Since the end of 2006, 82 subprime lenders have taken a crash.
The good news is that many subprime lenders remain. How does this affect you? Well, if you waited too long to close your deal you may no longer qualify. Guidelines are tighter and compliance is looking deeper into your application. FHA has been a help filling the void, along with programs like MY COMMUNITY now open to all Full Doc borrowers.
Here's what we're seeing in tightening of underwriting requirements:
• 100 percent loans are much more difficult to find, with the remaining subprime lenders now requiring 5 percent or 10 percent down.
• Stated-income loans, where income is not verified by the lender, are no longer available for subprime borrowers with income derived from salaries or wages.
• Minimum credit (FICO) scores are up by 30-50 points, depending on other characteristics of the transaction.
• Borrowers are being qualified for adjustable-rate mortgages using the fully indexed rate (the most likely rate at the first adjustment) rather than at the discounted initial rate. Regulators have been pressing for this, but the market is doing it voluntarily.
The tightening of underwriting requirements has not been limited to the subprime sector. The requirements in the so-called Alt-A sector, which is an intermediate classification between prime and subprime, are also being tightened. And so are the requirements for "prime."
Some loans that would have been prime last year will go Alt-A this year. Some loans that would have been Alt-A last year will be subprime this year. And some loans that would have been subprime last year will be rejected this year.
With the rise in Real Estate prices slowing, I highly suggest proper planning and immediate execution of your transaction.