The following is an email that I received and had to blog:
"OUR MORTGAGE INDUSTRY- UNDERWRITING GUIDELINES- IMPORTANCE OF CREDIT SCORES"
Realtors who have been in the industry for years have experienced more changes in how you do business and your clients have become more careful with their decisions on mortgages, housing, and life in general. There is a cloud of doubt with things that many took for granted in the past. Valuations have gone through a radical period of decline. Net worth has gone through a remarkable change in a very short time. Personal assets are under assault and people are generally retreating into a more controlled stance of buying and accumulating wealth. Identifying mortgage solutions has become a difficult task based on how we operated in the past.
Perhaps it would be helpful if I attempted to outline in brief format what we have seen and why people are having a difficult time with the mortgage process. What has happened? With the decline in values and the oversupply of homes on the market we see balances on current mortgages exceeding the value of the collateral secured by the mortgage. Foreclosures galore in all sections of the country, some worse than others, are rampant and this has added to the unsold inventory from which to make a selection. As with the case of any commodity, prices go down when you have an over-supply of anything. The economy, which is based on a vibrant housing market, has declined significantly. Employers are shutting down their businesses, employees are losing their jobs, and there is fear and uncertainty with people’s ability to repay their debt. Credit card issuers are declining credit at record numbers and lowering or canceling open credit lines to lessen the liabilities on their books. Credit has become tight and in some cases banks are not lending as they have their own balance sheet issues.
Congress and Investors have in some cases over-reacted in changing the rules and guidelines. This is always the case when you experience a radical change in the business cycle. Minimum credit scores have been implemented on all types of loans and private mortgage insurance companies have become more selective in those loans they will insure. Down payment requirements have gone up and the standard 30 yr. fixed rate conventional mortgage has been totally re-written to the extent that many heretofore clients can no longer qualify for those mortgages. What used to be an acceptable level of credit score of 620 has now been raised to 680. In some cases, you‘re required to have as high as a 720 or greater to get the best option on a rate. Anything less requires higher adjustments to the rate.
In addition, there are restrictions on the down payment to avoid the higher rate but these are very limited. Private mortgage insurers have stopped issuing mortgage insurance in declining markets which are identified by zip code all over the country. Without mortgage insurance you are required to put minimum of 20% down. In many cases a lender can no longer quote a rate to a realtor/client until a credit report is pulled and the assets to close are verified for the down payment requirements. This has been a radical change to most realtors.
The Federal Housing Administrations FHA loan has become the most popular format of financing in our market because it allows more flexibility in many parts of the underwriting process. Down payments are allowed with as little down as 3.5% although that was recently increased in January of this year. There are more couples who can qualify for this loan and there are some options available to offer reduced payment rates in the early years of the mortgage with the popular 2-1 buy down being offered by many builders. The maximum loan cap has been raised to the $270,000 level in our market and that allows more house than before. There is the popular Alabama Housing Finance Authority (Bond Loan) that is used in connection with FHA lending that provides for 100% financing. This 100% financing is gone on conventional loans as the popular first and second piggy back mortgages are gone as well as the limited documentation loans. All loans must be fully documented now and there is no more stated income product which led to many foreclosures in the past.
In closing, partnerships and business relationships are more important now than ever. The realtor can no longer rely on a business plan used in the past when it comes to getting people qualified for a mortgage. Having a relationship with a lender is paramount to success and having access to that loan officer 24/7 is critically important. If I haven’t left you with any other thought but this please exercise your best judgment and select a partner that can make your sales elevate to another level and remove the current mystery of the mortgage solution process. Competent and proven leaders in our industry are eager to serve you and would welcome the suggestion as a means to help both sides of this equation.
Finally, many changes are currently happening with regard to those lenders remaining and how they have to operate. Brokers will be a thing of the past. If you don’t have your own warehouse line in which to fund mortgages, you cannot succeed. Third party originations are being prohibited and changes are coming in those that can obtain mortgage insurance and how you select an appraiser. Just be on the look- out for that. Thanks for allowing me to attempt to state what some of the changes you have experienced and, why?
Kenneth W. Cramton, Jr.
Regional Vice President
Platinum Community Bank
formerly HMC - Home Mortgages Co.
813 Estella Drive
Fairhope, AL 36532
251-990-5897
251-604-6661
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