Mortgage Posted in by Admin
July 17th, 2009 02:25 pm 0 Comments

Finding a Home: Easy. Finding a Mortgage: Hard

You’ve heard it on the news, read the “price reduced” signs and seen the foreclosures lining the streets. With the market in distress and home prices dipping so low, one would think swooping in a buying a home would be an easy venture. Unfortunately, nothing could be farther from the truth. Shell-shocked by sub prime mortgages, today’s lenders are keeping the lid tight on their coffers and putting even the most qualified buyers through the ringer to qualify for a mortgage or to refinance.

“Financing has become the single most important factor for home buyers and sellers,” says owner of Palisades California based brokerage firm Amalfi Estates, Anthony Marguleas. “Lenders are changing their guidelines every day and making them more restrictive.” says Marguleas.

Several of Marguleas’s sellers had been preapproved for loans after a 10% down payment. As their closing dates approached, they were informed that the lending requirements had changed and approval would require 20-25% down. Marguleas now requires his clients to present a mortgage preapproval that is no more than a few weeks old. “If they show a preapproval from three months ago, it may no longer be valid.” he says. “If they show a preapproval from three months ago, it may no longer be valid.”

Steve Jacobson is the president of Fairway Independent Mortgage Corporation, a lender based in Madison, Wisconsin feels that perhaps brokers have gotten a bit spoiled from the previous market. “To me, it’s like it was back in the 1980s. When you sat with someone 20 years ago, you had to discuss four things: job stability, cash, credit and income. All four had to make sense for a loan to work.”

If you have a low credit score or are perhaps lacking in the assets department, do not fear. Weakness in one particular area of your application does not mean all hope is lost. The difference would merely have to be made up for in another area, perhaps with a higher down payment.

What do you need in the current market to get approved for the loan you desire?

A Solid Credit Score

What was that old saying?  “Cash is king?”  Well move over, cash. Meet the FICO score. As the real estate boom grew louder and louder, sub prime mortgages became more and more common. Stated-income loans (loans in which no proof of income is required) became commonplace. A.W. Pickel, President of LeaderOne Financial said, “A few years ago, you could get a 100% stated-income loan with a 640 FICO score.”

Such a thing is not the case anymore, which is bad news for people looking to buy stuff they can’t afford or for those folks who are on the cusp of buying that new house, but are edged out by tightening of lender purse strings. Vice President of mortgage research firm, HSH Associates says, “To be a successful borrower today at the best possible rate available, you have to have a FICO score of at least 700 or 720.”

Bruce Brown, president of First Security Mortgage Company points out that “Earlier this month, Fannie Mae issued a directive requiring lenders to adjust loan pricing by 0.5% to 2.75% of a loan’s value based on a borrower’s credit score. Those with scores of 720 or more can qualify for the cheapest rates and no fees. But with scores between 700 and 719, borrowers will have to pay an additional 0.5% of the borrowed amount in the form of a fee or a higher interest rate. That’s an added $1,000 fee on a $200,000 mortgage, or a rate increase that would be equivalent to that amount.  These cost adjustments are done in 20-point increments so if you jump your score by as little as 20 points, the cost savings are significant,” Brown says.

A Big Down Payment

The days of 100% financing are over. A down payment of 5 or 10%? Forget about it. Mortgage insurance providers no longer cover 100% financed loans. The same goes for about 95% of buyers with lower credit scores.   If you’re in the market for a condo, it could cost you even more.  Many mortgage firms require down payments of 20% or more with the additional requirement of bank statements confirming assets that will cover up to six months of mortgage payments.  “The combination of doubling the down payment and requiring reserves has pushed many people out of the market,” he says.

Get Your Paperwork Right

Where just a little over a year ago people walked away with 100% financing on stated income alone, things have gone in the complete opposite direction as of late.  Nowadays, even people with the best of credit scores are put under a microscope to verify their income, assets and other financials.  So when you take your paperwork to the lender, be sure to have all of your ducks in a row.  “Even people who were being treated like the kings and queens of credit before are now being treated like everybody else.” states Brown

Aftermath of Credit Collapse

With the market downturn in full swing and lenders scrambling to pick up the pieces, many changes can be expected in the coming months.  Below are just a few of the biggies buyers can expect to see.

No matter where you go, home values are in the basement and investors are more cautious than ever to fork over cash to banks.  As a result, appraisers feet are being held to the coals to make sure that appraisals are up to snuff.  “You’ve got people who are creditworthy and can get approved for a loan, but the investors may look at the appraisal and deny the loan or make the appraiser jump through a lot of hoops to justify it.”
Explains Bruce Brown.
For example, appraisers are required to show recent sales of comparable homes in the vicinity of the property over the past 12 months.  Recently however, that time period has been trimmed down to as little as 6 months which leads to what some might consider, insufficient data in less dense areas or where few similar homes are available for comparison.
Homebuyers can also expect hikes in fees as more banks are turning to third-party appraisers to make sure the appraised value is accurate.  “We’re seeing, in some cases, anywhere from $50,000 to $100,000 price adjustments,” he notes.  “A property that comes in appraised at $400,000 may come in, after review, at $300,000.”  Says Marve Stockert of Illonois Association of Mortgage Professionals.  With the cost of the review hitting upwards of $250, the cost is often passed off on the buyer as an additional fee.

Re-financing headaches

Many current homeowners are looking to take advantage of the low interest rates and refinance.  After all, if you’re not interested in buying a new home, why not pay less for the one you’ve got?  It sounds easy enough, even if you have never been delinquent on your loan.  It is becoming a common practice for second mortgage lenders to require homeowners to pay off their second mortgage before refinancing.  The reason?  Should a borrower default on their loan, the second mortgage lender gets paid only when the primary lender is paid what they are owed.  In many cases, this leaves secondary lenders empty handed when foreclosures and short sales occur. 

