I continue to hear terms like "frozen markets" and "credit crunch" on the various media outlets. While I understand the fear in the market, is it really that bad or just a lot of hype?
It seems that every other day my business partner and I are having this discussion. The question we always come back to is, "Are we denying credit to anyone now that we would have approved a year or more ago?"
Well, let's have a look. If you have a 543 middle score with no money down; I can't get you a loan. Guess what? A year ago I couldn't get you one under those circumstances either. No real change.
And speaking of credit score; an FHA loan was possible with a score of 580 a year or so ago. Now lenders want a 600 or sometimes a 620 score to get it done. Is that a "credit crunch"? I don't think so. It's higher, but not significantly so.
Of course, you have the stated income loans, no-docs and no income verification loans that have gone bye-bye, but as a percentage of the overall market, unless you lived in California or Florida those weren't as prevalent as most people believed. Most of our loans were and always have been your standard "conforming" fixed rate loans.
And speaking of those conventional, conforming loans; how difficult are they to acquire? Used to be that a score of 720 would get you the best rate available. Now you need at least a 740 for that. A loan of 95% with a 5% down payment would also keep you in conforming land, but most lenders are limiting that to 90% loan-to-value. It's an additional 5% down, but that's not going to stop someone with good income and credit from buying a home. Again, not much of a difference.
Is 100% financing gone? For the most part yes, however you can still obtain a USDA loan or a VA loan at 100% if you were a veteran. Down payment assistance bit the dust back in October so you can no longer obtain an FHA loan with no money down. You can however get a gift from a family member for your down payment effectively still making it a 100% financing deal.
These things altogether do show a bit of a tightening in the credit markets, but certainly not a "frozen market" or "credit crunch". The markets are actually moving back to the place they were 10-15 years ago when a more prudent and realistic approach to lending money was the rule, not the exception. It's not the wild west of lending anymore like it was 2-3 years ago, but finding a loan is hardly impossible.
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Hi Jon: I must disagree with you here. A couple years ago I had lenders going down to a 560 with 100% financing. Not just the 100% financing but what about the sub prime financing that has disapeared which went down to a 500 FICO? What about that CAP program (I won't say the name but from the largest bank in the country) where they would take a 60% DTI, 1 day out of BK, no job length history required, no part time job histroy required, and only the primary wage earner needed a 620 - the other borrowers credit scores were irrelevant!
So I ask the question to you: how many borrowers who were between 500 and 620 can no longer get financing, how many who would have gone with a no income or a bankstatement program, how about all the extra fees that have been imposed for FICO scores under 740 (yes 740 now), how about the MI factors that have increased for less than 20% down, don't forget about commercial mortgages which have tightened up their guidelines too, what about those credit card companies reducing outstanding credit limits and canceling unused cards, how about credit card companies all adding universal default clauses to their contracts.
I could go on a bit more but you get the idea. I agree with you that credit has not dried up - it is not frozen - but there is a very real "crunch" in place.
:)
Matt Listro
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