BOOM – That's the sound of our closing cannon!
Is the next refi boom now…?
Here is why I think our closing cannons will be blazing soon!
For the first time since Thanksgiving week 2008 mortgage brokers and processors can or should see light at the end of the tunnel. Seriously, most mortgage loan officers thought that the waterfall of money was going to hit them in the face because of low rates last December! Instead, what happened, at the same moment new problems arrived! Lenders immediately feared that loans would be paid off early causing them to nearly yank yield spread premiums from most coupons on the rate sheets. Appraisals dropped like rocks along with the incomes and credit scores of borrower’s. Most importantly the lead-times of all lenders exploded… giving borrowers more time than ever to sit back and ponder the loan application they had in process (in other words they continued shopping!). As a result, lenders, brokers, processors worked and re-worked and often re-re-worked/submitted files. A month or two later, nearly the whole industry reported their highest ever fall-out for their careers.
So, why the all of a sudden do I show optimism for us?
Well, simply put: DU Refi Plus; Freddie Mac Streamline; and believe it or not, HVCC (yes, that’s right).
DU Refi plus and Freddie Mac streamline allow borrowers to refinance their loans without mortgage insurance up to 95% loan to value! Amazing! Internally, my company experienced brokers having a 29% fall-out rate for the same period of time (November through March) for loans with LTV’s exceeding 80%. Brokers, out of necessity, had us move files from one lender to the other because of the lenders cutting the borrower’s home values. We found that if we submitted and, often times, triple submitted the file, finally one lender would be “o.k.” with the original appraiser’s value. This escalated the issue of lengthy underwriting turn-times.
So, while loan officers, lenders, and processers toiled; loan applications changed hands for sixty days before any closed. With the on-set of Fannie and Freddie’s new programs there is no reason to pull a loan. All lenders offering DU Refi plus allow for loan to values to be up to 95% (some select lenders will go to 105%) without mortgage insurance providing the borrower did not originally have mortgage insurance on their loan. This program should be a waterfall of money for rate and term refi’s.
Now with all that said, the Home Valuation Code of Conduct (HVCC) “scare” could in reality be a little less scary if you consider a couple of potential positives. With the DU Refi Plus, you will now have 15% to 25% leeway on your appraisals when doing a rate and term refi! Better yet, when your customer commits to you and decides he or she wants to go with you he or she pays for the appraisal upfront and that appraisal (I’m told) is mostly non-transferable. This will hopefully discourage the borrower from shopping once he or she has paid $375 for their appraisal.
Only time will tell if these changes will help us all close more loans and satisfy more customer’s requests. As for me I’m very optimistic! See you next blog.