I recently completed a six part review the Homeowners Affordability and Stability Plan. In many of these 
posts, I mused about the Unintended Consequences that may be associated with elements of this plan.
As a disclaimer I must inform you this six part series was written between the time of the announcement of the plan and the March 4th date of details being released. I will need to conduct further review now that details have been released. I took a break and wrote about other subjects last weekend and Good News I’ve been really busy with my day job, originating mortgages in Greenville, NC.
The Obama administration, in the Affordability, section of the plan advanced the concept that borrowers with loan to value exceeding 80% could not benefit from the current refinance environment. This left me scratching my head, because this was, in large part, untrue. Then the light went on, there will be unintended consequences!
In the conventional lending space changes aplenty are occurring for both pricing and loan program guidelines. Let me share with you just a few! This is by no means an all inclusive list. It would take too long to detail them all. In fact, I haven’t even absorbed them all. Good News, I’ve bee too busy booking loans ahead of the changes!
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Coming Soon To A Lender Near You, If Not Already Implemented |
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Change |
Old Guidelines |
New Guidelines |
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LTV’s > 95% |
Allowed under certain conforming programs |
The maximum LTV is 95% |
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LTV’s > 80% |
The minimum credit score was 620 on conforming programs |
The minimum credit score is now 680 on conforming programs for LTV’s > 80% |
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Second Homes |
The maximum LTV was 90% on conforming programs |
The maximum LTV is now 80% for second homes |
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Cash-Out |
The maximum LTV was 85% on conforming programs |
The maximum LTV is 80% for cash-out loans on conforming programs. And paying off subordinate liens (second mortgages) is now deemed as cash out and is not allowed above 80% |
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Maximum Debt to Income Ratio |
The maximum DTI was 45% for LTV’s > 80% or determined by automated underwriting systems |
The maximum DTI is now 41% for LTV’s above 80% on conforming loans regardless of the automated underwriting system findings |
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Reserves |
Were determined by automated underwriting |
Minimum two months reserves and stricter requirements may apply for all conforming loans above 80% LTV |
Well, I’m no longer scratching my head! What was untrue is becoming true. I haven’t even touched pricing 
changes and I think I will save that for another day.
I will share additional changes for soft markets. Any of you ever heard of the soft market policies? I thought so!
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Soft Market Guideline Changes Coming Soon To A Lender Near You, If Not Already Implemented |
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Credit Score |
The minimum credit score was 680 for LTV’s between 80.01%--90% |
The minimum credit score will be 700 |
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Condominiums |
Condos were allowed up to 95% LTV |
The maximum LTV is now 85% for condos in soft markets |
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Interest Only |
Previously, interest only was allowed for LTV’s 80.01%--90% |
Interest only no longer allowed for LTV’s > 80% in soft markets |
Mortgage clients, now more than ever, you will need to be working with a knowledgeable home loan professional!
Realtors and builders, if you are not firmly aligning your business model to include a true partnership with a trusted mortgage professional, then you can expect messy and difficult transactions.
So here we go, expect more Unintended Consequences! Wait a minute are the consequences intentional? You be the judge!!!
As always, your comments are welcome.
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Jay Williams
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