The nation’s largest mortgage lender, UWM, has launched a new 90% LTV financing program to boost many businesses.
While it’s marketed to our lending partners as a way to “win more business,” it doubles as a troubling practice of lax underwriting guidelines.
Typically, homeowners are limited to 80% LTV when it comes to refinancing, but UWM takes things a step further.
This could be a sign of the low rate, which has hit many mortgage lenders since home prices peaked in mid-2022.
And it could be a sign that some American consumers are struggling to make ends meet as they face rising inflation.
Conventional Cash-Out 90 Lets You Borrow More Than Other Guys
- Refinancing up to 89.99% LTV
- The loan amount has reached the agreed loan limit
- It should be a primary residence
- A minimum FICO score of 680 is required
- No mortgage insurance required (can be built in price)
First let’s talk about this new loan program, known as “Conventional Cash-Out 90,” and then we’ll talk about whether or not it’s a concern.
As noted, United Wholesale Mortgage (UWM) will now allow you to cash out up to 90% of your property’s value.
Technically, it is rated at 89.99% LTV, but it is still considered a conventional loan. Note that there is a difference between conventional and conforming loans.
Both are non-government loans, but a conforming loan must meet Fannie Mae or Freddie Mac guidelines.
And Fannie Mae and Freddie Mac have a maximum 80% loan-to-value (LTV) ratio for refinancing.
So it doesn’t meet their guidelines, which also means that many competing lenders can’t offer such high limits.
In other words, UWM offers something that other guys can’t, assuming you want more money.
In addition, they do not charge private mortgage insurance (PMI). Although as I always say, if it is not charged separately, it is usually baked into the loan amount.
However, the maximum loan amount in the program is at the agreed loan limit, currently $766,550 in 2024.
And the property must be your primary residence (where you live), and you need a minimum FICO score of 680 to qualify.
It’s not clear how high the loan rates are, but I can’t imagine them being cheap when your regular vanilla purchase or average and refinance term at 80% LTV or less is still 6.5%.
We are probably talking about values in the middle of 7% of the grade or more. But I’m just speculating here. You’ll need to speak with a UWM-approved mortgage broker to get actual rates.
Are We Bringing Too Much Risk to the Housing Market?
Now let’s talk about the accident. As noted, Fannie and Freddie have a maximum loan-out rate of 80% LTV. And they do this to reduce risk for both lenders and home owners.
It’s generally not a good thing to overspend as a homeowner, especially when mortgage debt is as expensive as it is today. And even more so when home prices feel like bubbles.
This means that if your property is valued at $500,000, the maximum loan amount you can qualify for if you tap equity is $400,000.
In the early 2000s, before the mortgage crisis, it was rare to see 100% LTV refinances. Or even 125% LTV loans!
Yes, we all know how well that went. Homeowners had no equity, and when home prices fell, they were the proud owners of underwater mortgages.
That led to the worst housing collapse of our lifetime. The good news is that it also led to stricter underwriting guidelines, including an 80% LTV cap for cash-out loans.
So the fact that United Wholesale Mortgage (UWM) exceeds this limit may sound a little worrying.
But it may be a result of the number of bad loans today, and their desire to remain the top borrowers in the nation.
You also need landlords to pick up the trash. Most have very low 30-year fixed mortgage rates in the 2-4% range with no desire to mess with them.
The chances will not be high in this new loan system, without these additional guidelines.
If and when the lender allows 100% cash out again, I will start to worry. Fortunately that seems unlikely at this time.
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