After the Chaos - What Types of Mortgages Remain
The mortgage market and subsequently the entire US economy had a major meltdown in 2008. This originally stemmed from the subprime meltdown, and then the Alt-A lending collapse. As a result, the world financial markets have experienced a major credit crunch and this has resulted in a completely transformed US mortgage industry.
The previous dozen years of mortgage options and financial bliss have become a memory, with every liberal mortgage program no longer available. The remaining mortgage products are quite unlike the guidelines from the past few years. Now...they require full documentation of income, strong credit, and actually proving you have a job! It's no stretch to say that common-sense has returned to the mortgage world.
Post Mortgage Meltdown:
Before the financial crisis that destroyed the mortgage market, 100% financing loan programs were availalable to all. The only real requirement that existing in those days, were that you prove you were a US citizen. (non-citizens could only get 90% financing!). With credit scores in the high 500's, you could still obtain 100% loan financing. In November 2008, only USDA and VA loans offer 100% financing. FHA loans have removed their option to allow the seller to gift 3% to the buyer, so they are now capped at 97%. Fannie Mae and Freddie Mac offer 97% options, but no 100% programs at all. If anyone tells you differently, they are giving you bad information.
The Alternative A credit market, also known as Alt-A loans, which used to offer very appealing niche loan financing products catering to borrowers with credit scores from 660 and up are also gone. These lenders offered loan programs to borrowers with scores down to 620. Aggressive programs, such as 100% no doc financing, were typically not available to borrowers below a 660 middle score. Today, even these seemingly viable products made to very strong borrowers have dried up. They were a victim of the global mortgage chaos that devoured the sub-prime banks and saw even the big 3 Automobile companies suffering and on the verge of collapse. Alt-A lenders had very liberal DTI ratios, reduced and even no income documentations, and the ability to turn any loan into an interest-only mortgage!
Leading Alt-A lenders included GreenPoint, SunTrust, Lehman/Aurora, and First Horizon. Beyond these market leaders, there were hundreds and hundreds of small niche banks and mortgage companies that arose to fulfill the demand for certain niches. Almost all of these lenders are now out of business, and the ones remaining have removed all Alt-A products from their product line. The big loser with these products drying up are the small business owner with great assets and credit, but income "reduced" through their desire to reduce taxes.
Post Subprime Meltdown:
Over 300 banks and other mortgage lenders have either closed down or exited the mortgage business. All of the aggressive financing options that sprouted up over the past 8 years are now gone. We are back to FHA and Conventional loans only, with an added twist. The credit crunch is making it even tougher for a normal, gainfully employed borrower to get a loan. Credit score requirements are now in the low 700's, where before a 680 was sufficient. Cash-out refinance loans are very hard to get. Home equity lines are being reduced, or even closed by the lender. This is happening to qualified borrowers, not just customers with borderline credit and income. Additionally, investor financing is extremely hard to obtain, regardless of income or credit.
As we begin to plan for 2009, Freddie Mac and Fannie have created new strict rules and guidelines for lenders effective December 1st, 2008. These will continue to reduce options for customers seeking financing on purchase or refinance loans. Additional restrictions for borrowers who have had a past BK or foreclosure now push the dream of home ownership from 2 years after these blemishes to 4+ years.
The previous dozen years of mortgage options and financial bliss have become a memory, with every liberal mortgage program no longer available. The remaining mortgage products are quite unlike the guidelines from the past few years. Now...they require full documentation of income, strong credit, and actually proving you have a job! It's no stretch to say that common-sense has returned to the mortgage world.
Post Mortgage Meltdown:
Before the financial crisis that destroyed the mortgage market, 100% financing loan programs were availalable to all. The only real requirement that existing in those days, were that you prove you were a US citizen. (non-citizens could only get 90% financing!). With credit scores in the high 500's, you could still obtain 100% loan financing. In November 2008, only USDA and VA loans offer 100% financing. FHA loans have removed their option to allow the seller to gift 3% to the buyer, so they are now capped at 97%. Fannie Mae and Freddie Mac offer 97% options, but no 100% programs at all. If anyone tells you differently, they are giving you bad information.
The Alternative A credit market, also known as Alt-A loans, which used to offer very appealing niche loan financing products catering to borrowers with credit scores from 660 and up are also gone. These lenders offered loan programs to borrowers with scores down to 620. Aggressive programs, such as 100% no doc financing, were typically not available to borrowers below a 660 middle score. Today, even these seemingly viable products made to very strong borrowers have dried up. They were a victim of the global mortgage chaos that devoured the sub-prime banks and saw even the big 3 Automobile companies suffering and on the verge of collapse. Alt-A lenders had very liberal DTI ratios, reduced and even no income documentations, and the ability to turn any loan into an interest-only mortgage!
Leading Alt-A lenders included GreenPoint, SunTrust, Lehman/Aurora, and First Horizon. Beyond these market leaders, there were hundreds and hundreds of small niche banks and mortgage companies that arose to fulfill the demand for certain niches. Almost all of these lenders are now out of business, and the ones remaining have removed all Alt-A products from their product line. The big loser with these products drying up are the small business owner with great assets and credit, but income "reduced" through their desire to reduce taxes.
Post Subprime Meltdown:
Over 300 banks and other mortgage lenders have either closed down or exited the mortgage business. All of the aggressive financing options that sprouted up over the past 8 years are now gone. We are back to FHA and Conventional loans only, with an added twist. The credit crunch is making it even tougher for a normal, gainfully employed borrower to get a loan. Credit score requirements are now in the low 700's, where before a 680 was sufficient. Cash-out refinance loans are very hard to get. Home equity lines are being reduced, or even closed by the lender. This is happening to qualified borrowers, not just customers with borderline credit and income. Additionally, investor financing is extremely hard to obtain, regardless of income or credit.
As we begin to plan for 2009, Freddie Mac and Fannie have created new strict rules and guidelines for lenders effective December 1st, 2008. These will continue to reduce options for customers seeking financing on purchase or refinance loans. Additional restrictions for borrowers who have had a past BK or foreclosure now push the dream of home ownership from 2 years after these blemishes to 4+ years.
About the Author:
Learn more about Peachtree City mortgage and Atlanta mortgage from Brian and the team at Anderson Lending Group
posted by Debt Consolidation Loan at
2:34 AM
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