UWM now offers 90% LTV cash. Should we be worried? Daily Journal

The country’s largest mortgage bank, UWM, has launched a new 90% LTV cash-out refinance program to drum up more business.

While it is sold to mortgage broker partners as a way to “win more business,” it doubles as a worrying trend of loosening underwriting guidelines.

Typically, homeowners are capped at 80% LTV when it comes to a cash-out refinance, but UWM takes things a little further.

This may be a symptom of declining volume, which has plagued many mortgage lenders since mortgage interest rates jumped in mid-2022.

This could be a sign that some American consumers are struggling to make ends meet as they face rising inflation.

The traditional Cash-Out program allows you to borrow 90% more than other people

• Cash-out refinancing up to 89.99% LTV
• The loan amount is limited to the corresponding loan limit
• Must be primary residence
• The minimum FICO score of 680 is required
• No mortgage insurance required (may be built into price)

Let’s first talk about this new loan program, known as Traditional Cash 90, and then we’ll talk about whether or not it’s worrisome.

As mentioned earlier, United Wholesale Mortgage (UWM) will now allow you to withdraw up to 90% of the value of your property.

Technically, the maximum LTV is 89.99%, but it is still considered a conventional loan. Note that there is a difference between conventional loans and conforming loans.

Both are non-government loans, but conforming loans must meet Fannie Mae or Freddie Mac guidelines.

Fannie Mae and Freddie Mac have a maximum loan-to-value (LTV) ratio of 80% for cash-out refinances.

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 others can’t, assuming you want a significant amount of money.

Furthermore, they do not charge for private mortgage insurance (PMI). Although I always say, if it’s not charged separately, it’s usually included in the mortgage rate.

However, the maximum loan amount in the program is at the conforming loan limit, which is currently $766,550 for 2024.

The property must be your primary residence (where you live), and you need a minimum FICO score of 680 to qualify.

It’s unclear how high mortgage rates are, but I can’t imagine they’re cheap when a typical vanilla purchase or refinance at 80% LTV or less is about 6.5%.

We’re probably talking about rates in the mid-7% range or higher. But I’m just guessing here. You’ll need to talk to a UWM-certified mortgage broker to find out actual pricing.

Are we bringing too much risk into the housing market?

Now let’s talk about risks. As previously mentioned, Fannie and Freddie limit cash-out refinancings to 80% LTV. They did this to reduce the risk to both lenders and homeowners.

It’s generally not a good idea to be in debt as a homeowner, especially if your mortgage debt is as expensive as it has become today. Even more so if house prices look a little frothy.

This means that if your property is worth $500,000, the largest loan amount you can qualify for when tapping equity is $400,000.

In the early 2000s, before the subprime mortgage crisis, it was not uncommon to see 100% cash-out LTV refinances. Or even 125% LTV loans!

Of course, we all know how successful that is. Homeowners no longer had any equity, and once home prices collapsed, they became the proud owners of undervalued mortgage loans.

This led to one of the worst housing recessions in our lifetime. The good news is that it has also led to stricter underwriting guidelines, including a maximum LTV of 80% on cash loans.

So the fact that United Wholesale Mortgage (UWM) exceeds this limit may seem a bit concerning.

But that’s likely a result of loan volume being so bad today, and their desire to remain the largest mortgage lender in the country.

You also need homeowners to take the bait. Most have very low 30 year mortgage interest rates in the 2-4% range without wanting to bother with them.

Volume will likely not be as high in this new loan program, despite these more favorable guidelines.

If the lender allowed 100% cash back again, I would start to get really worried. Fortunately, this seems unlikely at this stage.