As some of you might have already heard by now, over the course of the last 30 days, both Fannie Mae and Freddie Mac have announced new Loan Level Price Adjustments as a result of an increase in delinquency rates with certain mortgage characteristics. This change has resulted in an increase of borrower points on certain loans. These changes are global and will affect all lenders and brokers. These new point adjustments do NOT apply to Easy First or Expanded Approvals Level I & II, or Government Loans like FHA, but will apply to all other CONVENTIONAL CONFORMING fixed rate products. These Loan Level Price Adjustments formally took affect Friday December 7, and will have a significant impact on future Closing Costs for many Borrowers. The Loan Level Price Adjustments are as follows.
- Credit scores LESS than 680 with LTV’s ABOVE 70% (both refinance and purchase)
We all knew that the present turmoil in the Lending Industry was going to bring about change to Lending Guidelines in an effort to correct the present situation.
However, I disagree that the way to do it is through the pricing side of Lending, but rather it should come from the Debt-To-Income side. Presently I can approve a Borrower with marginal Credit Scores for a Conventional Loan with up to a 65% Back Ratio. That means that 65% of their GROSS INCOME is going towards their mortgage and other revolving monthly debt (car payments, credit cards, student loans, etc.). Once Uncle Sam takes his cut, they are lucky if they have 15% of their income to purchase food, cloths, pay for utilities, and buy gas at over $3.00 per gallon. Guess what 15% is not going to cut it, and as a result foreclosure is probably in their future.
So the answer in my opinion is not in making houses less affordable by increasing Closing Costs, but rather by lowering the Ratio’s to where they make sense. Until that is done, people will continue to over extend themselves to purchase houses that they cannot afford, and Lenders do not have any choice but to grant them the mortgage as long as they get an Approved/Eligible through Automated Underwriting.
Pricing will not stop foreclosures or produce better qualified Borrowers, but reducing the percentage of income that can be used to purchase a house will have a major impact in reducing bad loans. Change is needed, but it needs to be change that brings about positive results, and not change that is only going to further the problem.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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