Is increased lender confidence - key to a housing market turnaround, in Chicago and elsewhere - returning?
In some markets across the U.S., that seems to be the case. Until very recently, virtually every home market across the country insisted on higher down payments, suggesting local housing prices were still sliding downward.
But now, according to an article by Ruth Simon in the December 16th Wall Street Journal, Private Mortgage Insurance Companies, including larger insurer MGIC, seem to be feeling better about market conditions in many areas, and have taken several mid-sized markets off their "watch list."
For homes in markets removed from their list, borrowers need a minimum FICO Credit Score of 680 to finance 95% of a home's value. Those still on the list - including, unfortunately, the Chicago Metropolitan Area - the minimum FICO Score remains at 700 for such high-leverage financing.
New markets removed from the watch list, and thus eligible for mortgage financing with as little as 5% down, include Dover DE, Akron OK, Denver CO, St. Louis MO, and New Orleans LA. Here's a link to the MGIC Special Underwriting Guidelines, via their website, www.mgic.com.
Back in September, Genworth Financial, another Mortgage Insurance Company, reduced its list of declining markets to only five states - California, Michigan, Nevada, Arizona, and Florida. Since July, the firm has removed 199 metro markets from its "Declining Markets" list. Keven Schneider, Genworth President, sees home prices stabilizing in many markets. Although in others, further price drops are likely, he concedes, tighter credit standards, in his opinion, should reduce overall rates of default.
States still facing steep price declines, such as Nevada, parts of California, and Florida, still require higher down payments, more stringent credit standards, and more scrutinized appraisals, however. Countering the trend last month, U.S. Controlled Mortgage Guarantor and Investor Fannie Mae increased its minimum credit score to 620, up 40 FICO points from the previous 580 level.
Overall, however, the M.I. Company moves show their confidence that many home prices might be, at a minimum, stabilizing.
One other reason for the slightly more generous lending standards - intense competition from FHA-Backed Loans. These FHA Loans require no Private Mortgage Insurance (although they do come with a similar Mortgage Insurance Premium for all borrowers), and a down payment as low as 3.5%.
In addition to changes made by the Mortgage Insurance Companies, one major national lender - Wells Fargo Home Loans - is identifying more markets as of lower risk, and reducing down payment requirements in these locations.
Neil Librock, in charge of evaluating credit risk for Wells Fargo Consumer Finance, sees "moderation" in many of the formerly-troubled markets. He sees more borrowers in these markets qualifying for loans with less than the previously-required 20% down payment.
Please see our post today via BlogChicagoHomes.com.
DEAN MOSS & DEAN'S TEAM CHICAGO
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