Return of the FHA loan

During the boom, FHA loans were largely ignored due to their low limits, strict appraisals and cumbersome paperwork.  Instead, most buyers went the easy route, that of the 100% subprime loans.  “They were more interested in moving fast and believed the hype out there that prices would keep rising forever and they could re-fi out of it,” says A.W. Pickel.

Presently, with subprime loans all but extinct and the Economic Stimulus Act of 2008 generating phantom cash from tax-payer/Chinese government coffers, FHA loan limits are reaching upwards of almost $730,000.  “Just for that reason alone you’ll see more people doing FHA financing” says Jacobson.  At his firm alone, there has been an 8% increase in buyers taking FHA financed loans.

Even Famous Rental Housing Isn’t safe From Housing Collapse Posted in Mortgage by Stephanie
February 01st, 2010 04:00 am 0 Comments

A massive rental housing development in the state of New York will be handed over to the property owners’ creditors, it was announced recently. News that the Stuyvesant Town / Peter Cooper Village complex was badly underwater and that its owners, Tishman Speyer Properties and BlackRock Realty, were having trouble paying the bills rocked both the state and national housing industries.

NJ Foreclosures Skyrocketed in 2009 Posted in Mortgage by Stephanie
February 01st, 2010 03:58 am 0 Comments

According to a news report released this week, residential foreclosures in the state of New Jersey skyrocketed in the past year to make the Garden State one of the worst in the nation. According to Realty/Trac, a real estatet statistics firm, New Jersey’s foreclosure rate was up an astronomical twenty-nine percent from 2008 to 2009, with counties in the southern part of the state taking some of the hardest losses. Commercial foreclosures did far worse, rising sixty-eight percent in the past twelve months.

Brits Using Credit Card to Make Mortgage Payments Posted in Mortgage by Stephanie
January 16th, 2010 01:54 am 0 Comments

An alarming study from the U.K.-based Shelter housing charity has found that many Brits are making their monthly home payments on plastic, placing themselves at high risk of running into default. A fairly high number of the nation’s households – about six percent – had encountered financial problems in the last twelve months significant enough that the have had to turn to a credit card to meet their mortgage payment or rent.

Unemployment, Mortgage Woes Make It a Renter’s Market Posted in Mortgage by Stephanie
January 16th, 2010 12:52 am 0 Comments

Once upon a time, it might have been easier to buy a quarter-million dollar home than to rent an apartment. Around the middle of the last decade, the combination of ridiculously low lending standards and high demand for rented housing meant that apartment vacancies were low, and landlords could command top dollar for their properties. But oh, how the times have changed.

Unlicensed Mortgage Modification Company to Cease Business in Idaho Posted in Mortgage by Stephanie
January 01st, 2010 09:10 pm 0 Comments

A New Jersey-based mortgage modification company has told a judge that it will discontinue doing business with consumers in the state of Idaho. A Legal Newsline report out of Boise broke the news of a settlement between state Attorney General Lawrence Wasden and Best Interest Rate Mortgage Company LLC on behalf of twelve complaining homeowners.

New BoA Chief Will Have His Hands Full Posted in Mortgage by Stephanie
January 01st, 2010 09:05 pm 0 Comments

Bank of America, the nation’s second-largest credit card provider, will be welcoming a new chief executive officer this week. It’s hard to say if there has ever been a time of more upheaval and drastic change in the industry at the point when a new chief has come aboard a major American bank. There’s no doubt that Brian Moynihan will have his hands full when he takes the reins officially next week, after having been hired for the job back in August. The bank’s credit card business faces an uncertain future with the introduction of many new laws affecting the industry, and Moynihan has had to acknowledge his employer’s responsibility in creating so many of the problems that led to the changes.

Professor: Let Homeowners Throw in the Towel Posted in Mortgage by Stephanie
December 01st, 2009 02:04 am 0 Comments

A law professor from the University of Arizona recently published a highly controversial study on troubled home mortgages. Brent White went so far as to say that sinking homeowners should give serious thought to just walking away from their obligation, a view that has had him under fire for the better part of the last holiday week. It’s not that homeowners should blindly turn their back on their legal responsibilities, White disputes.

Good Schools Add to Home Prices Posted in Mortgage by Stephanie
December 01st, 2009 01:46 am 0 Comments

What we call “zoning” for school placement in the United States is referred to as “catchment” on the other side of the pond. And it seems that parents will pay dearly to secure the prime catchment for their beloved babies. At the highest end of the scale, this means that some parents are paying as much as eight thousand pounds more for homes close to educational facilities that are considered to be superior, give the average home price across the nation.

Housing Recovery May Have Been a False Alarm Posted in Mortgage by Stephanie
December 01st, 2009 01:43 am 0 Comments

For a little while there, it looked like the desperately struggling American housing market may have been experiencing some relief. Today, the closely watched Standard & Poor’s/Case-Shiller home price index showed home prices falling again, following a marginal and brief rise during the months of September and October. The index follows home prices in twenty major metro areas throughout the United States, including Boston, Charlotte, New York, and Seattle.

Fannie and Freddie In Trouble… Again Posted in Mortgage by Stephanie
November 17th, 2009 12:23 am 0 Comments

Fannie Mae and Freddie Mac are back in trouble, it seems. According to a recent article from The Wall Street Journal Asia, the struggling entities have warned the U.S. government that they could end up needing even more support if the national mortgage-insurance industry continues to worsen at the pace it has been for the past months.