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100% financing is alive and well, just not for sub-prime lenders

On Friday, Countrywide announced their maximum loan to value for sub-prime is 90%. This morning Option One announced the same limits. Also last week, New Century halted all loan operations and they were the 3^rd largest sub-prime lender nationally. So what to do with your less than stellar credit clients?

FHA loans are still a viable and competitive product. Interest rates are low and there are no pre-payment penalties or other goofy stuff which lands home owner's in trouble with changing loan payments 2-3 years down the road.
Conventional 80/20 still exist. They have more stringent qualifying criteria (680 credit scores) then what many people have been using the sub-prime loans for. ***
Conventional 100% in the My Community is a Fannie Mae program for qualifying buyers above 95% but the private mortgage insurance can sometimes be cost prohibitive. The Freddie Mac version is called Home OpportunitiesThe credit scores don't have to be as high as the conventional 80/20 but they also can't be as low as FHA will allow. Furthermore, both programs have limitations on the household income of the home buyer unless the property is located in an eligible census tract.

***update 2/15/2008 - Conventional 80/20 programs are very close to extinction. 80/15 appears to be the maximum financing going forward.

Other 100% financing options that still remain are listed below: (information below also updated on 2/15/08)

Teacher/Fire fighter/Policeman/healthcare worker - 100% financing options for people in certain professions. These programs do have PMI.

Some banks still have Low-to-Moderate Income mortgage programs for 100% financing. Because banks are required to meet government standards per Community Reinvestment Act(CRA) guidelines, there are still some programs out there for home buyers who are below certain household income limits. Some banks have pulled back from these programs providing 100% financing.
My Community and Home Opportunities which were listed above are still viable 100% financing options but again, are limited as to household income or property location.
VA loans continue to provide a much deserved benefit to our military personnel. It is more appropriate to think of the VA guaranteed loan as an entitlement or "reward" for serving our country instead of a loan program as it is very specific in who is eligible to use this program.

These are changing times and it is difficult for everyone to accept the speed at which loan programs are changing. Not only is there volatility in the interest rate markets, but also in what programs are available to consumers. Now, perhaps more than ever before, a real estate professional should be aligned with ONE mortgage broker / loan officer AND ONE direct mortgage banking loan officer. The mortgage broker has the flexibility to move the transaction between lenders in response to sudden changes. The direct mortgage bank loan officer is going to have access to portfolio and/or CRA programs that the broker is not able to access. By utilizing a dual strategy, realtors can give their clients great service in recommending a mortgage loan professional.

Ken Stampe is a Mortgage Loan Originator, Mortgage Author and Mortgage Loan Officer Instructor living in Dallas, TX. Ken provided his first client a mortgage loan in 1996 and writes about home buying and mortgages to help clients make smart home mortgage loan decisions. Contact by email at Ken@KenStampe.com

What resource do SMART home buyers use?... Mortgage Calculator Bank.com

Posted by Ken Stampe iBrandPlan on 03/13/2007 10:43 PM

Comments (31)

mortgage industry, 100 percent financing, 80 20 loans, loan programs

31 Comments on 100% financing is alive and well, just not for sub-prime lenders

MAR

2007

***If you look over the history of my blog, I have not ever blogged about specific programs available through my company. However, in light of recent changes to the marketplace and e-mails from Real Estate Agents I feel that not only are we competitve RIGHT NOW, in these times, but that it is also INFORMATIVE for people to know who is doing what. If you feel this is "trolling" for business then I apologize up front but tell me what you would do to educate the industry about your company when you have great programs in a rapidly changing marketplace? ***

Ken, thanks for dispelling unwarranted, sensationalistic 'rumor' with actual truth. I appreciate your continued contribution to our network.

Hey Ken,

I was going to tell you that the email you wrote would make a good blog... you beat me to it!!

Ken... some great information. I just wrote this today, RUMOR ALERT..... 100% loans fading/non-existent.... but are they?, because someone wrote that 100% loans are just about dead.

And don't forget to add..... Decision One and EquiFirst are still alive and kicking, both doing 100% financing on the sub prime side. But they are raising fico scores to where FNMA was last month... and FNMA is raising some of their criteria.

