Realtors can't sell!!! - Because of Tight Mortgage Guidelines?

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

real estate market

 

Do you feel that today's mortgage gudelines are hurting realtors from selling more homes?

Do you think it could be the buyer not being in a good position?

 

People, I get the fact that lending guidelines have become more strict over the last 12 months. I think I have seen it all in the 18 + years that I have been in the mortgage business. But in my honest opinion, I think the biggest hurdle has been the credit score requirements. But is it a challenge that can be over come in a short time period? Read more for my answer/opinion on this topic.

 

 

 

What prompted me to write about this was this article by Christine Ricciardi - Real Estate agents want subprime alternative for too-strict underwriting - Here are a few statements from the article.

 

realtors stating that down payment requirements are too stringent

I wish I could have interviewed all of these real estate agents. My question would be, "How are these down payment requirements too stringent?"  "Could you please give me examples."

Let's review some facts. You can still get a FHA loan with 3.5 percent down. You also have USDA loans and VA loans which allow for for 100% financing. Sure, there are restrictions for these two types, but it is available. In regards to conventional loans, you can still do 97 percent financing, but the credit score requirements are extremely higher, which is why FHA would work out for more if it was a down payment issue.

Don't get me wrong, I am not one of these "must have skin in the game" type of advocates. FHA loans have been around since 1934 and for the most part, the down payment requirements were 2.25 percent down. So it's up to 3.5 percent now. Yes, depending on the purchase price, that could be another $1,500 to $4,500. But we aren't talking about $10,000 to $20,000 more. People need to stop writing that now is a great time to buy. And buyers need to stop thinking that this is the best time. It's always a great time to buy, when you are in a good position to buy.  Read : When is it a good time to buy a house?

 

 

subprime mortgage alternative

Ouch... I could write a whole book on this statement. "needing a High quality subprime mortgage program" Let's revisit history. In the late 90's, the government forced Fannie Mae and Freddie Mac to make housing more affordable. This is when they came out with 100 percent financing and better yet, when they allowed these same buyers to have back-end ratios of 55 percent. My common sense says that you are just looking for trouble with this equation. We are talking about 55 percent before taxes being taken out. The borrower's gross income. Then the subprime market grew leading into 2000 to 2005, to where these investors would allow 50 to 55 percent one-time ratios, which would be a part of your front-end.

Quick education. Your front-end ratio is your principal & interest, plus taxes and homeowners insurance divided by your gross monthly income. Your back end ratio is the same formula, but adding on all monthly reoccurring debt, such as car payments, credit cards, bank loans, student loans, etc, etc.

The end result was that many investors got greedy and loosened the subprime guidelines. I knew loan officers that would put a decent borrower into a subprime loan because it was easier and quicker than getting them a FHA loan. Yet the FHA loan would have been much cheaper.

My problem with this statement? People making blanket statements, but not offering up solutions. Give me a few good examples of what the "subprime mortgage" should allow.  I hated when people were calling FHA loans the new subprime after the demise of the subprime industry. But from what I know after 18 years, you really can't get much better than an FHA loan that still has decent guidelines than what a subprime mortgage would allow with less down. What could be the main argument? Credit scores....

 

 

 

credit crunch - credit scores

The BAD Credit score argument

I don't want to point the finger at just realtors, because I think many loan officers are just to blame when it comes to credit scores. In my opinion, it's called, "setting your clients expectations to a certain level". We all want to help now. But many mislead or make it sound easy because they might have a 600 credit score program, but don't fully understand it. In my opinion, people should not be waking up one day and say, "I want to buy a house tomorrow". It should take some careful planning and consideration. In reality, people shouldn't be buying a home if their credit and finances are screwed up, especially in the last 12 months. Yes, I understand that things can happen unexpectedly.

Let's take a look at the credit scores. Many lenders want 640 or higher. Some of us can still do down to 620 or even 600. I get that there are some people with 590 credit scores who have decent credit, that would be in the category of 'less than perfect credit', but that they are still a good risk. I just closed on a VA loan in which the borrower had 592 credit scores in December of 2010. When they went to closing, I had their credit scores up to 638. I have another borrower who had a mid score of 598 in January of this year and as of now, their mid score is a 645.

