Rates and Risk - Lenders avoiding risk like pandemic plagues

One would think after reading the newspapers and watching the news media, that very few can get mortgage loans these days, like only the Warren Buffett types. Not true. But admittedly it is tougher to qualify compared to a year ago.

Lenders have increased their requirements as a result of the housing market slump and sub-prime mortgage bust. Loans without down payments are no longer available. Only Veterans Administration and Rural Housing offer such. Also, many down payment programs (e.g. Ameridream) have ceased to operate due to regulatory rulings and tightened policies.

Fannie Mae and Freddie Mac (a.k.a. conventional loans) require money down and scores at least in the 600s. And they impose rate increases if scores fall below 740, unlike a short year ago which allowed the best rate regardless of score (albeit, one had to get an approval from the FNMA automated underwriting system). I have explained to many of my clients that Fannie Mae is giving you less and making you pay more.

Since they, being Fannie Mae, are making us pay more, it is seen as their way of playing catch up. They made poor credit and risk decisions which costs them dearly, so now they are getting back to sound risk and credit assessment and pricing it accordingly.

Considering all the credit and financial market turmoil in the past several months, mortgage rates have remained constant and steady. In fact they have dropped in December - below 6% for the national average.

The bottom line is your credit scores and down payment money rule these days. Each is telling in the risk a lender has with you. And loan risk is today is like the Black Plague in the 14th century. And that is not an overstatement.

This article was written by Richard Martin with Residential Mortgage for the sole purpose for www.jeffreydillonsells.com. You can contact Richard with any mortgage questions at...