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Posted by Homeownership2008 on March 25, 2008, 11:50 am
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To help you properly understand the lending panic, let me share how chaotic
this week has been. On Tuesday, between appointments and helping clients
with mortgage questions, I received a total of over 98 rate changes, program
changes, lending updates, and warnings about upcoming practices that would
shut the window of homeownership for MORE families. On Wednesday, there
were over 50 changes, and yesterday presented 68. I have read more program
changes, rules, and guideline modifications in the last five days. . . than
I have read in the last two months. However, I have to continue to stay
abreast of these changes so that I can effectively help Ohio families.
- Having access to 50 different lenders, I often receive two or three
rate changes each day, but, on Tuesday, the average lender had four rate
changes. Contrary to what you might think, the majority of the rate changes
were for the worse. Today, the rates are not changing as badly, but they
are flickering-higher and lower. Chaos.
- Ohio Bond has announced that they will eventually conform to a policy
of making 100% conventional loans very difficult. Borrowers who want a true
100% conventional OHFA loan may need a 700+ score. Forget about the 570,
620, and 680 policies.
- My Community Loan? Forget about it. This program once allowed clients
with scores as low as 540, but it requires a much higher credit scenario
now.
- Flex 100-discontinued with most lenders. Freddie Mac 100-discontinued
with most lenders.
- CONVENTIONAL NEWS. Five popular banks have become ULTRA conservative.
In fact, one local bank has decided that all clients who wish to purchase a
home with less than a 720 score will be penalized; even a 700 score client
will receive a slightly higher interest rate because he poses a RISK to
these popular banks.
- FHA NEWS. Many of my investors have decided. . . you are going to
faint . . . they are going to give higher interest rates on FHA LOANS when
the borrowers have less than a 580 score. FHA, as you may recall, was
established at the end of WWII-specifically for those who did not have
traditional assets and traditional credit. Times have certainly changed,
and the lending rules will just get tighter.
- Remember that FHA ALLOWS MUCH HIGHER LOAN AMOUNTS with less than
perfect credit. Please call me for more details: (513) 518-6318.
- PMI COMPANIES have not apologized for their ridiculous "declining
market" rule. A buyer will be forced to apply 5% down if he/she purchases
in an area that has not experienced an increase in home sales. Therefore,
all conventional buyers in Ohio are susceptible to an underwriter,
appraiser, or automated underwriting system arbitrarily deciding to enforce
this policy. After all, EVERY COMMUNITY in Ohio is experiencing stagnant
sales.
Last week, a young lady who had been preapproved two months ago decided stop
renting. In January, I told her about her possible payment scenarios, and I
helped her understand the details of Ohio Bond financing. I gave her
specific payment options so that she would fully understand the 100%
CONVENTIONAL OHIO BOND approval, but I warned her that the PMI rules were
changing and she would only be able to purchase a home that was not in a
DECLINING MARKET community-unless she had a downpayment or obtained FHA
financing.
The young lady rejected my advice/preapproval amount and went to another
lender almost immediately after taking hours of my time, but she raced back
to me when she discovered that her new loan officer was unaware of the
"Declining Market" rule. She had already spent money for the inspections,
appraisal, and earnest money, and the loan officer revealed the news after
dodging her phone calls. She could not obtain 100% financing from the
large bank that held her checking account, so she insisted that I start her
loan immediately.
I have to admit. I wanted to say, "I told you so" when she called me. I
wanted to scold the lady for ignoring my warning and my counseling.
Instead, I gave her my fax number and developed an FHA version of her
purchase. Same rate. Lower payment. No ridiculous stipulations about
"declining markets."
I typed all of her loan paperwork, submitted the documents to her, and
called her to discuss the financing plan. The young lady was incredibly
excited that Johnathan "Old Faithful" Barber was going to save her purchase.
On the following day, the young lady did not return my loan documents. She
did not return my phone calls. Instead, she wrote a lengthy email that
explained how she had no idea that her payment would be over 700 dollars for
a $90,000 house in Forest Park. She described that she was unhappy with the
new payment, which was lower than the payment that she had at her
institution. Already in a contract with the seller of the Forest Park home,
she reminded me that she was a single mother who deserved preferential math
with a lower price and payment for the house.
I was floored. . . absolutely speechless. I didn't find my tongue until the
following day when I emailed her a polite summary of the loan and price
range that I suggested in January. "Higher sales price. . . means higher
payment."
I share this recent situation with you because the PMI rules. . . heightened
underwriting criteria. . . and lender apprehensions will not stop deserving
homeowners from purchasing homes. Yes, these rules and procedures cause
problems for the loan officer who has to stand in front of the sticks and
stones that are hurled by those who believe the poor, commissioned loan
officer is to blame. No, I hate being the messenger, and I think the
lending crisis will continue to hurt real estate unless we do something
about it. However, the increased scrutiny SIMPLY DELAYS the process,
and-looking at the bright side if any-- it delays the process long enough
to force certain borrowers to re-evaluate budgeting, credit scoring, and
equity/down payments.
Yes, many borrowers who read this update will probably think there is no
loan program available for those with no reserves and damaged credit. At
one time, there were hundreds of programs available for 100% LTV less than
perfect loans. Currently, there are only a handful of grants and programs
that remain for these 97 - 100% situations.
What should we do? As long as there is still opportunity, we should
adamantly continue to encourage our communities to take advantage of
homeownership while the opportunity still exists. We must continue to
educate passionately, sell real estate responsibly, buy homes WISELY, lend
properly, vote cautiously, and spread the word about opportunities and loan
changes to friends, family members, and clients: www.homeownership2008.com.
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