Scottsdale Mortgage Info

The Scottsdale mortgage industry now has new regulations in effect designed for lenders to be more transparent in their dealings with borrowers. The areas of reform are aimed at simplifying and streamlining some of the consumer disclosure documents in order to make it easier for borrowers to understand various lending programs.

Scottsdale Mortgage Rules Change: Know Before You Owe

As a result of the last housing and mortgage crisis and the passage of the Dodd-Frank legislation, the Consumer Financial Protection Bureau (CFPB) was established to design simplified forms to address two key areas: post application disclosures and pre-closing information. The CFPB reportedly spent nearly four years researching and testing the new disclosures and are now ready to require Scottsdale mortgage lenders to implement them.

For their part, mortgage lenders nationwide say the reform has created a huge technological challenge involving additional software programs and thousands on man hours in training and ramping up for the new disclosure procedures.

The disclosure form that is given to the consumer after the loan application begins — known as the Loan Estimate — covers the rules regarding what can and cannot be done by the lender, including cost estimates that must be approved by the borrower in writing before the loan application process can continue. The Closing Disclosure must be given to the borrower within three business days of closing. It captures all the costs paid by the consumer. If the borrower wants to make any changes during the three-day window, the three-day period resets. This, inevitably, will cause delays and potential "domino effects" that could create additional delays in closing.

Scottsdale mortgage lenders are keeping their collective fingers crossed that the new disclosure requirements will be seamless. However, there are numerous “moving parts,” as the disclosures now impact the real estate industry. While real estate professionals have no direct responsibilities under the new regulations they still have a role in the process. They need to educate their clients about the changes and help them understand that the loan closing transaction may take longer. Additionally, real estate clients will need to understand that there is an increased risk of delays in the loan closing — especially if borrowers try to make “eleventh hour” negotiations or changes within the three-day waiting period.

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Once upon a time in the Scottsdale mortgage market, "adjustable rate mortgages" (ARMs) was a phrase that was shunned. During the Great Recession of just a few short years ago, many consumers experienced their mortgage payments spike to levels of unaffordability. Sadly, some of those homeowners fell victim to foreclosure. But what about now?

The Scottsdale mortgage market is seeing a potential return in popularity of adjustable rate mortgages (ARMs.)

The Scottsdale Mortgage Arena: Are ARMs Making a Comeback?

Some mortgage industry experts say that adjustable rate mortgages are returning to popularity among some borrowers who consider them as a potential way to save money and more easily qualify for a mortgage loan. The Wall Street Journal recently reported that in 2013 roughly 22% of all mortgage amounts between $417,000 and $1 million were ARMs. In 2014 the percentage increased to 31% and appears to be climbing.

In the Scottsdale mortgage landscape it appears that most borrowers interested in adjustable rate mortgages plan to be in their home for a relatively short time period. And, if their employers transfer employees every few years, for example, an ARM may be a better fit than a traditional fixed rate mortgage. Consider this: a 30-year fixed rate mortgage may be higher than a five year ARM at a lower rate, saving the homeowner a considerable amount of money during those five years.

In addition, Scottsdale mortgage lenders have improved their ARM products through "hybrid" loans that can offer important features to some borrowers. Not only can borrowers save money during the first five years until their first rate adjustment, if there is one, but the adjustments are limited to how much the rate can increase.

For borrowers that have the financial wherewithal to take necessary action if their rate rises, ARMs may be a preference. However, some Scottsdale mortgage lenders caution average homeowners and recommend against getting "backed into a corner" with an ARM in which they have no control over a rise in interest rates. They also warn that the simple answer of refinancing if the rate increases is somewhat risky. Conventional rates may have also risen by that time and, of course, there are always closing costs associated with refinances.

So, ARMs may be worth a second look depending on your particular employment situation and risk tolerance. As usual, there's not a "one size fits all" Scottsdale mortgage.

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As Scottsdale mortgage borrowers continue to see home prices rise they have increasingly more equity to utilize. Industry experts say that nationwide home equity has risen by nearly $825 billion. That represents a 250% increase over home equity levels of just four years ago. However, tapping into that equity by using a home equity line of credit, or HELOC, is more challenging than ever.

Scottsdale mortgage borrowers are enjoying increases in home prices and higher home equity.

HELOCs: A Scottsdale Mortgage Dilemma

Mortgage analysts report that HELOCs currently being extended to Scottsdale mortgage borrowers are principally reserved for those with extremely good credit. HELOC originations during the first quarter of 2015 reflected the highest average credit scores since that data has been recorded.

While HELOC lending has increased by 40% from a year ago, origination levels are 85% less than those of the housing boom of 2007. Most notably, in addition to record high credit scores, are the reasons Scottsdale mortgage borrowers are utilizing the home equity.

Mortgage lenders say the trend these days is for home owners to tap into their home equity for necessities rather than luxuries. Simply put, it’s more about what they need versus what they want. Plus, industry insiders say that most of the HELOC activity is relegated to wealthier homeowners in the more expensive housing markets. During the housing boom, Scottsdale mortgage borrowers were using the equity in their homes — and then some. Because housing values were artificially inflated and lenders did a poor job of restricting loan-to-value ratios, many homeowners found themselves in trouble when the job market experienced a slowdown and the economy softened. This was a key contributor to the housing crash, and many HELOC borrowers were faced with foreclosure.

