2% Interest Rate On Your Mortgage

There is a new loan program in development that focuses on rapid equity growth, as opposed to low monthly payments for 30 years.  The program being developed uses the funds that would normally have been been used for a 3% or 5% down payment, to instead be used to buy down the interest rate on a 15 year mortgage.  In today's market, this strategy could get the rate down to 2%.  The crafters of this mortgage suggest a 100% LTV program that relies on the buy down investment and rapid equity growth as major incentives to keep borrowers paying as agreed.

This program could be of significant interest to millennial with dual incomes and minimal personal debt.  The payment would only be slightly higher than a 30 year fixed rate payment due to the low bought down interest rate.  A significantly shortened payment schedule and rapid equity growth speaks to the millennial affection for mobility, by assuring the quick marketability of a home with equity.

There are some regulatory hurdles…mainly the QM question regarding total allowable closing costs.  A re-definition of interest rate buy down points so as not to be included in QM calculation would go a long way in gaining secondary market interest in this product.

Lower Down Payments?

There is continued pressure on FHA, Fannie and Freddie to lower down payment requirements. Federal Housing and Finance Director Mel Watts, who has been a bright spot to lenders since taking over, did not include lower down payments in his strategic plan for 2014.  The reason that many give for the agencies resisting lowering DP’s is the overall quality of appraisals.  The federal agencies are very unsure of the quality of appraisals as delivered through the current AMC systems.  Everyone is aware that the AMC’s take a big cut of the appraisal revenue leaving less than half for the appraiser.  Many feel that appraisers in the AMC system(s) are lessor qualified and are being adversely selected because of their willingness to work for less. It is common knowledge that the AMC’s take up to ½ of the total appraisal fee.

We’re in a tough spot. The agencies found significant evidence of faulty value assessments and appraiser fraud on loans funded prior to 2009.  While fraud has been significantly curtailed, accurate value assessments are still a concern and the agencies are not comfortable with the current level of accuracy.

When the agencies purchase a loan of $193,000 on a home valued at $200,000, they really need to be able to feel confident that the house is worth at least $200,000 on the day they funded the loan, as there is precious little equity with which to hedge a loss.