Saturday, October 25, 2008

Mortgage Industry will say NO more often.



In a move that will stymie thousands of would-be home buyers and homeowners, Fannie Mae announced another round of mortgage guidelines changes a few weeks ago that will have a huge impact.


Unlike past revisions in which Fannie Mae tightened debt ratio and credit scoring requirements, however, the newest underwriting updates home equity and home buyer downpayments.


This is consistent with the emerging underwriting philosophy that Collateral is King.


No home equity, no downpayment, no loan.



Effective December 13, 2008, Fannie Mae will enforce the following single-family residence restrictions:

  • Primary residence, "cash out" refinances are limited to 85% loan-to-value


  • Second home, cash out refinances are limited to 75% loan-to-value


  • Investment properties cannot be refinanced without a 25% equity position

Each bullet point represents a 5 percent tightening over the previous guidelines.

Now, to be clear, Fannie Mae isn't the only source for mortgage money. The others are comprised by the FHA, the VA, and an innumerable amount of portfolio lenders. To date, these groups have yet to announce similar loan-to-value restrictions.

But, because Fannie Mae (along with Freddie Mac) guarantees almost half of the nation's home loans, it does swing a big stick. Historically, when Fannie Mae gets tight with its money, the other groups tend to follow.


Fannie Mae and Freddie Mac Market ShareStarting 45 days from now, qualifying for a conforming mortgage will require more home equity than at any time since 2003.


Now, there are a lot of people sitting around right now, waiting for mortgage rates to fall before buying or refinancing their home.

I'd offer a more prudent idea: Just get on with it already.

None of us can predict what where mortgage rates will go. Recession, inflation, whatever -- it's a big mystery. But, we do know with 100% certainty that guidelines will tighten effective December 13, 2008, and it will prohibit Americans from getting access to mortgages.


We know this because Fannie Mae published it on its Web site.


If you're buying a home or in need of a refinance, consider moving up your timeline. If rates fall after-the-fact, you can always try to refinance into something less expensive. But if guidelines shut you out, there's nothing you can do about in hindsight.


If you know you need a conforming mortgage or a jumbo mortgage, just take care of it. Great low rates don't mean a thing if you can't get qualified. And starting December 13, 2008, the qualifying hurdles are going to be raised.

3 comments:

Anonymous said...

yeah, but WHY buy NOW, since home prices will still be dropping like a stone for the next TWO years (as all teh Alt-A mortgages reset)???

Anonymous said...

Buy now? No thanks. I'd rather take my chances and wait. The problem has always been affordability.

IT DOESN'T MATTER WHAT THE MORTGAGE MARKET DOES. PRICES WILL FALL UNTIL BUYERS CAN AFFORD THE PAYMENTS.

OC Native said...

Sure banks say no but sometime they screw themselves out of deals they'd like to have as well.

Recently, my wife and I had to walk away from a deal with Chase bank on loan they wanted to give us, but because of unethical behavior on their part we had to walk away.

If you're interested you can read about it on my blog: www.unethicalchase.com.

Nice job on the blog, by the way.