This is mortgage news from my friend the Vice President of Residential Lending at First Community Bank here in Kansas City
Mortgage Division
From: CAROL POPPE 913-652-7302
WEEKLY NEWS REPORT: 8/6/2007
Well as we say in this business, "the wheels are falling off the bus." Last week was The Good, The Bad and The Ugly. The good news last week came in the form of friendly inflation and employment news which helped rates on CONFORMING home loans improve over the course of the week. I just locked a $390,000 loan (80% LTV) in at 6.375%. Conforming home loans are those under $417,000 and subject to very standard credit, income and asset qualifying, nothing exotic, outside the box, or fancy.
A little bad news came by way of the Bureau of Economic Analysis, revising previous personal savings rate estimates higher, but showing that Americans still save less than 1% of their income.
The Ugly last week - well, was really ugly. The media screamed all week about issues in the mortgage industry particularly impacting what are called Non Conforming home loans; those that are dollar amounts higher than $417K, or with credit, income or assets not falling under traditional guidelines. Many of those rates got excessively ugly, in many cases, overnight. Why? Over the past several yeas, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it poor credit, inability to document income, or any number of factors that do not fit within the traditional box for home loans. These loans are often called "Sub-Prime" or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). These are known as Jumbo Loans - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie. Most Non-Conforming loan product rates popped significantly higher in the last week even though Jumbos have not suffered from the increased delinquencies like the Sub-prime and Alt-A. This was due to the fact that these pools of mortgages are being purchased by smaller private entities that can't afford to take on the margin of risk of foreclosures.
From our pool of investors, Wells Fargo jumped the highest in their Jumbo rates. The 100% financing options are deteriorating very quickly and the rules are changing overnight. Several large companies have shut their doors in the last week including American Home Mortgage (huge in stated and no income programs) and Fieldstone (a Sub-Prime company). US Bank has announced today that they are no longer doing "No Income" and "No Ratio" mortgage loans. BE WARY OF OLDER PRE-APPROVALS whether you are putting a contract on a home or are receiving one. Everything is changing so quickly it is hard to keep up with all the changes. Some investors have raised the credit score minimums for 100% financing. We are seeing that those people who have credit scores under 680 and make more than $82,000 are going to be challenged in 100% financing if they purchase over the FHA limit (approximately $210,000). Their options are dwindling. This is the group buying $225,000-$350,000, and even though some of these are buying their second home, they are not netting enough out of the sale of their first home to have much downpayment after they cover their costs.
Remind your buyers that now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. A smooth closing and being reassured that it will close on time are just too important, and the times have changed. I am here to help and advise during these volatile times - and would welcome calls from you and your clients.
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