Those that were able to weather the housing crisis have HELOCs that were originated between 2005 and 2007 and are nearing the end of their principal draw periods. These borrowers will soon be required to repay the principal and interest, adding on average roughly $250 per month to their mortgage payment. What’s worse is a large number — estimates are as high as 30% — of homeowners have loan-to-value ratios that exceed 85%, meaning a refinance will be difficult.

In summary, the Scottsdale mortgage market, as well as others throughout the country, will be scrutinized closely in the coming months to see how homeowners react to the impact of the HELOCs.

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In a move to assist Scottsdale mortgage borrowers, the Federal National Mortgage Association (Fannie Mae) announced it will make substantial changes in a lending program for low-to-moderate-income households. The program, dubbed HomeReady, is scheduled to begin in December. It promises to feature new lending guidelines recognizing that many of Scottsdale mortgage customers share homes and the accompanying financial responsibilities with their extended family. This is especially true in Hispanic and African American households.

The Scottsdale mortgage market will see changes thanks to a Fannie Mae loan program for lower-income households.

New Rules in the Scottsdale Mortgage Game

Under the new guidelines, Scottsdale mortgage lenders will be required to include income from non-borrowers living in the same household as the primary borrower. Fannie Mae officials say this income has been proven to the stable over time and contributes greatly to the household and, therefore, the monthly mortgage payments.

Scottsdale mortgage borrowers may also be allowed to count income from co-borrowers that are not occupants, such as parents or in-laws. As is the case with a number of other mortgage products, the down payment can be as low as 3%. And, closing fees and PMI will also be less than on other loans.

Fannie Mae expects the new program to assist homeowners who suffered losses when home values dropped during the most recent housing crisis. In addition, the new guidelines are designed to assist first-time buyers entering the home market. The new program carries no set income requirements for Scottsdale mortgage borrowers buying in federally identified low-income census tracts. To qualify, homebuyers in those census tracts cannot earn more than the area’s median income. Income for homebuyers in other census areas cannot exceed 80% of that area’s median income.

The program requires borrowers to enroll and finish an online educational course on homeownership. In addition, borrowers will receive information on counselors in their area specializing in housing advice in the event they have financial trouble in the future.

It remains to be seen how many Scottsdale mortgage lenders will offer the HomeReady program. Industry experts say the new program could spur some renters into becoming homeowners. Recent statistics released from zillow.com show that on average a renter spends slightly more than 30% of monthly income on rent. The average homeowner spends half that number, 15.1% on a mortgage payment.

While it’s not clear how many lenders will offer the program, HomeReady could offer an opportunity for some households burdened by high rents to get into homeownership. A recent report from Zillow found that the average renter now spends 30.2 percent of his or her monthly income on rent, compared with an average of 15.1 percent for homeowners with a mortgage. In high-cost metro areas, the rental burden rises to as high as 40 percent.

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In addition to other favorable signs, the Scottsdale mortgage market is expected to be one of the positive features in the recovery of the housing market. Experts say Home Mortgage Disclosure Act (HMDA) information indicates the housing improvement continues.

Continued Improvement in Scottsdale Mortgage Market Expected

The Scottsdale mortgage market has received revised projections by the Home Mortgage Disclosure Act.

Because of the data trends, lending projections are expected to rise. And that could be even better for the real estate economy as it may stem any expected interest rate hikes by the Federal Reserve for awhile.

Mortgage lending dropped 27% last year to slightly over $1.25 trillion, but many economists had projected decreases of 40% compared to the previous year. The improvement was fueled in part by a larger percentage of purchases versus refinances at 51% compared to 49%. The trend has continued into this year, as well.

Refinances have increased to higher than expected levels as lower interest rates have held steady. Scottsdale mortgage market insiders say the refinancing spike is also due to the Federal Reserve’s recent hints at what was originally expected to be a slight increase in the federal funds rate.

The Mortgage Bankers Association has also improved its earlier forecast regarding loan originations, expecting them to rise 23%, citing a 25% spike in home purchases totaling more than $800 billion.

The resulting economy has given mortgage lenders a renewed optimism. A combination of lower down payment requirements that appeal to first-time homebuyers, and low interest rates for those seeking to refinance are reasons for the improvement in the Scottsdale mortgage market.

The HMDA information is compiled from reports from more than 7,000 lending institutions throughout the country. The data is utilized by state and federal compliance officials and bank regulators to — among other things — ensure that lenders make mortgages available to people living in minority neighborhoods.

Because the mortgage market can be volatile, economists and industry experts have historically projected conservative numbers. This is due in no small measure to interest rate fluctuations and the lag time inherent in obtaining disseminating public records data. Some lenders say that lag time can often be as long as nine months.

The improvement that’s been on the Scottsdale mortgage market horizon, however, isn't universally expected to continue. Some industry experts say stagnant wage growth and higher home prices causing the current seller's market will dissuade some buyers in premium-priced markets.

As one real estate economist put it, perhaps the real value of the HMDA data will be to reinforce the feeling that the market is sustainable and the "Chicken Little" concept of "the sky is falling" is not the current market condition.

For more articles pertaining to the Scottsdale mortgage market, check out other articles in the Scottsdale Mortgage Info section of our site below our Scottsdale Real Estate Categories in the column to your right. Remember, we also post tips daily on Twitter and Facebook. Check us out there too.