As you know, much of the news lately has been focused on the woes of mortgage lenders around the country. American Home Mortgage Investment Corp., the nation's 10th largest residential lender, has filed for bankruptcy... Countrywide is shifting its mortgage loan production into its banking division... First Magnus is no longer funding mortgage loans. The list goes on and on.
What's the Problem? The problem lies in the secondary markets, where loans are often sold after closing. Because of the instability there, investros are less willing now to fund loans that are not eligible for delivery to Fannie Mae and Freddie Mac. The result is that lenders are tightening their underwriting standars to insure that the loans they write do qualify. This has an inevitable impact on sub-prime, jumbo, and other non-conforming loans.
How does that impact Buyers and Sellers? With a tightening of credit standards, fewer buyers qualify for mortgages, and this impacts every price range. It also affects rates. Jumbos, for example, are now .75% higher than conforming loans, where they were only .25% higher just a few months ago. And fewer lenders are now able to provide jumbos.
Do Buyers have to worry after closing? Generally not. A mortage is a contract, and regardless of where it is sold, the terms of that contract remain in place.
One area of concern, however, is for buyers who have not yet closed or have not yet received a lock on their rate. The instability of the mortgage market can surely impact them, so it is wise for them to do business with a stable lender.
What is the outlook for the future? Tightening of credit standards will no doubt continue, and more lenders will face hard times. However this doesn't mean lending money is going to come to a hault.
Chris Lee
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