I attended a seminar today about the changes that are happening in the sub-prime mortgage market that was hosted by Rick Pilger, an ActiveRain Mortgage Consultant. I wanted to educate myself on the changes occurring in the sub-prime and high LTV (Loan To Value) mortgage markets.
Here are some of the highlights I learned:
- Deliquencies of sub-prime, Adjustable Rate Mortgage and exotic home loan products are on the rise.
- Wall Street has lost its appetite for "higher LTV, higher-risk loans.
- Pressure from legislative bodies to curb "Abusive Lending".
- Recent Mortgage loan products may have been too aggressive.
- Typical contraction phase of business cycle - the media kept hyping the "Bubble" until it became a reality.
There's a partial roadblock of people wanting to move up in the market.
- If a first-time buyer has a low credit score, they may not qualify for a loan or may have to pay a higher interest rate or higher premium of private mortgage insurance, because they're at a higher risk level. That means fewer buyers are entering the market.
- If a seller purchased or re-financed their home with a 100% mortgage financing product in the last few years, they may not have enough or any equity to sell their home without bringing money to closing.
- Buyers may still be waiting on the sidelines thinking the worse isn't over yet - again, thanks to the media.
Other disturbing factors:
- In 2006, there were 10,000+ foreclosures in the Ohio counties of Hamilton, Bulter, Clermont & Warren.
- The state of Ohio has one of the highest foreclosure rates in the nation based on M.B.A. findings.
- Foreclosures are expected to escalate over the next two years due to sub-prime ARM loans that are scheduled to reset at much higher rates.
- Why the sub-prime market is hurting homeowners? Little or no income verification, high debt ratios, prepay penalties and lack of escrowing.
With so many new restrictions being placed on conventional mortgage products, now is the time to educate yourself on FHA loans. If the property needs some work, they also have a 203K 'Streamline' loan program, that's a lot better than the old 203K program. They are emerging as a new way to help buyers, who want to invest in homes that need some work, but where you can finance the improvements into a first mortgage loan.
As for consumers looking to purchase a property in the SW Ohio (greater Cincinnati area), make sure that your mortgage consultant tells you about the following types of loans:
- FHA loans
- FHA 203K 'Streamline' loans
- 'My Community' loans
- 'Ohio Housing Finance Agency (OHFA)' loans
I'd love to hear from some ActiveRain lenders about how they are using FHA loans in today's market.
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