The Carrington Mortgage Services, LLC – Wholesale Lending Division Lock Desk will be closed on Monday, September 2, 2019 for Labor Day, which is a Federal Holiday. Normal lock hours will resume on Tuesday, September 3, 2019.
Additionally, the Lock Desk will close early on Friday, August 30, 2019 at 11:00 A.M. PST due to the early close of the financial markets.
Locks that expire on the holiday will automatically roll to the next business day. In addition, there are some important disclosure considerations associated with the holiday:
- Monday, September 2, 2019 cannot be included in the rescission period for refinance transactions.
- Monday, September 2, 2019 cannot be included in the seven (7) business day waiting period between the date the initial Loan Estimate (LE) was provided to the borrower and the consummation of the loan
- When re-disclosure of the LE is required, Monday, September 2, 2019 cannot be included in the four (4) business day waiting period between the date the revised LE was provided to the borrower and the consummation of the loan.
- When re-disclosure of the CD is required, Monday, September 2, 2019 cannot be included in the three (3) business day waiting period between the date the revised CD was provided to the borrower and the consummation of the loan.
Issues related to locks should be sent via email to firstname.lastname@example.org.
Last Week in Review: Yield Curve Inversion Discussion
This past week we watched Bond yields/interest rates decline around the globe on rising fears of a global recession.
It’s worth noting that home loan rates did not partake in the declining interest rate party this week as the Treasury market, not the Mortgage Backed Security market, received the majority of investment dollars.
A recession is defined as two consecutive quarters of negative growth, so when Germany reported its economy shrank or contracted, financial markets were spooked and investors fled into the safe haven of the U.S. dollar and U.S. denominated assets like Treasuries.
The flood of capital into the U.S. caused our 10-year Note yield to drop sharply and beneath that of the 2-year Note yield, causing a yield curve inversion for the first time since 2007… right before the global financial crisis.
History has shown that each time the 10-year yield moved beneath the 2-year yield in the last 50 years, a U.S. recession followed sometime in the next 22 months.
So, is the U.S. headed for a recession? Maybe, and the chances increase everyday as the U.S. economy is in the midst of the longest economic expansion (without a recession) in our nation’s history.
Could the yield curve inversion be a false signal this time around? Also, a maybe.
With term premium or the added yield investors demand to park their money in long-term Bonds declining for over 30 years, it’s more likely to see yield curve inversions today. And with global yields collectively at 120-year lows and negative around much of the globe, money is literally pouring into our Treasury market as our anemic 1.59% 10-year yield is relatively attractive.
The chance of a recession in 2020 has climbed to about 30%. It will be interesting to see what happens with a couple of Fed rate cuts before 2019 ends.
A U.S./China trade deal, while not likely soon, would go a long way to help lift uncertainties and help many global economies possibly avoid recession.
Bottom line: the risk of recession has risen, but we are not seeing a recession in the cards at the moment. Being the cleanest shirt in the laundry, the U.S. is attracting investment dollars in droves and helping cause an inversion. Home loan rates have not declined further as the gains in the Bond market have been limited to the Treasury market. So if you are in the market to either buy a home or refinance, today is a great day to do so.
As a reminder, the maximum loan-to-value (LTV) and combined loan-to-value (CLTV) percentages will be reduced from 85% to 80% for all FHA cash-out refinance mortgages with case numbers assigned on or after September 1, 2019.
For borrowers seeking to combine a first and second lien, the maximum CLTV ratio for an FHA Rate and Term refinance is 97.75%. Rate and Term refinance transactions may include the unpaid principal balance of any purchase money junior mortgage as of the month prior to mortgage Disbursement, and the unpaid principal balance of any junior liens over 12 months old as of the date of mortgage Disbursement. If the balance or any portion of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the property, that portion above and beyond $1,000 of the line of credit is not eligible for inclusion in a Rate and Term refinance.
Please note: for open-end lines of credit CMS must utilize the maximum accessible credit limit of the subordinate lien to calculate the CLTV ratio.
Borrowers can also obtain higher LTVs through a Rate and Term refinance that meet the following seasoning requirements:
|Property acquired 12 months or more at case number assignment||
|Property acquired less than 12 months at case number assignment||
The Veteran’s Administration (VA) published Circular 26-19-22 on August 8, 2019. The Circular is effective immediately and clarifies the Recoupment, NTB, Appraisal, Seasoning Requirements (for all Refinances including Cash-out), and Loan Comparison Statement requirements for all VA IRRRLs. All previous Circulars pertaining to VA IRRRLs are superseded by this new Circular. The Circular is effective immediately.
