2014 Mortgage Changes

[Sam White]

Howdy BP members,

Introducing myself real quick: My name is Sam and I am a young investor. This is my first post in BP, although I have been a fly on the wall, observing for about a year.

I am looking to buy a duplex in the DFW. I have my financing lined up and I have had a few properties under contract, but backed out during options for various reason (found out one was on the edge of a sec. 8 neighborhood, and another paid all utilities for tenants).

Just this week, I found what I thought was the right investment for me. However, when I sent the contract over to my lender, he informed me that there were some changes coming from Fannie in 2014 that will make it more difficult to go with a conventional loan with 5% down on an owner occupant duplex.

So my question for the BP community is, what do you know about the changes coming in 2014 and what effects will it have on a young investor like me who wants to start with an owner occupied duplex?

-Sam

[Bill Gulley]

I'd say the banker is pulling your leg a bit, as the secondary market is practically a limited risk with quality originations, there aren't any specific program changes dictated by Dodd Frank but there are other things going on that make things tighter for lenders in compliance, underwriting, reserves and management.

As to Fannie and Freddie, 95% LTV won't go away but underwriting may be tougher. Any originator of a secondary market loan stands the risk of having to repurchase a bad loan, while they are insured the originator is not totally covered and they may see more of a reserve requirement to cover any loss, the originator may feel more comfortable at 90% where insurance coverage may be increased. There may be aspects of PMI or MIP changes as well, but it's not under any regulatory issue that I've seen.

It's going to vary from one lender to another how they look for profitability and manage risk in portfolio lending. I'm seeing a more aggressive stance from what is being claimed by members here on BP, such as cash out refis after 6 months, it must be in areas where property values are going back up at a faster rate in general.

On the conservative side, prudent lending practices will be stressed, meaning that a lender may not do so much of those "if it makes sense, we loan it" type deals, it may be tougher for a deal to make sense.

All in all, I doubt a qualified borrower will see much of a difference on the street as the new changes will be played out in the operations side of the lenders and their relationships between other lenders and securitized markets.

Actually there are more aggressive measures in making a loan, the debt to income for a residential loan has gone from 36% to 43% allowing borrowers to qualify with more debt! Another area I noticed was credit standings, giving leeway from the credit score approach to allow more judgment in credit issues. It's not that lenders are restricted so much in a lending decision as in meeting quality underwriting attitudes. Qualified borrowers should be fine. IMO :)