Again, great post, because we need to inform not only the consumers, but the realtors and loan officers.

jeff belonger

Ken,

I peruse the rate sheets I can find weekly, and while 100% hasn't gone away everywhere, the rates being charged (which, imho, are much more appropriate to the risks being taken) are pretty darn high. At the end of the day someone in the secondary market has to take the paper, they appear to be more and more reluctant to do so. Just taking away stated wage earner and pricing appropriately to risk would be enough to make the market here in So. Cal. lower volumes dramatically (imho).

Mikey - I hear you. The markets are really hard to trust on this product right now. It is too uncertain to know how much more change is likely.

Jeff - I also saw that type of message on several message boards and though that someone needed to offer a sober view of what's there and what isn't. In fairness, First Franklin is still offering 100% loans with a 620 score. This is probably a short-term move to pick up market share in the wake of New Century closing. My guess is these loans are pretty thoroughly reviewed by underwriting and I expect they may back up either the 100% to 95% or up the fico scores for 100%

Donna - you can certainly take credit for inspiring the blog because you DID

Rich - I'm blushing....

Here's a news blurb I just saw....

WMC Mortgage has stopped making mortgages without down payments or to borrowers with credit scores below 600, said the Burbank, California lender. It's also cutting 460 workers. WMC last year made $33 billion in new loans, according to industry newsletter Inside B&C Lending.

WMC is owned by GE....yeah, that GE....if their pockets aren't deep enough for them to weather a little storm. It started with Option One which is owned by H&R Block, but we are now going to see how non-mortgage parent companies feel about these little subsidiary sub-prime companies they own.

The issue becomes the fact that 100% loans really have no history in a down market, it really maximizes the investors risk to let someone be in a home with no skin in the game. The old investor in the paper know now they priced the risk wrong, any new money is going to get it right, only 2 real choices, real high interest rate, or don't lend 100%. Not much leeway there. But then the new issue arises if they do tighten up standards, then it hurts the existing home selling market and the investors who took out loans during that period.

I think this topic just grazes the surface of the bigger issue. Too many people are being put in loans they can't/won't afford. The LTV restrictions for certain lenders is just the reaction to a symptom of the disease. Arizona is once again introducing legislation to require lenders to be licensed to originate and fund loans. The reaction to the foreclosures that investors and lenders alike are having is something that should happen in light of the sheer number of loans that are being closed that are just irresponsible.

I do subprime, I will continue to do it, but can you blame lenders and investors for jumping ship? I know I can't.

MAR

2007

Jacob - while I agree with you that the sub-prime guidelines changing are a natural response to another issue, I'm not sure I agree with Arizona legislators that licensing is a cure-all. I've taught loan officer licensing in Texas for the past 2 years and while it covers the basics, it is mostly seen as a necessary evil by students. If they end up in a company with no regard to ethics, the licensing coursework won't make a big difference. To me, it's like driver's education and licensing test. Have you seen how people drive? They all got licensed though right?

The time it takes to get a drivers license is marginal in comparison to the investment of time and money to get one's lo license.

Countrywide's subprime division is notorious for hiring untrained and unexperienced high school graduates who are able to originate within days of being hired. I know this from personal experience in management there. How much can you expect a person with zero experience (and often no college education) to know about responsible lending?

A license allows loan officers to be tracked much like shoddy real estate agents and appraisers. Too many times I've seen loan officers commit fraud, never be charged or pursued, and they jump ship to another shop you doesn't even bother to do a background check.

The foreclosures are certainly not all to blame from bad lenders, but it is still a part of it and it should be addressed more aggresively before more people lose the homes they have worked so hard to buy.

Ken,

Thanks for the post. Clearly there are financial institutions that are still in the game with 100% financing products. As you have mentioned some overlooked products like the FHA loan offers opportunities to buyers in today's market, as do buydowns.

Are these programs Texas Specific, or are these Bank of America specific?

The Doctor program - PhD's only? or does it apply to anyone in the medical field, like CNA's and RN's? Thank you.

Thanks for the info. I send my clients with poor credit to a local, relatively inexpensive credit fixit lady. Her fees are in the $500.00 range, and the credit takes in the neighborhood of 4 months to fix. Also, when the repair is complete, it doesn't look like pre-chapter 13. This will just get you on the low end of average.

What do you think of the B of A no fee mortgage? I don't know if this program is nation wide yet.

MAR

2007

I work with a lot of VA clients. 100% is still alive and well with them.