 

 

Conclusion : I am hearing many complain that it's nearly impossible to sell homes because the mortgage guideliness are way too strict.  Yes, you have issues when it comes to conventional loans that will only allow for a 45 percent back-end ratio if the credit score is a 720 or above. Or a back-end ratio of 41 percent for those with a credit score from 680 to 719. All of this is because of the MI companies, the mortgage insurance companies. And yes, you can do lender paid MI and such. But with a FHA loan, you don't have to worry about all of these differences. But given a few of my examples above, you can easily see that if a buyer speaks to a very qualified loan officer, they should be able to buy in 6 months. Sorry, but the mentality with so many realtors and buyers is that they must buy NOW.... and that is not the case. Waiting 3 to 6 months to get their stuff in order is not going to kill anyone. Besides, as I mentioned, buying a home should not be a split second thought, that you get up and do it now. As a buyer, if you know you don't have the best credit now, get with a true professional to help you get to that point. Articles such as the one I mentioned above, makes it sound like it's nearly impossible and because of it, it's hurting the economy. Yes, the economy needs the housing market. But there are way too many tracks that lead to the main station. One needs to truly understand the ins and outs of mortgages, and not just what they hear from each other, aka, water cooler chit chat. Just think about it...

 


UPDATE as of 5-14-11 2:15 pm - I just did some more reading and apparently some of us seem to be on the same page or have some of the same thoughts. The bottom line, many people want it now, and not to work for it. Two excellent reads below... please take the time to read these.

George Souto wrote : I want it now!!

Lenn Harley wrote : Mortgage loan denied!!!  What???  I have excellent credit!! What's going on?

 

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 1 time:

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  1. Tim Peterson 05/15/2011 02:15 PM
Topic:
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Rainer
14,446
Victor Runkle
Cascade Home Sales, Inc. - Vancouver, WA
VA Real Estate Agent

Good post!  Lending is finally back to the way it should be.  Being able to get approved for a 100% home loan the day after a bankruptcy discharges, put simply, is a foreclosure waiting to happen.  When I was an LO I remember the selling point from all sub prime account executives was to get those buyers with 580 credit scores into 100% financing and then refinance them into a conventional loan in two or three years once their credit was good enough.  For the most part, the spots on a leopard don't change and to the point you brought up there really has not been enough preperation for the responsibility of such a large debt with that type of credit.

Home loans were taken for granted by the consumer because nearly everyone could get one.  Going into the largest debt a person can have in their lifetime should most definately require an investment.  Cash or time in the military, either one changes the paradigm of the individual on how serious they perceive the commitment they are undertaking.

 

 

May 14, 2011 02:05 PM #19
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Marilyn Boudreaux
Marilyn Boudreaux, Century 21 Bono Realty - Lake Charles, LA
Lake Charles LA Century 21 Realtor

very well written Jeff, I hear it all the time in my own office agents blaming the loan officer are you kidding me?  Sometimes the loan officer discovers things the buyers did not share SURPRISE!  It all comes down to your point of spending time with a client to really educate and prepare them, get them ready to buy.  So many have great credit scores but are surprised when they find out how much down payment/closing costs are no one thinks about that.  I do think it is a good time to buy with the rates which can save buyers money but only if they are ready to move forward and have had that education with a loan officer.  Good to see you back in the blog scene!

May 14, 2011 03:13 PM #20
Rainmaker
1,086,367
Greg Nino
RE/MAX Compass, formerly RE/MAX WHP - Houston, TX
Houston, Texas

Jeff,

Like I said in The Cave, the people buying now are the ones that should have been buying alllllll along.

May 14, 2011 03:55 PM #21
Rainmaker
773,382
Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

I completely agree.  In my experience it hasn't actually been difficult to get buyers qualified and the ones that aren't able to qualify SHOULDN'T qualify or be buying a home until they clean up credit & save a little money first.  I don't want to sell homes to people that in 2 years will be foreclosures or short sales because they never should have purchased one in the first place.

