Friday, June 4, 2010

Are Sub-Prime Loans Back?

GE is offering Subprime loans in England!  But the connotation brought on by the word "Subprime" is just too negative and so this time around they are being called "Complex Loans".  I really can't see what is so complex about them: 2 years fixed rate at 5.99% with a Floating Rate after the fixed rate period.  Sounds like a Subprime loan to me!  Higher interest rate for the higher risk of low down payment AND lower credit scores.  From what I can remember, this is what got us into trouble 18 months ago? 

HSBC is also offering a complex loan that allows up to 2 defaulted credit items and 1 of the defaults can be a mortgage and the borrower can have outstanding unpaid judgements. 

England gave us the Beatles, but the idea of Complex Loans may be less popular in America considering how badly we got bit by the defaults which caused the unraveling of the mortgage markets.  We knew it was just a matter of time before somewhere, somehow, Subprime would again be talked about.

Thankfully We Have FHA Financing Available!

As we look at the landscape of what is available in the market place for mortgage financing, it becomes clear that consumers need a low or lower down payment option when purchasing a home.  As I look back on my mortgage career, I now understand after hearing about this survey outlined below, as to why so many of my clients need FHA financing

The National Foundation for Credit Counciling has conducted a survey and found that 1/2 of Americans don't believe they would ever have 20% saved for a down payment for a home purchase.  If they can't scrape together a 20% down payment and the Conventional Loan Private Mortgage Insurance companies are tightening their underwriting standards monthly, where are 50% of American's going to go to get mortgage financing?

What is also obvious (thinking on what is on the other side of the coin) from this study is that 50% of Americans are okay with a 20% down payment?  Not at all, read on...

Here's what the rest of the survey tells us about what the other 50% of Americans are thinking (50% say they will never have a 20% down saved and here is what the other 50% say): 
  • 12% say 20% down is okay (Conventional loan works good here-one caveat is that credit scores need to be really quite good/great to get reasonable/best rates available)
  • 20% need a smaller down (FHA loan to the rescue!)
  • 18% need a gift (Again, FHA accomodates this need!)
In the end, if we had only conventional loans available, MAYBE 20% of the population would be taken care of  in their search for mortgage financing.  Thankfully we have FHA financing available to take care of the other 80% of buyer's and borrower's who need excellent mortgage financing options.

I have always been an FHA lender in my mortgage career and 75% of the over 3000 closed loans since 1991 have been FHA loans!

I look forward to providing professional mortgage services to those needing help with mortgage questions or needs! 

Wednesday, June 2, 2010

June 1, 2010: Fannie Mae to Require 2nd Credit Report pulled on day of closing...

June 1, 2010: Fannie Mae to Require 2nd Credit Report pulled on day of closing...

Fannie Mae just released another round of lending guideline changes that affect all lenders in the U.S. who underwrite loans to agency guidelines. The most significant change is that lenders will be required to provide a 2nd credit report pulled on the actual closing day - prior to the loan funding. HUD may follow suit with a similar requirement for FHA-insured loans in the near future as they tend to mirror many agency guidelines.

This new last minute credit check will apply to all conventional loans.

Any newly discovered accounts will trigger re-underwriting of the loan which has the potential to delay the closing. Any credit inquiries which appear as a result of shopping for or applying for new credit will stop the loan closing in its tracks until the buyer provides documentation that proves no new debt was obtained. Again, delays in closing will be inevitable with some buyers.

What Fannie Mae has discovered by combing through the records of all of the homes they have foreclosed on over the past 24 months is that many home buyers had gone out and incurred additional debts after their lender pulled the initial credit report. After closing, homeowners were becoming late on payments that were traced back to new debt that was found to have been incurred during the 30-60 window of time it takes to process the loan application and close escrow. A significant amount of audit results find that a great number of home loans would not have become as delinquent or required foreclosure.

How to manage things so that delays in closing are avoided:

• Always refer to a correspondent lender such as Primary Residential Mortgage who can deal with this issue at the closing stage entirely internally.

• Borrowers must be informed of this new change in national lending requirements and instructed to NEVER go out and apply for credit while the home financing process is active. There is a huge temptation by home buyers to go shopping for appliances, furnishings and home improvement items. Simply applying for a Home Depot credit card and not using it will force an underwriter to add 5% of the high credit limit to the bottom line total monthly payments - yes, even if the card is not actually active yet.