This Circular impacts all active loans and new loans submitted to Carrington Mortgage Services. The VA has made these changes effective immediately for all IRRRLs:
- All IRRRLs must meet the 36 month Recoupment requirement regardless of term reduction or Loan Term chosen. The VA funding fee is not included in fees for recoupment calculation.
- Fixed-to-Fixed refinances require at least 50 basis points (0.50%) rate reduction from the prior loan’s current interest rate.
- ARM-to-Fixed refinances do not require a rate reduction. If the P&I payment is increasing from prior loan, the veteran cannot be charged any closing costs. The VA Funding fee may be charged.
- Appraisals are no longer required for CMS IRRRL transactions. Appraisal is only required on Fixed-to-ARM, which CMS does not offer, when discount points are charged.
- Loan seasoning requirement is 6 consecutive monthly payments and closing date (note date) is at least 210 days form the 1st payment due date of the loan being refinanced. Sourcing the date the initial payment was made on the prior loan is no longer required. The seasoning requirements apply to VA IRRRL and VA Cashout transactions.
IMPORTANT: All loans in process, regardless of submission date, must meet these requirements.
Below is a chart that summarizes the requirements for VA IRRRLS:
|Loan Type||36 Month Recoupment||NTB Rate Reduction||Loan Seasoning||NTB – Loan Comparison Statement||Appraisal|
|Fixed-to-Fixed||Yes||Yes – 50bps||Yes||Yes|
|Fixed-to-ARM**||Yes||Yes – 200bps||Yes||Yes||Yes*|
*only if Discount points charged
**CMS does not offer ARM loans at this time.
Requirements for VA IRRRL Loans
IRRRL requirements are now determined by Loan Amortization Type of the refinanced and new loan and payment increase or decrease of the old loan vs. the new loan. Term reduction is not a valid Net Tangible Benefit and should not be considered when determining Recoup or rate reduction requirements.
- Applies to ALL IRRRLs including loans in which:
- principal balance is increasing
- term is decreasing
- refinanced loan is an ARM
- If P&I payment is declining, recoupment of closing costs (excluding taxes, escrow and VA funding fee) cannot exceed 36 months from loan closing.
- If P&I payment is increasing, the veteran cannot be charged any fees other than taxes, escrow and VA funding fee.
- For Guaranty purposes recoupment is calculated by dividing all fees, expenses, and closing costs, whether included in the loan or paid outside of closing (i.e., an appraisal fee), by the reduction of the monthly P&I payment, which is calculated off the base loan amount excluding the VA Funding fee. The VA Funding fee, escrow, and prepaid expenses, such as, insurance, taxes, special assessments, and homeowners’ association (HOA) fees, are excluded from the recoupment calculations. Lender credit for interest rate chosen and any other lender credits reduce the qualifying closing costs for recoupment purposes. This calculation is different than the one shown on the Veteran Comparison Statement. All Loans must be underwritten to the Guaranty/Qualifying Calculation not the Veteran Comparison Statement Calculation.
Net Tangible Benefit (NTB)
- Fixed Rate to Fixed Rate IRRRLs — New interest rate must be at least 50 bps lower than rate on loan being refinanced
- ARM Rate to Fixed Rate IRRRLs do not require rate reduction
Appraisals are no longer required except on Fixed-to-ARM transactions with discount points, which CMS does not offer at this time.
Both of the following conditions must be met as of the date of loan closing:
- Closing Date (Note Date) of the new loan is at least 210 days after the first payment due date of the prior loan; AND
- Six consecutive monthly payments have been made on the loan being refinanced
Veteran IRRRL Comparison Disclosure and Recoupment Certification
- Initial Loan Comparison statement must be provided to veteran within 3 business days from initial application date. CMS will require borrower signed initial disclosure form prior to closing.
- The figures on the comparison statement may change as long as the final figures are delivered and acknowledged by the Veteran at closing.
- The Final Comparison statement will be provided to the veteran in the closing document package for Wholesale loans. Correspondent sellers should provide final borrower signed version with their purchase package.