May 14, 2011 04:20 PM #22
Rainmaker
414,612
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Mortgage guidelines are strict right now and they are affecting what we can do.  I would appreciate being able to sell some of my short sale sellers a home right off the bat instead of making them wait.

May 14, 2011 04:31 PM #23
Rainmaker
886,250
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

I agree that some of the lending guidelines and overt caution the banks are displaying are hindering progress, but I want more sub prime loans like I want a hole in the head. 

May 14, 2011 04:35 PM #24
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Jeff, glad you're back!  Missed ya'!

May 14, 2011 04:37 PM #25
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

PAULA.... . sounds so easy, right?  But I guess it's easier to complain, without coming up with solutions or changing with the present. And thanks for the polite compliment.

FRANK & SHARON.... . you make an excellent point regarding appraisals... and people just lump that in with mortgages, when it's not the lender who appraises the house. Now, I do know some values have been cut by underwriters, but I find it rare. And yes, I see many realtors and loan officers that push buyers... sad, but it's a fact and part of reality... and thanks for the polite compliments.

NANCY.... . yes, the subprime giudelines were not sensible and look where that got us. Hey, I am not 100% that a buyer needs to be better than good... less than perfect credit is good with me...  just as long as the whole thing makes sense, and that you can prove what happened in the past. And thanks for the kind words and for that polite compliment. Again, thanks

AARON... .  well, what you are talking about is a case-by-case scenario. Just because one would have a late payment doesn't kill a deal. Maybe the back end ratio was very high. And or no reserves left over... sorry, but that is a blind statement in my opinion, because there could have been so many other issues... and many realtors think they know the whole deal. Unless you are actually looking at the deal like a loan officer does... sees the credit, the income, the deposits, and so much more... you just don't know if it was really that one late that killed the deal. And not just because the loan officer said so... I know loan officers that state one reason why a deal was killed and not the real reason, so they don't look bad. I have seen it happen with my own two eyes ..  Just giving my .02 with some thought...

JIM.... .  well, that's easy for a realtor to say and maybe even more so when a good part of their closings are cash buyers. That still doesn't solve the other problems... or that it helps me. Just sayin.  Thanks

NANCY.... .  they don't happen to all realtors...

MICHAEL.... . that would be a great place to start... but I still come across deals that were denied and those buyers were given false reason for such a denial. I look at the credit and the scores are very low... many lates... some collection accounts.. and after talking to the buyer, finding out that the loan officer didn't even go over the collection accounts or ask why they were late. Major Red Flag.. and this has happened more than it should .. and even in the last 6 to 10 months. Sad... and for me, this should be a basic thing to know and understand as a loan officer... outside of how to calculate income, which many don't know how.. again, sad...

 

May 14, 2011 05:11 PM #26
Rainer
284,418
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Jeff,

Great article - setting forth the actual facts (like the elephant no one wants to admit to -- that Congress pushed Freddie and Fannie into "making sure everyone could buy a house").

Keep up the good work!  Maybe we will get them educated eventually.

May 14, 2011 07:40 PM #27
Rainmaker
4,432,217
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Good advice for agents and buyers. It is important to work with a good loan officer who can guide them. Great post.

May 15, 2011 12:19 AM #28
Rainer
56,110
Teresa Tedder
Carolina Realty of Wilkes Inc - Wilkesboro, NC

I agree with you! 3.5% isnt too much to put down but I do think it would be helpful if we could evaluate the credit scores a bit differently.  I think a "weighted" score could be helpful.  There are many people who have lost their jobs and started new careers or had to take paycuts in their current career because of the economy.  These folks are having to sell their homes because they can no longer afford the payment.  They would like to turn around and buy another home but their credit score has taken a hit because of the job loss or pay cut but they are responsible borrowers and contrubute to society daily (and it took them 9 months to sell their home before they could get out from under the debt and this put a strain on their credit----but they didnt give up, they kept fighting the fight and kept paying their bills, albeit late some months).

