In the past few weeks we have received notifications daily from the different lenders with whom we work about guideline and program changes that are resulting in tighter guidelines. Also making changes to underwriting policy effective in August are the Federal National Mortgage Association (FNMA, or Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac) that will restrict qualifying on interest only, all ARM and high loan to value products.
Not surprisingly the politicians are getting involved and in several states, most notably Minnesota, legislatures are passing bills to further restrict lending criteria. In the case of the Minnesota, the new legislation has wiped out approximately half of the borrowing market. In trying to "protect" borrowers what has happened instead is the legislation will prevent thousands of homeowners from refinancing their homes out of adjustable rate products and into fixed rate or longer term ARMs, prevent them from getting out from loans that they obtained to purchase their homes using sub-prime financing due to poor credit and now that they have improved their credit and scores would otherwise qualify for a conventional mortgage.
With the tightening of the credit standards we will face difficult challenges in Southern California assisting potential homebuyers in purchasing their new homes with low down payments. The couple looking to purchase their first home with even 5% down will be facing tougher qualifying guidelines and higher rate loans in the near future. With a median home price in my home area of Long Beach of approximately $550,000 that means a young couple now may need as much as $55,000 to purchase their first home.
The media has been reporting surging percentages of foreclosures in 2007 compared to 2006 and 2005, of course the percentages are much higher as in 2005 and 2006 the foreclosure rates were minimal. With the tremendous value increases starting post-9/11 any homeowners who had difficulty with their mortgages had plenty of equity and were able to sell their home, pay off their mortgages and collect some profit. With the flattening of the local market those who purchased in late 2005 through this year have seen minimal equity growth and when faced with difficulty making their payments may not have the ability to sell and clear the mortgages. If one looks at the actual number of mortgage defaults and foreclosures however as a percentage of the total housing market and housing stock it is a very small percentage and well within or below historical norms for foreclosures.
Looking forward those families considering purchasing a new home in the future, be it next month or next year, need to start working with a trusted mortgage advisor today to ensure they have the proper foundation for qualifying and will be able to close a mortgage to purchase their home. Pay attention to your credit and start saving as much money as you can--you will probably need it.
If I can be of assistance and start you on the path to homeownership please contact me.
Tuesday July 31, 2007
Dennis C. Smith, California Dept. of Real Estate Broker #00966315; NMLS #296660
Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597; NMLS #238166
Contact Us | Dennis' Bio | Testimonials | Truth-In-Lending Disclosure Explained | New Good Faith Estimate | Social Media | Tell a Friend | Home | Loan App Checklist | Site Map | Loan Application | Mortgage Calculators | Customer Login | Are You Pre-Approved? | Daily Rate Lock Advisory | My Blog