Show Me the Money!!

With all the talk about the Stimulus Package trying to revitalize Wall Street, Main Street and the credit markets, it's a fair question to ask how that is affecting our local Real Estate market? After all, it's our tax dollars being dished out at a record pace!

In Collin County, we are fortunate that our market has not seen the decreases in value as the rest of the nation has. For the most part, values are flat. I've recently heard speakers refer to that as "The New Up!"

As for the Stimulus Plan, the $8,000 tax credit for new home buyers is creating an increase in activity in our market. Also, with the continuation of the increased FHA loan limits, we are still able to obtain mortgages up to $271,050. While this does not buy a 6,000 square foot mansion, you can still purchase a very nice home in Frisco, Texas.

Where I question the effectiveness of the Plan is what is going on behind the scenes in the mortgage market for conventional loans. Lenders now require adjustments to the interest rate for lower credit scores. While this practice has always existed and should, the scores being effected make no sense.

In Texas, the average credit score is around 675. Private Mortgage Insurance Companies (PMI) are suddenly not offering coverage for borrowers with credit scores below 680. So if you have a score below 680 and FHA is not an option, you may be required to put down 20%.

For purchases and refinances, if your score is between 680 and 700, there will be not only an adjustment to your rate from the lender, but also the PMI rate. Between 700 and 720, another hit. And yes, between 720 and 740, another! This has limited some refinances since borrowers may not be able to take advantage of the lower rates currently available in the market because after the adjustments, their new rate is not any lower than their existing rate! It also unnecessarily increases the interest rate on a purchase transaction.

While I do not want to return to the loose underwriting standards of sub-prime loans that created some of the challenges of today, someone with a credit score of 700+ and 10% down or 10% equity on a refinance should not be penalized on rate. That will not Stimulate the housing market. Without the housing market turning around, it will be difficult for our economy to recover in the short run.

The pendulum that swung way to far to the left that allowed loose underwriting standards on loans has now swung too far to the right. With increased awareness by you and our elected officials, it will move back towards the middle and help to accelerate our recovery.