If the credit scores from 2008-2011 could be evaluated on a case by case basis instead of just looking at the score, it could help open up a few opportunities for buyers.  Instead, these buyers cant get a loan to buy a new home and must go into a rental type situation.  They are responsible people who have done the right thing and who know how to budget.  If their credit scores from 2004-2008 could be given 80% of the weight and 2008-2011 be given 20% of the weight to determine the credit score, that could be very helpful for many responsible buyers out there!  Instead of closing the door in the face of everyone that doesnt fit the bill, lets make sure we are keeping responsible people in the home buying market!  We could also implement required financial planning classes that must be completed prior to closing (by the buyer with a credit score from 590-620) and required budgeting workshops for first time homebuyers (prior to closing). 

It amazes me that 2 of the most important decisions one can make, require NO education in order to do it!  That is: having children and buying a home!

For every one home sold there are 2 jobs created. Lets open up the housing market enough to make a difference for everyone! Lets get help to those that deserve it (of course there are borrowers that will not and should not qualify) and get the market rolling again (not in the same way it was before but BETTER!!  Maybe not as many sales but BETTER sales turning out more educated buyers with a PLAN instead of just a "wing and a prayer" type budget)

Realtors and lenders have the same clients and therefore should have similar goals. When a lender tells me about a problem, I respect their position and understand they are just as disappointed as everyone else that things arent going smoothly. We work together to try and fix it and if it cant be fixed we part with a plan for the buyers to get themselves in a position to buy later.  We start on the same team and we end on the same team. Real estate is a team oriented career.  One cannot do it alone!!!

Nuff said.

May 15, 2011 02:31 AM #29
Rainmaker
2,463,053
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

We have yet to find the middle ground and are still in the reactive stage of the recent failings involving this subject matter...In time, methinks water once again, will find its own level..Until then, we have to make bricks without straw...doable, but a lot of extra work...thank you for a relevant and professional post...Jeff

May 15, 2011 03:10 AM #30
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

KEVIN... . that's the whole thing, many think guidelines are tight because it's gotten harder, when they should have been like this all along. What's wrong working with someone that is not 100% ready now, and they buy 6 months to a year from now. thanks and thanks for the compliment..

MISSY... .  yea, it can be amazing.. I have been spacing my posts on my personal FB page and always on my FB fanpage when I write them on my FHA Expert blog... just more exposure and people seem to comment more on facebook... thanks and hope all is well..

PATRICIA.... . thanks for stopping by and for the kind words & compliment.

VICTOR.... . I agree and loans were taken granted for over and over...  and thanks for the compliment.

MARYILYN... . hey, us loan officers and lenders/banks are in front of it all... and as mentioned by someone else, even if the appraisal comes in low, that can be thrown into the whole mortgage equation. ps.. love ur new pic and thanks for the polite compliment.

GREG.... . and that is when it's a great time to buy... when you can afford it... Just so tired of the "It's a great time to buy now" titles over the years..  thanks

JOHN & KASEY.... . well, it still is hard to qualify many, even those with decent credit, but have low credit scores... that can be a challenge at times. But those thrown into home buying, when they should be educated, that has been part of the problem... and when lending was easy, that didn't help.

TNI... . define strict... because they were loosey goosey from 2002 to 2005.. and that got us in the mess that we are in today, besides home values dropping. There are still buyers out there... or those that we can help become buyers in 6 months. It doesn't always happen over night.. just sayin... thanks

 

May 15, 2011 05:17 AM #31
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

PHIL... . and it makes sense that they tightened down the hatches some, from all of the losses, because so many got greedy.. but you are right, we don't want you having a large hole in your head.  ;o)  ps.. I agree..

PAT... .  thanks Pat.. means a lot and I appreciate that... just got burnt out and needed some down time from blogging...  let's see if I can get my juices flowing again... will have a good series coming up this week, starting on my outside blog, The FHA Expert. thanks and missed ya also..

STEVEN... .  what I truly think we need is for Congress to listen to a few of us, and not those that have each other in their back pockets... or who voted for who...listen to those in the trenches.. and thanks for the compliment and for the kind words.

