Conventional Conforming Program Changes, Are Loan Limits As Important As They Once Were?

By rchrisman@robchrisman.com

FHFA announced that the 2017 conforming loan limit for mortgages acquired by Fannie Mae and Freddie Mac will be increased nationwide from $417,000 to $424,100. The FHFA said its own home-price index (HPI), which it uses to set loan limits, showed values rising 6.1 percent in the third quarter from a year earlier. (Recall that the Housing and Economic Recovery Act of 2008 (HERA) set the baseline loan limit at that existing level for one to four family houses in most of the U.S. and required it be adjusted each year to reflect any changes in the national average home price. When prices continued to decline HERA also made clear that the baseline could not be adjusted upward until the average U.S. home price returned to its pre-decline level.)

 The increases in the conforming loan limits could make it much easier and cheaper for some first-time homebuyers to enter the market, as the down payment and credit requirements for government-backed mortgages are often looser than those of jumbos. The increase could bring a negative reaction from some Republicans who say the government should have a smaller footprint in the mortgage market.

 FHFA reported on Wednesday that its third quarter House Price Index (HPI) is now 1.7 percent higher than in the third quarter of 2007 and the agency has raised conforming loan limits by 1.7 percent to $424,100. The new loan limits are effective January 1, 2017.

 For those along the coasts, and a couple spots in-between, FHFA designates as so-called high-cost areas, markets where 115 percent of the local median home value exceeds the baseline loan limit.  HERA sets the maximum loan limit as a function of the area median home value with a ceiling on the limit of 150 percent of the baseline limit. Under this formula, the new limit for the highest cost areas will have a ceiling of $636,150 in 2017. Other counties will have limits below that amount, but higher than the new baseline. FHFA said as a result of generally rising home values, the increase in baseline loan limit, and the rise in the ceiling loan limit, the maximum loan limit rose in all but 87 counties (or county equivalents) in the country.

 (There are additional separate calculations for Alaska, Hawaii, Guam, and the U.S. Virgin Islands for one-unit properties with additional exceptions for some especially high cost specific locations.)

 Does it mean as much as it used to? I received this note from an ex-Agency officer. "Rob, in the past the conforming loan limits were used as a benchmark for the industry. They still are. But the weight the limit carries has become more symbolic than practical. The limits have no bearing on non-QM loans, portfolio product, or on any non-agency products. Pools allow up to 10% of super-conforming/high balance conforming loans. In fact, in many areas the rates on "jumbo" loans are less than Fannie & Freddie loans. Why? With jumbo loans, there is no ~50 basis point guarantee fee, which many feel is over-charging borrowers and lenders for the risk on current production - portfolio lenders are financially valuing the perceived risk lower than the Agencies want to earn on their gfees. The loan limits are a convenient way for lenders to measure home values, but their importance has diminished."

Lenders and investors far & wide continue to adjust their conforming conventional offerings.

 Wells Fargo updated its LTV/TLTV/CLTV matrix for Prior Approval Loans to reflect Fannie Mae's 90% maximum LTV for purchase and "No Cash-Out" Refinance ARM Loans secured by primary residence cooperatives.  Wells has removed its overlay related to real estate commissions totaling more than 8% of the sales price on conventional Conforming, Non-Conforming, and Guaranteed Rural Housing (GRH) Loans. Wells also announced it has expanded its identity of interest policy for Non-Conforming Loans by removing the requirement for a Generic VECTORTM automated valuation model (AVM) or field review.

 Wells announced changes to its Preferred Payment Plan (PPP) which offers borrowers a .250% interest rate reduction on their loan when their payment is automatically withdrawn (also known as ACH) from a Wells Fargo checking or savings account. The new policy allows borrowers to select a financial institution of their choice for the automatic payment withdrawals.

 Sellers can now Register/Lock Fannie Mae HomeReady Loans combined with Fannie Mae's high balance mortgage loan amounts on wellsfargofunding.com. A call to Priceline is no longer required. Also, Wells has consolidated its subordinate financing guidelines for Non-Conforming Loans within Section 825.09: Credit - Long-Term Debt in its Seller Guide for ease of use.

