The Mortgage Maze: Guiding You to Loan Approval

by Janet in Aurora, CO, by Ann, and by Francisco in Clovis, CA

Ask Kate for guidance through the mortgage loan approval maze: You've heard it said a million times... You can't live with 'em and you can't live without 'em! The saying certainly rings true with many borrowers. If you also are frustrated with your loan process, take heart and keep reading as I answer the following 3 outstanding letters from homeowners caught in the mortgage maze.


Fannie Mae Streamlined Modification

By Janet in Aurora, CO
The Mortgage Maze: Guiding You to Loan Approval

Hi Kate,

So glad I found your site.

I was divorced in 2006 and I was awarded my family's home. I have the divorce decree, memorandum of understanding and also a quitclaim deed from my former husband.

I am in the process of getting a streamlined Fannie Mae modification without his participation.

According to U.S. Bank, I have been approved for the permanent modification. He is still on the original note and based on what the assumption department is telling me, I will be eligible to do a qualified assumption one year after the modification is made permanent.

After many years of no contact, he called very upset wanting to do some sort of legal agreement in exchange for his signature agreeing to the modification. I have inquired in-depth with the bank about this and they tell me his signature is absolutely NOT required, as long as I submitted the quitclaim, etc.

Is this true?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Fannie Mae streamlined modification

Hi Janet,

Well! I can tell you if I were the bank, I would require your ex's signature. This is because, although he relinquished his claim to ownership of the home using a quit claim deed, he remains obligated on the mortgage.

Go here for important details: Quit Claim Deeds vs Mortgage Obligation.

However, Fannie Mae thinks differently. In fact, I've published a direct quote from Fannie's guidelines regarding ex-spouse signatures on modification documents at Solving Your HAMP Loan Modification Predicaments.

Of course, Fannie does not state whether or not the ex-spouse's credit will be protected during a loan modification. This is why I encourage getting off of the mortgage (by refinancing or assumption) in addition to executing a quit claim deed during divorce.

Read more: HAMP Loan Modification and Your Credit After Divorce.

Best wishes for a successful loan modification,

Ask Kate

Mortgage Fees, Yield Spread Premiums, and Rate Sheets...Oh My!

By Ann
Mortgage Closing Costs, Yield Spread Premiums, and Rate Sheets

Hi,

Thanks for taking the time to provide this resource for me to ask a question! I want to make sure I understand what's happening.

I've been learning about the Yield Spread Premium and their affect on mortgages. I understand that bankers get paid 1% extra for every .25% above par on loans where they charge more in interest rate.

So if a banker charges 4.5% when par is at 4.0% and get an additional 2% YSP, how does that relate to the rate sheet numbers? For instance, I'm looking at a rate sheet and it shows 4.00 (0.421) and 4.5 (3.529).

Does this mean that provided there aren't any adjustments made, the banker is actually making 3.529% on the loan instead of just 2% extra for that .5 increase?

Thanks.

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Mortgage Fees, Yield Spread Premiums, and Rate Sheets...Oh my!

Hi Ann,

The pricing of Yield Spread Premiums (YSP) can differ, especially depending on the amount above par that the mortgage rate is being quoted.

Locking in a rate above par costs you over the life of the loan. Case in point, it appears from your numbers that the YSP for a 4.5% rate is a whopping 3.529%.

For example, 3.529% of a $200,000 loan is an upfront yield of more than $7,000. So please check that you are getting the benefit of the YSP, not the bank.

Here's how to find out. Go to your Good Faith Estimate (GFE) which should be disclosing the Yield Spread Premium in both percentage and dollar amount. Additionally, you should be able to see, in writing, that the YSP is credited directly to your closing costs.

To become an expert on Good Faith Estimates, go to Save on Mortgage Closing Costs by Understanding Your GFE.

If you discover the YSP is not being credited to your closing costs, speak up! But first read Yield Spread Premium... Say WHAT?

Best wishes for an affordable mortgage rate,

Ask Kate

Refinancing our 1st Mortgage After Two Years of HAMP Modification with Principal Reduction

By Francisco in Clovis, CA
Refinancing After Two Years of HAMP Modification with Principal Reduction

Kate,

I applied for a refinance of our 1st mortgage with Discover Home Loans.

Was initially approved, provided all docs requested, credit scores of 746 and 745, appraisal done and very good income. Wanted to refinance our 1st with 6.125% rate to 4.250% and lower the monthly payments.

But I was advised today by Discover that Fannie Mae would not approve the refinance because of the principal reduction we received.

Our current loan is not a Fannie or Freddie loan. I did not know our refinance could be denied for this reason.

Do you know anything about this?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Refinancing our 1st Mortgage After Two Years of HAMP Modification with Principal Reduction

Hi Francisco,

This is news to me too and considering your qualifications, surely makes you feel sick.

However, it's no surprise to me that Fannie Mae is not in favor of reducing principal mortgage balances. See No Principal Reductions for Government Sponsored Entity (GSE) Loans for their current stance.

Regardless, I recommend asking Discover for the written guideline that prevents Fannie Mae refinancing after principal reductions. This will determine...
  1. If the guideline truly exists.

  2. If the guideline is merely a lender overlay and not an actual Fannie Mae requirement. Read about infuriating lender overlays.

  3. If the guideline is a requirement peculiar to the lender's individual contract with Fannie Mae.

Of course, there are no guarantees that Discover Home Loans will divulge the details of their Fannie Mae contract. But their reaction may tell you if they are the type of institution you want to employ for your refinance.

You could try applying with another Fannie Mae lender to see if the results are similar. You could also check into Freddie Mac who does not always toe the same line as their GSE counterpart.

Another option would be to contact large banks such as Bank of America or Wells Fargo for loan programs that are neither Fannie or Freddie.

Lastly, ask Discover for a denial letter to determine if this is the true reason for not receiving loan approval.

Best wishes,

Ask Kate

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