The Anna Maria Island Sun Newspaper

Vol. 17 No. 35 - June 14, 2017


Mortgage regulation updates


If you're in the market for a mortgage or a refinance, you need to keep your eye on the ball. Just one quick blink and something new could be affecting your search. It's true that mortgage rates are threating to tick up a little but so far, they remain around 4 percent depending on the day. But there are a few other recent changes that you should know about.

The first one that could have a real impact on retirees is a little-known change in underwriting rules that could qualify retirees to use their nest egg accounts for a mortgage or refinance. Freddie Mac, the government sponsored housing finance entity now allows lenders to consider retirement account assets to help retirees qualify when applying for a new mortgage or to refinance an existing one.

Assets that can be counted under these new rules include retirement accounts such as IRAs and 401ks.

"The borrower must be fully vested and the retirement assets must be in a retirement account that is immediately accessible," says Brad German, a spokesman for Freddie Mac. That means the money cannot be subject to an early withdrawal penalty and cannot currently be used for income. This last part could present a problem for retirees, who have already setup their IRA accounts to provide a regular income, however, there are many retirees who could still benefit from the change in underwriting rules.

If you qualify, the formula the lender follows is 70 percent of eligible assets less closing costs. The balance is then divided by 360 months, and the monthly installment is added to your monthly income to help you qualify for a mortgage. For example, if you have $1 million in eligible assets, $700,000 would be your number less $10,000 in closing costs, leaving $690,000. This number is divided by 360 giving you $1,917 a month to add to your other retirement income, which will include Social Security and any other dividend income. You would still need at least 30 percent down payment and a good credit score.

Another new aspect to mortgage lending is the decision by the three major credit reporting firms to remove some tax liens and civil judgements off people's credit reports starting in July. The result of this would make many people who have these types of credit report blemishes look more creditworthy. This is, of course, helpful to borrowers who may now qualify for lending, but it does present a risk for lenders, who may not be able to accurately assess the borrower's default risk. Credit scores could rise by at least 40 points for consumers who have this information removed from their credit profiles.

Finally, if you really want to go out on a limb, in my opinion, sell part of the equity in your home in return for cash. Because of the advances in software and the ability to quickly and accurately determine the value of a property, more private equity companies are offering this product.

There are no monthly payments since it's not a loan, instead when the home is sold or refinanced the company takes back the amount it paid to the owner. It gets back its original investment, say 10 percent, plus an additional 10 percent or whatever is agreed upon of the appreciation of the home. There are also additional fees involved, and every equity investment company has its own criteria, including how many years for the loan. This method of raising cash is not for the faint of heart, but it could provide a needed source of cash for some homeowners.

The bottom line is keep your eye on the ball and don't blink. You never know when something creative will be introduced into the mortgage market.

AMISUN ~ The Island's Award-Winning Newspaper