Last week I found about a few "upcoming" lending changes: (1) Fannie Mae's interest rate adjustments according to credit score risk effective March 03, 2008 (FNMA Announcement 07-16) and (2) the MyCommunity Mortgage changing its allowable seller contributions from 6% to 3%.
Well here's another major change that is and will be sweeping the industry by the end of the year - Mortgage Insurance. When I said "is," there are a few companies that have already implemented this new change.
Though it has many names (MI, Private Mortgage Insurance, PMI, MIP, Mortgage Insurance Premium) everyone knows what Mortgage Insurance is. Due to the current market conditions, MI companies like MGIC, United Guaranty, PMI, Genworth - just to name a few, have been suffering huge losses and in order to curtail these losses, have implemented new guidelines. Here's a quick breakdown:
•- For ALL LOANS from 97.01% - 100% LTV with a credit score below 660 will receive A-minus pricing, including manually underwritten or loans underwritten through DO or LP - which applies to all recommendations - even APPROVE!
So what does this mean? Let's use a $200,000 loan (100% financing) with a 659 credit score. The "before" monthly mortgage insurance would have been, $160.00 per month. The "new" monthly payment (using A-minus pricing) would be $236.00 per month. Now... how do you think that would affect the buyer's monthly mortgage? This could potential drive DOWN the sales price consumers can afford to pay.
Let's look deeper - what if their DTI (debt-to-income) ratios were close to begin with? With that higher MI payment that could possible wipe out their automated approval. Then they're not approved and at what point during the mortgage transaction do you and the client find out?
•- ALL LOANS from 95.01% - 100% LTV with a credit score below 620 are ineligible for insurance, including manual underwritten loans regardless of DO or LP recommendations - even APPROVE!
•- ALL LOANS (regardless of LTV) with a credit score lower than 575 are ineligible.
If the loan originator or loan officer your client is using DOES NOT know about this change, then you could be showing properties to a client who is NOT REALLY approved at all. I have an out-of-town Realtor friend whose client was approved at a local bank only to find out a couple days before closing their loan WAS NOT approved because it could not be insured (even though it was APPROVED through the automated underwriting system).
Please keep in mind that these MI changes affect ALL Fannie and Freddie conventional loans (except MyCommunity Mortgage and Home Possible) and DOES NOT affect government insured (FHA) or government guaranteed (VA, USDA) loans.
It is more important now, more than ever for Loan Originators/ Officers to be "on their game" and to be more knowledgeable and up-to-date with what's happening in their industry.
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