What's new in the mortgage market? Keeping up on recent changes

Good morning!

It’s been a little while since I had the opportunity to write, and I wanted to pass along a bit of information about what is going on in the financing market. There have been some changes recently that need to be considered, so I’d like to take a few minutes to run through them. If you have questions about any of these in particular, please don’t hesitate to call me.

FICO Updates

Over the past two months, many individual lenders have set credit score requirements that differ significantly from traditionally accepted criteria. At present, a 620 credit score is required for all loans, and, although very limited opportunities exist for borrowers with no credit whatsoever, additional loan charges related to those situations can be prohibitive. FHA, USDA, Fannie Mae, and Freddie Mac loan programs now require a 620 credit score for all borrowers and coborrowers, and most borrowers with scores below 720 are finding that FHA is the most attractive program due to Fannie Mae and Freddie Mac surcharges for lower scores.

Condo Updates

If you haven’t run into a condo in a while, be thankful, because risk aversion from banks has made the process quite a bit more challenging than it used to be. There are a limited number of projects that are already approved by Fannie, Freddie, or FHA which, fortunately, allow exemption to the majority of new stipulations. Other projects will require full review of recorded copies of all condo documentation. If you have a listing, I’d be happy to review it for you to ensure a reasonable process experience for the buyers. I recently had to decline a borrower with a 790 credit score putting 50% down because the condo didn’t conform, so please make sure upfront to save later challenges. For additional information about condo financing, see part I and part II of my earlier article about the process of condominium financing.

Converting current primary residence into investment

Because of the current market environment, many buyers are acting to take advantage of low prices available to buyers, while holding onto their existing homes to wait for a better opportunity to sell. This can backfire if the buyer isn’t able to carry both mortgage payments, as banks will not accept rental income on the newly rented property without an appraisal showing the client has 25% or more equity in the property that will be rented. There are some exceptions to this, though, so don't hesitate to call to see if a particular scenario might qualify.

Super-conforming limits

Many lenders have adopted HUD guidelines for homes in “High-cost” counties which allow loans in excess of $417,000, sometimes up to $729,750, to be considered conforming loans instead of jumbo. This can represent a significant savings for buyers in this category. Call me to check your listings to see if they are eligible.

Modification and Streamline Refinance enhancements

Fannie Mae and Freddie Mac have announced updates to guidelines for loan modification or streamline refinancing that should be a great help to stabilizing homeownership. These guidelines will make refinancing more feasible for borrwers whose homes have declined in value, as borrowers not currently paying PMI will be able to avoid PMI on new loans aswell. Additionally, borrwers who are struggling with their existing loans may qualify for super-sized savings through special loan modification programs requiring lenders to reduce payments to 31% of a borrower's gross monthly income.

FHA 90-day rule: doesn’t apply to VA

In what should be a big help to flippers, we’ve discovered that the FHA 90-day rule that requires non-bank sellers to hold properties a minimum of 90 days does not apply to buyers using VA financing. Flippers should offer incentives to attract military veterans for quickest sale to take advantage of this.

I hope these updates help! Please give me a call if you have a question on any of these changes, or any other challenges you’re encountering. Lastly, I did want to share that I will be participating in Rhode Island Junior Achievement’s 25th Annual Achieve-a-Bowl next weekend. Junior Achievement provides economic, financial, and business education in schools. If you’d like to support this, I would appreciate your help. You may also contact me directly to assist, and thank you!

Thanks again for the opportunity to serve your financing needs. I look forward to speaking with you soon!

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and also serves as an Adjunct Professor of Finance with Roger Williams University and the University of New Haven. He can be reached by phone at (401) 263-8655, or by commenting on this blog entry.