Last week, Fannie Mae started a new program called Refi Now to help low-income borrowers with high debt qualify for a mortgage.
The standard for well-qualified borrowers is that debt should not exceed 50% of their income. According to Refi Now, qualifying debt/income ratios rise to an astronomical 65 percent.
OK. Fair. But how about cutting a break for high-debt self-employed borrowers?
It seems the answer for them is Refi Never.
The draconian Fannie Mae (and Freddie Mac) COVID-19 self-employment subscription restrictions implemented exactly a year ago still exist today.
COVID’s focus became its entire business then and now.
In addition to providing at least one-year business tax returns, borrowers were required to provide interim financial statements.
Year-to-date profit and loss statements had to keep pace with the previous year’s revenue. Underwriters assumed that year-to-date revenue declines indicated that borrowers’ businesses were failing. Deny credit now. Abort.
The new rules have eliminated the prospect of getting cheaper mortgages for many.
For example, my store turned down about half of the self-employed borrowers because they couldn’t qualify for a loan. Yes, half.
Year-to-date profit and loss statements have become an underwriting obsession. Some lenders did not allow for a drop in income. Others said there is no data with a drop of more than 10%. And at least one lender I know allows for a reduction of up to 25%, as long as the borrower still qualifies with the revenue reduction.
Worthy buyout and refinance borrowers who wanted cheap Fannie and Freddie rates were also required to guide their mortgage loan originators through the granular details of business bank statements that matched their P&L. What better truth serum for Fannie and Freddie than something bordering on a forensic audit?
Autonomous candidates were offended by the scrutiny. It was like a search for the financial cavity. But they stuck it out because they wanted the lowest mortgage rates in modern history.
Others just said no. Some expressed their anger in unacceptable words to provide you.
How else could creditors decipher the financially strong candidates from the weak? Better safe than sorry in the eyes of F&F.
Yes, many companies went bankrupt, burned and closed. But many survived and prospered through good fortune or government support, such as the PPP program.
Bankruptcy attorney Richard Golubow of Winthrop, Golubow and Hollander pointed out that less gross revenue can still translate into more profits due to less travel, reduced office overhead and no entertainment expenses during COVID.
“People worked harder,” said Golubow.
Business bankruptcy filings are down. The US saw both Chapter 11 and Chapter 13 corporate bankruptcy filings decrease by about 19% in 2020 from the previous year, according to Epiq AACER Bankruptcy Information Services. In the year, 2,021 registrations fell more than 30%.
BK’s California business figures are down about 40% in 2020, with records down another 10% this year so far, Epiq AACER figures show.
As of this week, mortgage tolerances have dropped to 4.16%, according to the Mortgage Bankers Association. The tolerance numbers were 8.55% a year ago.
More than 14 million borrowers could save an average of $283 a month by refinancing, according to mortgage data firm Black Knight. California has nearly 1.9 million of these applicants who could save an average of $386 a month. Los Angeles, Orange, Riverside and San Bernardino counties have 952,000 borrowers who are ready to refinance.
How many self-employed borrowers Fannie and Freddie could help?
Officials at the Federal Housing Finance Agency mortgage regulator could not be reached to comment on whether Fan and Fred will revert to pre-COVID self-employment underwriting rules.
Freddie Mac evaluates news: The 30-year fixed rate averaged 2.96%, 3 basis points lower than last week. The 15-year fixed rate averaged 2.23%, 4 basis points below the previous week.
The Mortgage Bankers Association reported a 3.1% decrease in the volume of mortgage applications from the previous week.
Conclusion: Assuming a borrower gets the 30-year average fixed rate on a conforming loan of $548,250, last year’s payment was $74 more than this week’s payment of $2,300.
What I see: Locally, well-qualified borrowers can obtain the following fixed rate mortgages at a cost of 1 point: A 30-year FHA at 2.25%, a 15-year conventional at 1.99%, a 30-year conventional at 2.625% , a 15-year high conventional balance ($548,251 to $822,375) at 2.125%, a 30-year high conventional balance at 2.75% and a large 30-year balance set at 2.75%.
Attractive Loan of the Week: A 30-year term set at 3% free of charge.
Jeff Lazerson is a mortgage broker. He can be contacted at 949-334-2424 or email@example.com. his website is www.mortgagegrader.com.