Avoid new regulations to take place May 1, 2011

If you are thinking of buying a property and obtaining a new loan or refinancing your present home, do it now!

"The mortgage market is facing pressures from new laws and regulations, still-declining home prices and the ongoing need for government-owned mortgage players to shore up their finances." states Karen Blumenthal of the Wall Street Journal. "The Mortgage Bankers Association predicts mortgage originations, which reached $3 trillion in 2005, will be less than $1 trillion this year, the lowest level since 1997."

Changes in Freddie Mac's guidelines could restrict key loan options for homeowners who may already face other challenges in refinancing. Freddie Mac and Fannie Mae are adding new fees beginning March 1^st and April 1^st, respectively.

So mortgage lenders will have to start complying with the new requirements very soon and they predict this will result in higher mortgage rates.

"The price of mortgage money is going to go up, and the availability of mortgage money may also be impinged," says Keith Gumbinger, vice president at HSH Associates, which tracks mortgage data.

HSH outlines the changes and guideline clarifications as follows:

• Streamlined refinances will be discontinued after April 30, 2011.
• Purchase mortgages can't be refinanced for 120 days after these changes take place.
• Energy improvement programs get clearer rules: Fannie Mae and Freddie Mac feel it is too risky to buy mortgages where local governments have liens on the properties for PACE improvements, Any new refinance loans must include paying off these loans.
• You can choose your own mortgage lender under Freddie Mac's underwater Relief Refinance Program as long as you requalify, get a full appraisal and the new loan is fully underwritten and approved through Freddie Macs automated system.
• Refinancing through your current mortgage service provider:  No requalification as long as the new payment is not more than a 20% increase. More than 20% requires a credit score higher than 620 and debt-to-income ratio no higher than 45 percent.

According to Blumenthal, new requirements from the Federal Housing Authority will also affect mortgage rates by raising the required annual mortgage-insurance premium for FHA loans by .25% of the loan value. This increase goes into effect on April 18^th. Also beginning April 18^th will be new rules changing how mortgage brokers are paid.

The new Consumer Financial Protection Bureau will begin looking into how interest rates and closing costs are disclosed to borrowers beginning in July.  This could result in new costs which consumers will likely pay.

"Earlier this month," writes Blumenthal, "the Obama administration proposed a wide-ranging overhaul of the mortgage market, including phasing out Fannie Mae and Freddie Mac, requiring a down payment of at least 10% and reducing the share of FHA loans, which are almost 30% of the market now, up from a historical market share of 10% to 15%."

To sum up, Blumenthal predicts that these changes will mean that more consumers will need jumbo loans whose rates are currently a half a percentage point higher than conventional loans.

Shop for the best mortgage rates and compare mortgage providers before starting the refinance process.  

Read more at WSJ.com.

photo credit: TheTruthAbout

Posted in Buyer Resources, Headlines

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