- CMS does not require use of a particular form as long as the disclosure meets those requirements identified in the VA Circular.
- The recoupment calculation on the Veteran Comparison Statement differs from the Guaranty/Qualifying recoupment:
- Recoupment period in months includes all fees, expenses and closing costs including taxes, escrow and VA funding fee, whether included in loan or paid outside closing.
- Lender credit for interest rate chosen and any other lender credits reduce the qualifying closing costs for recoupment purposes.
- Monthly P&I payment on the comparison statement is calculated using total loan amount including any financed VA funding.
Last Week in Review: Thinking Like an Investor
This past week we watched home loan rates touch three-year lows as investors around the globe continue to seek the safe haven of the U.S. dollar.
Why are global investors moving money into the U.S. dollar and safe instruments like U.S. Bonds? Due to the lingering uncertainty behind the U.S./China trade dispute, global economies slowing, and central banks around the globe cutting interest rates.
All of this forces investors to search for yield in a world where many countries like Japan, Germany, Switzerland, and the like have negative interest rates, meaning investors who park their money in those countries receive no interest and a loss of principal. That’s a bad investment.
So, our 10-Year Note hit 1.59% this past week, which is a ridiculously low level, but when compared to other countries around the globe yielding negative interest rates, 1.59% looks pretty attractive. And that coupled with the relative strength of the U.S. dollar, thanks to our strong economy, is the reason why the U.S. continues to attract significant investment dollars from around the globe.
For us in the mortgage and real estate industry, we must understand that volatility is high and any glimpse of good news or a random tweet could change sentiment quickly to something more positive, which is bad for Bonds and interest rates.
Finally, as mentioned, the 10-year yield hit 1.59% before ticking back up into the 1.70s to finish the week. At the same time, the yield or interest you can receive by investing in the S&P 500 Stocks is 1.96%. At some point, investors and the financial markets start to question, if I am investing for 10 years, am I better off investing in stocks like Apple where I can receive a higher yield or interest payment than Treasuries, along with a better chance of price appreciation? When that time comes, a decline in home loan rates, which has been in place since November, will pause.
Last Week in Review: First Fed Rate Cut in 10 years
This past week the Federal Reserve (Fed) cut the Fed Funds Rate by .25% to 2.25%, the first rate cut in 10 years.
Many consumers are wondering why home loan rates haven’t declined by .25% in tandem with the Fed action. Let’s break down how a Fed rate cut affects different interest rates including home loan rates.
The Fed Funds Rate (FFR) is an overnight rate at which banks lend to each other. It affects short-term rates on things like home-equity loans, credit cards, and auto loans. And oh, by the way, savings deposit rates likely decline as well.
The FFR has no effect whatsoever on home loan rates. Home loan rates are driven by pricing and trading action in mortgage-backed securities (see chart below), which tend to ebb and flow with the direction of U.S. 10-Year Note.
The main driver for long-term rates, like mortgages, is inflation and inflation expectations. If inflation is forecasted to move higher, rates move higher. The opposite is also true.
Since last November and up until last Wednesday’s Fed rate cut, home loan rates have declined by over 1.00%, so home loan rates have already declined by a lot.
Another driver of long-term rates is uncertainty, and last Thursday we received a good dose upon a surprise announcement that the U.S. will institute a fresh 10% tariff on $300B worth of Chinese goods. In response, home loan rates touched the lowest levels in three years.
Bottom line: home loan rates are near three-year lows and thanks to low inflation, slowing growth around the globe, and the U.S./China trade war renewed, rates are likely to go lower still.
Last Week in Review: Indecision Ahead of Huge News Week
The U.S. Bond market traded in a tight sideways range, leaving home loan rates essentially at unchanged levels week over week. However, the technical picture reveals Bond market indecision as prices trade near the best levels of the year.
Why the indecision? The financial markets are bracing for a multitude of headline risk events in the upcoming week and traders are reluctant to place bets on the next market move in advance of the news. More on this in the forecast below.
The European Union continues to struggle economically. This past week Germany posted very weak economic numbers and manufacturing data, and as a result the European Central Bank said they are prepared to offer more stimulus to help their economies. The bad news in Europe pushed their Bond yields lower, and in turn helps push U.S. Bond yields and interest rates lower.
