Many people during the last year who have tried to get a mortgage in order to buy a home have suffered the effects of the current credit crunch. This article visits a few of the effects of the crunch including the disappearance and temporary appearance of some mortgage loans.
The serious losses suffered by Government Sponsored Enterprises (GSE’s), Wall Street firms, and other investors across the United States brought about credit tightening and the disappearance of the loan products that caused these losses. The leading culprit was the high-risk, 100% CLTV 2nd mortgages on investment properties, most of which were executed with Stated Income and Stated Income Stated Asset (SISA) documentation. This loan type started disappearing two to two and a half years ago with credit tightening or discontinuance happening rapidly. Other high-risk loan types that resulted in significant damage were the Owner Occupied SISA and No Doc loans. Most lenders no longer offer these loans.
The struggle to correct the plight of high losses was so severe that maximum loan-to-value (LTV) percentages were decreased for conforming full-documentation mortgages for houses located in declining markets (areas where home values have decreased). The reduction was instituted to ameliorate default rates, and is being lifted during the summer 2008 under certain circumstances.
FHA-insured mortgages and conventional/conforming loans (non-governmental loans equal to or less than $417,000) and have been popular thus far in 2008. Both types of loans can be obtained by borrowers with low credit scores, but FHA mortgages may not be available if the borrower has a credit score below 580. However, a slightly lower down payment (higher LTV) is possible with FHA mortgages.
Here are three new (and temporary) mortgage programs:
FHASecure - this is a refinance loan insured by the Federal Housing Administration and is available for homeowners with a non-FHA adjustable rate mortgage (ARM). Originally intended for people who had defaulted on their ARM, or would likely default when the rate reset, it is now available to a wider demographic.
FHA High Balance - the U.S. Department of Housing and Urban Development (HUD) has established maximum loan amounts for its FHA-insured mortgages. These amounts vary by county. HUD has temporarily increased the maximum size of the loans it insures. These higher-balance mortgages may actually have better rates than FHA mortgages with lower loan amounts.
Agency/Conforming Jumbos - Mortgages greater than $417,000 are considered “Jumbo” loans. Loans for amounts equal to or smaller than this are called “Conforming” loans and have different guidelines than Jumbo loans that must be met in order to qualify for the loan. Agency/Conforming loans are mortgages starting at $417,001 that can go up to $729,750 and that qualify under the regular Fannie Mae and Freddie Mac conforming loan guidelines — with some additional underwriting restrictions. As with FHA High Balance loans, the actual maximum loan amount is determined by the HUD county limits is valid only for 1-unit purchases (i.e., the maximum does not apply to duplexes).
Look up HUD’s loan limits by county at: https://entp.hud.gov/idapp/html/hicostlook.cfm