GITA.... . so many get wrapped up in the loan officer's promises and can't focus on the reality and or what is important... and thanks for the compliment.

TERESA... . as much as your suggestion regarding credit scores sounds good in a way, I think it would lead to more issues... hence why something like FHA is great, because you can do a manual underwrite, even if the system says refer... but as stated, you still have the fico score barrier. Besides, I didn't mention this, but there are some companies that will go down to 580, but below 600, you need 5 or 10% down. My whole point in my examples, that relates to your suggestions... getting the scores from 595 or 610 to 620 or 640 in many cases would just take 2 to 3 months. I have done this a lot with borrowers... so what is wrong with a little time to comply?  Just curious... but yes, a plan is needed and should be required... maybe a written plan signed. These classes and such that you mentioned...  some I disagree with and what they teach, their methods... etc, etc.. To me, many buyers don't listen or get taught the wrong stuff... and I think it is a way for many to make extra money by giving these classes...  who don't have the buyers best interest... thanks for your input and feedback...

RICHIE... . I totally agree, that things are in the middle... that in time, a lot of this will sift itself out... and it has started already in some areas... some programs coming back, etc, etc... thanks for your input and for the kind words..

 

May 15, 2011 05:42 AM #32
Rainmaker
400,528
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Jeff... I like the old saying "excuses are like as*holes. Everyone has one". When you are a Realtor that cant sell a home or a Mortgage Originator that cant close a loan... its always easier to blame someone else or guidelines that are in place. To me it just means I have to work a little harder at finding the right clients or right marketing or right partners to work with... roll with the punches and make it happen.  It may have slowed down, but the Real Estate market has not stopped. Someone is going to close the deal, why shouldnt it be me? Thats how I see it.

May 18, 2011 04:37 PM #33
Rainer
69,406
Brent Kluge
Senior Vice President, Secured Funding Corporation - Rockville, MD
I do mortgages REALLY well and I WON'T RIP YOU OFF

Jeff... what happens if this buzz about pending legislation to MANDATE an increase in REQUIRED down payment sets in?  The whole, get rid of Fannie/Freddie, take away FHA's large market share, get buyers with more 'skin' in the game....

If this goes through - things will REALLY change.

 

b

May 19, 2011 12:34 AM #34
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

JOHN... I couldn't agree more...  someone will always be buying a home, in any market. Sometimes not as many as years past... the end result, know and learn what needs to be done to make it a smooth process and a complete closing.

BRENT... funny that you bring this up... I will be writing about this tomorrow... it's scary when it comes to our so-called leaders, polictians, thinking like they are god. If they make this change for all loans, it will kill the real estate market which will kill the economy. But from what I am finding out, they would only be controlling conventional loans... which in all honesty, won't bother me for the most part... but it would hurt those with excellent credit scores... will explain later. thanks

 

May 19, 2011 03:31 AM #35
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Bryan Robertson
Los Altos, CA

Jeff - Great points on lending standards.  I think the best point you made and I wish I had included it in my blog is the notion of ratios.  When lenders went over 50%, that should have been a huge red flag.  All other criteria aside, if someone is spending half their income on a mortgage, a job loss would put them in trouble really fast.

May 20, 2011 09:07 AM #36
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The Somers Team
The Somers Team at RE/MAX Access - Philadelphia, PA
Real People. Real Dreams. Real Estate.

Jeff - Very informative and well explained !  The fact is is that there are a lot of options.  So sometimes folks are informed.  What I would like to see is more products for the self-employed folks who have high credit scores but do not show a lot of income.  Some sort of sub-prime product can be created for these well qualified buyers.  That is what they will originally created for before things spiraled out of control.   Same thing goes for investors as it is so difficult for investors to procure financing, even with 20 percent down sometimes if they already have 4 properties and what not... but that is another story and goes off topic from your blog.

Glad to see this featured and hope it gets read by a lot of folks in the industry and consumers alike !

 

May 21, 2011 02:52 AM #37
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
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May 21, 2011 07:17 AM #38
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