What has happened in the mortgage market?

By
Mortgage and Lending with American Home Bank

What is happening to the Mortgage Market?

  Dear Business Partner,

Over the past year we have seen many changes within the lending industry which have directly impacted the ability to finance potential borrowers. I write to you today to try to explain what is happening so that you can adjust your focus, methods and marketing accordingly to attract buyers that have the ability to purchase. The sky is not falling, the world is not going to end and yes people will still be buying homes. That is not to say the road ahead will not be difficult. It will be and we need to be prepared for it. We can start by understanding it.

First let me begin with where we have been. It was a little over a year ago when the sub-prime market took a turn for the worse. While we all see the effects and watch the news essentially what has happened within the mortgage industry is many products have disappeared. It started in the first quarter of 2007 with the elimination of the products offered by "sub-prime" companies such as 80/20 loans to eliminate mortgage insurance. These products would offer a first mortgage at 80% of the value of the home and a second mortgage at 20% of the value of the home requiring no down payment and no mortgage insurance. Many of these products were the adjustable rate products which have caused much of the media attention and legislation changes you hear about. Lenders nationwide quickly tightened up guidelines and started eliminating higher risk products such as Low Credit Score programs, No Documentation Loans and other similar products where the borrower's income or assets were not verified.

As lenders scramble to get their feet under them they can't ignore the ramifications with the real estate market itself. You may have heard the term "declining market" thrown around over the past year. A declining market is just like it sounds, where property values within the town are declining. The determination that a property is in a declining market can be made by the appraiser, by the automated underwriting system or the underwriter. As more and more properties that have been reduced, and reduced and reduced yet again start to sell it affects the market and property values creating the declining market. This too has an effect on the ability to lend. Essentially, when a home is determined to be in a declining market most lenders require the Loan to Value to be lowered by 5%. In some cases where there is a large down payment there is no effect however in cases where minimum down payments are made such as 100%, 97%, 95% financing applies it does make a difference. It can be a deal killer. Government loans such as the FHA and VA do not fall under this policy at the current time.

The most recent curve ball over the past several weeks was thrown by the mortgage insurance companies which have taken the stand that they will no longer provide mortgage insurance on products over 97% Loan to Value and the borrowers must have a 680 FICO or better or the Loan to Value is dropped to 95%. This change is a big one and basically eliminates the use of products like My Community, FLEX 100, Dreamaker and Home Possible for 100% financing deals and in many cases even 97% deals when the borrowers FICO is under 680 which is very common.

This change could have a big impact with mortgage companies not approved with HUD or that do not have the ability to offer the CHFA program as 100% financing options for borrowers are drying up.

So, what does this mean to the person looking to purchase a home? Well, if you are looking to buy a home and you have a sizable down payment, good credit and you can verify your income and assets it means nothing. It's a great market to buy in and there are plenty of loan programs with still historically great rates. First time buyers can take advantage of Federal and State programs like the FHA and CHFA and no, you do not need perfect credit. Both the FHA and CHFA have options to offer 100% financing either through Down Payment Assistance Programs. Veterans can take advantage of the VA Mortgage program which offers 100% financing with no mortgage insurance. Those borrowers with larger down payments but not quite 20% still have creative options available to reduce the cost of the mortgage insurance. Self employed borrowers or anyone that has difficulty showing income will not have it as easy. There are limited programs for No Documentation type loans and the ones that are available have much more stringent guidelines and down payments. Even though more difficult the programs do still exist.

In a nutshell the lending environment has changed. In many ways, aside from the technology, it has taken a step back ten years. The only thing you can count on is that there are more changes to come. Over time you will see new products emerge offering yet again looser guidelines as investors sift through the dust and determine what worked and what did not work over the past five or so years. What everyone needs to keep in mind is rates are still great and it's a buyers market.

What can you do as an agent? Start looking into programs such as the Ameridream Down Payment Assistance program and the benefits it could offer to a potential seller by marketing it. Many sellers can use this as an advantage in the market by advertising that 100% financing is available on their home. You can find more information at Ameridream.com. Ameridream provides signs and marketing materials to assist you. Not only can the seller provide the down payment through this program but also the closing costs. Next would be to embrace the FHA, CHFA and VA programs including 203k rehab loans. If you do not understand them there is no time like the present to learn. I am happy to sit with individuals, groups, offices or anyone you wish to do training on any of the above products. We have to get back to the basics and help each other get this market back on its feet. Educating sellers, potential borrowers and the public in general is a great start! Again, I am happy to meet with anyone that wants to learn more and how to use these powerful programs.

If you found this helpful please share it with a friend. The more people that we can help to understand the market the better chance we have of helping it prosper.

 This is from the Mortgage Market guide.

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