Refreshing to hear some good news about loans this week. Ken I am glad you shared these programs with us.

Thank you.

Good Post Ken! One thing for sure all this is going to force agents to do more prequalifying up front than was being done before.

Ken,

Great post! With the tidal wave/tsunami as some say, what we need to do is communicate relevant information and facts and accentuate the positive.

Ken,

Thanks for the post. I wonder when the selling market is going to react to this information that is on every news channel and in every paper? Looks like the number of home buyers is going to be significantly impacted by these changes. Not that it is all bad, maybe not everyone should be in a house until they can afford one and qualify under more stringent conditions. On the other hand, us loan officers always want a deal for everyone and want to know what it is left out there and whats going to stay strong.

Once again, your post was very informative - I flagged it for future reference.

Great post. I am bookmarking this.....

Thanks to all for the compliments!

Mariana - The first 3 are available mortgage programs to any lender approved to offer them. That should cover most loan officers/brokers/lenders. The second 5 are Bank of America specific and are available in most states.

As for the Doctor loan, it is only for doctors. The "Neighborhood Champions Program" includes nurses, paramedics, firefighters, police, and teachers. Unfortunately, dentists, like my wife, get nothing....why nobody loves the dentist I don't understand....

Randy - I included VA originally and then removed it from the list. I love the VA loan but consider it more of an entitlement than a loan program. I can't consult with a client to consider using a VA loan. However, if working with a client I always ask if they are a veteran and if so, strongly encourage them to use the VA program. Our service men and women deserve the entitlement that is VA home loan financing.

Renee & Danny - I think you raise good points about how and when this will impact the home selling market. With many agents commenting that there is a glut on the market, they are hopeful for a "buyer's market" to remove some of the inventory. However, if you take a percentage of buyers off the market for ANY reason one would think it has a negative impact on home sales.

I agree Ken, I don't believe initially that the market will become a buyers market. Although there may become a glut of homes for sale the market may just stagnate and sit. With the tighter loan requirements it may remain a sellers market. I remember in 1979 I sold a home I had only been in for 7 months for $20K more than I paid for it. The interest rates were going up and I had a FHA assumable loan with single digit interest rate. I found a young couple with bad credit and a bankruptcy to buy it. But they had cash!

Danny-

I think that is what is going to happen here, outside of large motivating factors to sell, or increased ability to buy we will basically get stagnation. Right now we don't have a buyers market, we have a sellers market with sellers being unable to sell.

Ken,

Great post.

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

Ken,

This is much needed information and we are bookmarking your post for future reference as we've been wondering what the true story was for awhile now. Thanks!

MAR

2007

Great post,

I am a sub-prime specialist and work with owner financing alot. This news has scared a lot of people and I have agents sending me referrals everyday who they think can't get traditional financing. Most of the time they just need a little help fixing up there credit.

But, I wish the news wouldn't put the headline that is meant to grab your attention as the main story.

Todd

Perfect blog, thank you for showing the the mortgage sky is not falling.

MAR

2007

I hope this will give you a little insight how we operate in Canada. Our 100% programs were never thought of as a subprime product, considering you needed a minimum 680 Beacon Score or higher to qualify with full income documentation required.

Similar programs will extend up to 107% but again in a real estate market that has been appreciating on average 5% each year for the past number of years it doesn't take long for a new purchaser even with zero down payment to start building equity in a home. In certain pockets of the country have experienced appreciation of upwards of 17 to 25% over the past 24 months.

100% Program Just Got Better, Fully discounted rates:
http://activerain.com/blogsview/49978/1-Mortgage-Program-just

For more information on other "Canadian" programs available I invite you to visit our website at: www.OntarioMortgageTeam.com

Regards,

Dave Yeoman

APR

2008

Jeff, your post was blatant spam and was reported as such. Please don't put commentts on posts that are just trawling for business. It's unprofessional to say the least.

APR

2008

It seems that the 100% programs are getting to be fewer and fewer.

AUG

i have been looking for a first time home loan but since all the crisis began i cannot seem to find one now and when i applied i got 2 of my credit scores dropped by about 15 points and one actually went up more than 20 points

IF anyone knows a mortgage company or broker who specalizes in low credit score loans have them E MAIL ME

i have been waiting for 1 home to come on the market for over a year and when i first began watching it i was approved for the loan but now it seems NO ONE wants to lend less than 100,000

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