income (DTI) Ratios expanding.

July 29th, this rule takes affect for Fannie Mae.  Freddie Mac and Fannie Mae more recently have allowed this case by case with enough compensating factors, but often loans would not receive that enviable “approve/eligible” finding.  Now, it appears we will see many more approvals possible.  Often there is income in a family that can not be counted according to the rules, cash, short term bonuses, short term overtime, 2nd job that does not have two years history or other famiy member income where they are not going on the loan, etc.  So this can make a lot of sense after a 2nd look.  🙂

The maximum allowable debt-to-income ratio (DTI) in DU will be adjusted in DU Version 10.1. Under the adjustment, DU will consider applications with a maximum DTI of 50%. For DTIs above 45% and up to 50%, DU will no longer require certain additional compensating factors. 

All the best on this great Friday!

Don

Mortgage Rules Eased

Refinancing with Cash Out to Pay Off Student Loans

Formerly paying off debt, including Edu loans or Equity Lines of Credit, etc. via refinancing your home and using some of your equity was considered a “cash out” transaction and depending on the amount of remaining equity and credit score, increased your interest rate and/or your costs of the loan.  Recently Fannie Mae issued a bulletin that they would no longer consider paying off a “student loan” a “cash out” transaction.  This is huge.  I am not holding my breath on Equity Lines of Credit receiving the same treatment, but at least the fox guarding the student loan hen house has provided some respite.  If you have a client or family member buried in student loans, please call me right away to discuss.  Like many rule changes, they have a tendency to change the other direction as soon as the markets change again. [Read more…]

Fannie Mae & Collections – Good News

Happy Friday!  DID YOU KNOW? 

Fannie Mae – A Good Option for Open Collections

FHA loans generally don’t require open collection accounts to be paid, but they will in most cases require that a payment is calculated based on the balance of the unpaid collection account. Needless to say, FHA’s method of qualifying borrower’s with collections can become problematic.

Fannie Mae, on the other hand, makes qualifying with collections easy (at least when the subject property is a 1-unit!). Please take a look at the Fannie Mae guidance below for  reminder on how to approach unpaid collection accounts:

When the subject property is a 1-unit Principal Residence: Borrowers are not required to pay off any outstanding collections or non-mortgage charge-offs regardless of the amount, unless specified in the DU findings.

When the subject property is a 2–4 unit Owner-Occupied Primary Residence or Second Home: Collections and non-mortgage charge-offs that total more than $5,000 must be paid in full prior to or at closing.

When the subject property is an Investment Property: individual collection and non-mortgage charge-off accounts greater than or equal to $250 and accounts that total more than $1,000 must be paid in full prior to or at closing.

All the best,

Don

Mortgage Market Weekly – Update Feb 2, 2015

In This Issue

Last Week in Review: GDP and Durable Goods Orders disappointed, home price gains have returned to more normal levels, and the labor sector still shows signs of improvement.Forecast for the Week: The week is busy from start to finish, with key news on inflation, manufacturing and jobs.

View: Do you know what words you should avoid using on LinkedIn?

Last Week in Review 

[Read more…]

Mortgage Market Weekly – Update Jan 5, 2015

In This Issue…

Last Week in Review: The U.S. economy had a strong third quarter, while recent housing reports show signs of slowing in that sector.

Forecast for the Week: On Friday, the Jobs Report for December could be a market mover.

View: If you received new electronics over the holidays, see the tips below for selling, recycling or donating your old gadgets.

Last Week in Review 

“It’s a new dawn, it’s a new day…and I’m feeling good.” Nina Simone. The new year is here, and with home loan rates still near historic lows, 2015 rang in with plenty for consumers to feel good about. Here are some other highlights from the end of 2014.

existing-home-sales-2015-01-05 The final reading for Gross Domestic Product (GDP) for the third quarter of 2014 came in at a blistering 5.0 percent, the fastest pace of economic growth since the third quarter of 2003. The big gains were led by a surge in both consumer and business spending. GDP is considered the broadest measure of economic activity, so this is a strong sign for our economy heading into the new year.

In housing news, the October S&P/Case-Shiller Home Price Index came in at an annual rate of 4.5 percent, down from the 4.8 percent recorded in September. The October reading was the eleventh straight month of decelerating price gains. It was also the smallest annual gain since October 2012, as price gains return to more normal levels. Also of note, sales of new and existing homes fell in November as well. The housing market continues to remain in a somewhat choppy trend, despite an improving economy and job market.

As we look ahead into 2015, the uncertainty in Europe will continue to rear its head over time. The European Union (EU) is fighting deflation, recessionary pressures, a Greece exit from the EU, and limited political capital required for the necessary fixes. This could lead to safe haven trading in our bond market, helping Mortgage Bonds and home loan rates (which are tied to Mortgage Bonds) in the process.

The bottom line is that home loan rates remain near historic lows, and now is a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

[Read more…]

Government Shutdown and Lending

Before my comments, this is what you may see for a while in the news:

obamayikes

It appears that loan applications will continue on, rates will still be locked, appraisals ordered and loans underwritten.  However, that “4506 transcript” from the IRS will still be required by all lenders I have researched at this point, but instead of at the origin of underwriting, will be required as a funding condition, at least by lenders who are putting their customers first.

I requested several years ago that my personal staff and underwriter NEVER hold up a file over a 4506 transcript. Either the file is a viable file or not at origination and holding it up for a transcript is an insult to your clients, both borrowers and Realtors. So, the only question mark here is how long it will be before that part of the government is operational so loans can actually close. Well, there is one other question….or two, or three…..if we as a people become more and more dependent on the government, e.g. turning over more and more of our independence…..Health Care, retirement, housing, to name only a few, how does this not teach us a lesson about worse things to come?  Does it not make sense to furlough all politicians for about 9 months out of the year, so they only have 3 months a year to wreak havoc on the American public?  Notwithstanding the few who are really looking out for us and our kids and grandkids future, the rest of the lot should get real jobs, paying taxes, and living under everything they have handed down for decades. NO exemptions or special health care or special retirement packages.  Statesmen are what we need, God fearing not ballot box fearing!

Here are a few additional remarks I have pulled from Rob Chrisman’s Leadership Report.

“…..the IRS staff is also staying in bed today, and lenders are telling staff that it is doubtful that Tax Transcripts can be obtained and therefore they can process and underwrite loans without the Tax Transcripts but will not be able to close or fund until the Tax Transcripts have been obtained.”

stress350“Does anyone know whether FNMA is offering relief on validation of tax returns since the IRS is not validating returns during the shutdown?” Fannie just issued a new selling guide announcement. It provides details on a number of underwriting considerations for lenders with regard to the shutdown. It is posted on www.fanniemae.com. The mortgage market, including Fannie Mae and Freddie Mac, should not be affected by the government shutdown, SIFMA Managing Director Chris Killian said. “Fannie and Freddie should be unaffected by the government shutdown (Freddie Mac went so far as to issue a client update stating this), Ginnie Mae informs us that their [mortgage-backed securities] and Multiclass Securities Programs and operations continue uninterrupted, and [the Federal Housing Administration] appears to be able to endorse loans,” Killian said. “However, SIFMA urges Congress to come to a resolution as soon as possible.”

More to come…