Here in the States, the U.S. remains the “cleanest shirt” in the laundry when compared to other global economies. This past week we saw strong Durable Goods Orders, which highlights the strength of the U.S. consumer, the shortest unemployment line in over 50 years, and strong corporate earnings reports.
Bottom line: the U.S. economy and housing market continues to bask in a Goldilocks situation — strong economy and labor market, high consumer confidence, low inflation, and low home loan rates. And if that were not enough, it is widely expected the Fed will cut rates for the first time in a decade — read on.
Last Week in Review: Summer Sideways Trend Continues
This past week had little economic data for the financial markets to react to. As a result, home loan rates have inched higher though they remain near multi-year lows.
It’s pretty easy to see the sideways trend in mortgage Bonds and the reason why home loans have stabilized since the beginning of June.
It is normal to see quiet sideways trading action in the summer months, especially with the U.S./China trade war punting into the future and the Fed about to cut rates at month’s end. Traders are more apt to sit on their hands and wait for the next directional move in the financial markets.
What should we expect next for home loan rates? Volatility. Long, boring and complacent sideways trading patterns like we are seeing in mortgage Bonds are typically followed by an increase in volatility, and a sharp breakout one way or the other.
How mortgage Bonds respond to the Fed Statement and rate cut on July 31 may very well determine the next directional move in home loan rates.
Bottom line: anyone looking to either refinance or purchase a home … being ready to lock in the next couple of weeks would be wise. A Fed rate cut doesn’t guarantee that home loan rates will move lower. In fact, ever since the probability of a Fed rate cut hit 100%, home loan rates ticked up a bit.
Carrington Mortgage Services, LLC (CMS) is pleased to announce effective Monday, July 15, 2019, the Carrington Advantage (Flexible Advantage/Advantage Plus and Investor Advantage) programs will offer a new Interest-only product option. Interest-Only loans offer borrowers lower monthly payments by allowing borrowers to pay only the interest during the 10 year interest-only period. Once the interest-only period ends, borrowers must begin making principal payments to pay off the debt.
The new Interest-only product has the following features:
- Terms Available: 5/1 ARM-IO, 7/1 ARM-IO, and 10/1 ARM-IO
- Doc Types: Full Doc, 1-Year Alt Doc, 12 or 24 Month Bank Statements
- 5/1 Caps = 2/2/5 (Initial cap at 2%; Interim cap at 2%; Life cap at 5%)
- 7/1 and 10/1 Caps = 5/2/5 (Initial cap at 5%; Interim cap at 2%; Life cap at 5%)
- Margin = 3.50% (Flexible Advantage Plus), 5.00% (Flexible Advantage)
and 6.00% (Investor Advantage)
- Floor = Start Rate
- Index = 1 Year LIBOR
Interest-only Qualifying Payment
Interest-only loans qualify using the fully amortized payment calculated over the fully amortizing period, based on the greater of the note rate or the fully indexed rate to determine qualifying PITIA. For example, a 30-year loan with a 10-year interest-only period would have a 20-year fully amortizing period (see guidelines for details).
- Loan Amount: $400,000
- Interest Rate: 5.75%, Full Indexed Rate 6.75%
- 5/1 IO ARM
- Principal and Interest to Qualify borrower = $3,041.46 (Fully Indexed Rate over 20 Year Amortization)
- Loan Amount: $250,000
- Interest Rate: 7.25%, Fully Indexed Rate 6.75%
- 7/1 IO ARM
- Principal and Interest to Qualify borrower = $1,975.94 (Interest Rate over 20 Year Amortization)
View the Guidelines here.
Please Note: All Interest-only Terms are amortized over 20 years for qualification and have an Interest-only period of 10 years regardless of the fixed period of the ARM.
Last Week in Review: Goldilocks Scenario for Housing Continues…
The housing market is enjoying a great 2019 and the good times are poised to continue. We are seeing home price gains slow to a healthier level and at an equilibrium with wage growth. Consumer and business confidence remain at multi-decade highs, unemployment rates are at 51-year lows, stocks are at all-time highs, and thanks to slowing economies abroad and low inflation … the Fed is expected to cut interest rates at the July FOMC meeting. Couple all of this great momentum with home loan rates just .50% above the best levels ever, and you have a Goldilocks housing scenario for the foreseeable future.
This is great news for those who are thinking about refinancing an existing property or purchasing a new home.