 Fannie Mae servicers are reminded, as they complete their principal reduction modifications, to reference the eligible campaign codes listed on page 10 of the Principal Reduction job aid. The campaign codes listed, in addition to the campaigns codes specific to the principal reduction program, are the only campaign codes eligible for Principal Reduction - Case Two submissions.

 NationStar's Correspondent Seller guide has been updated.

 Effective for new casefiles created in DU 10.0 on or after December 10 purchase transactions will no longer be eligible for Property Inspection Waivers (PIW) for Pacific Union Financial correspondents. Casefiles created in Desktop Underwriter 10.0 prior to December 10 and resubmitted to DU on or after the Fannie Mae update are eligible to proceed with the PIW provided the purchase transaction meets all PIW requirements, an appraisal has not been obtained for the transaction, and the final Desktop Underwriter submission reflects PIW eligibility. The Correspondent is responsible for ensuring that the Property Inspection Waiver (PIW) is eligible, per applicable state law. If not eligible, a full appraisal is required.

 Mortgage Solutions Financial is now offering the FHLMC Home Possible program.

 Parkside Lending is integrating with Fannie Mae's DU validation service that will verify employment, income, assets and estimated property value electronically! "This new service will save you and you borrowers the time you'd otherwise spend collecting bank statements, tax returns, pay stubs and scheduling appraisals - and enable quicker loan decisions. Look for this option to be available after Fannie Mae's update of DU 10.0 during the weekend of December 10."

 

For all conforming DU approved loans, PennyMac will be aligning with the updates announced in Fannie Mae SEL 2016-08.

 loanDepot's Wholesale division now offers a new low down payment option to its broker partners: Fannie Mae HomeReady Mortgage.

 On December 10, lenders will receive Fannie Mae's Day 1 Certainty with freedom from representations and warranties on property value for eligible loans with a Collateral Underwriter risk score of 2.5 or lower on the appraisal. Follow these steps to gain Day 1 Certainty on appraised value.

 While the income validation component of Fannie Mae's Day 1 Certainty initiative is available to lenders, the other components (asset, employment, PIW and CU relief) are not being launched until December 10^th. As they become available from Fannie Mae, M&T Bank will purchase loans from Correspondent lenders who engage in the Day 1 components, obtaining the various rep & warrant relief.

 Effective December 1 Mountain West Financial will no longer entertain Investment Purchase Transactions to First Time Homebuyers. In addition, effective 12-2-2016 the following changes to the Sapphire program will be implemented: 640 minimum FICO score, 45%+ debt-to-income (DTI) ratio requires two month reserves, 700 FICO score required for 50%+ DTI and 50% DTI requires two-month reserves. MWF has also suspended the Mountain Combo product until further notice.

 Mortgage Solutions Financial has made changes to its loan level price adjustments.

 All lenders can now opt in to Fannie Mae's Desktop Underwriter (DU) validation service. The DU validation service is currently available for the upfront validation of income and will be expanded on December 10 to include the validation of employment and assets.

 REI Oklahoma, which works with various lenders about down payment assistance programs, announced that it's adding the Freddie Mac HFA Advantage mortgage to its current list of offerings. The HFA Advantage mortgage goes up to 97 percent loan-to-value. In addition, REI Oklahoma offers 3.5% or 5.0% down payment assistance in the form of a gift to qualified homebuyers. Learn more about REI Down Payment Assistance, income limits and guidelines, and find a lender in your area.  Interested lenders should contact Dena Sherrill at 800.658.2823.

 While we're on agency stuff, Sun West Mortgage Company has published guidance on acceptability of properties with outstanding Property Assessed Clean Energy (PACE) or HERO programs. The guidance is available in General Requirement section in Underwriting Guide for Forward Mortgage, both wholesale and correspondent.

 Shifting to the capital markets, since all these F&F loans end up there anyway, in Wednesday's trading session treasury prices fell causing rates to move higher as a reading on US manufacturing demand (Durable Goods) was significantly higher than forecast. The 10-year's ended Wednesday at 2.35%. And on Friday U.S. Treasuries were nearly unchanged despite stocks hitting all-time highs; the 10-year ended the week yielding 2.36%.