The Challenges Facing Today’s Mortgage Market Presented by Lori Stillwell
Presentation Overview § Yesterday § Today § Qualification Changes § “New” Products § Relocation Policy and Procedure
Yesterday… § Strong appetite for investors to buy mortgage backed securities § Low down payments § Low credit score options § Limited documentation; even on high balance loans § Speculators: Lenders and consumers jumped into the real estate market
Today… § Private securities still not selling; investors continue to consider (this makes conventional jumbo loans difficult to originate) § Significantly tightened underwriting standards § Transactions more complex for lenders and consumers § Government business consists of 13% (YTD 2008) vs. 3% (2007) of originations in overall mortgage market § New FHA guidelines as well as Freddie & Fannie Conforming loan limits § Mortgage companies and brokers continue to exit the market § Lenders working with consumers to avoid foreclosure § Increased loss on sale; reluctance to move § Great market for first time home buyers
Qualification Changes General Tightening of Underwriting Guidelines § § Increased minimum FICO Score Increased down payment requirements Increased documentation requirements Enhanced Appraisal Review
What is “new”…again? § Fixed Rate Products § FHA Financing – increased loan limits § Fannie Mae/Freddie Mac – conforming loan limit increases § VA Financing § Private Mortgage Insurance (PMI)
FHA Financing increased loan limits § FHA created in 1934 – became part of HUD in 1965 Ø Go to www. hud. gov for more information on FHA § FHA often viewed as a first time homeowner program – it’s more than that! § FHA loan limit increases available through 12/31/2008 Ø Ø $271, 050 - $729, 750 – varies based on location (higher for multi-unit dwellings) Lenders acceptance will vary and will likely overlay their policies into FHA guidelines § FHA now a solid alternative to subprime § FHA still allows low down payment options § Down Payment can be gifted from family, government source or a non-profit agency § Lenders are beginning to leverage FHA flexibility in order to serve customer needs § Currently, LTV is not impacted by declining markets
VA Loans Home financing for: Active and previously active military personnel Reservists & Surviving spouses § § § § Certificate of eligibility required for each customer 100% financing available VA funding fee can be rolled into the mortgage VA funding fee waived for disabled veteran VA appraisal requires an in-depth property inspection with work orders to be completed by the seller prior to closing Expanded maximum loan amount to $417, 000 ($625, 500 in designated high cost areas) Seller concessions allowed up to 4% of the appraised value
PMI and Lender Paid Mortgage Insurance § Required when customer’s down payment is less than 20% § Utilization dropped as a result of increase in blended loans (80 -10 -10, etc. ) § Blended loan guidelines have tightened across industry § Home equity has reduced due to declining property values resulting in smaller down payments § Borrower paid PMI Ø Ø Ø § Low upfront paid at closing = higher monthly PMI cost High upfront paid at closing = lower monthly PMI cost Moderate upfront paid at closing = moderate monthly PMI Lender paid PMI – lender covers cost of PMI through increased interest rate Ø No upfront cost
Relocation Policy and Procedure § Tighten policy language around reimbursement of VA funding fee § Tighten policy language around PMI upfront fee reimbursement § Down Payment Assistance Ø Wells Fargo Recommendation: Consider Corporate Second Guarantee Program
Overcoming Payment Challenges
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