Over the last month or so lenders have continued to tighten and remove loan programs that were once available. This is mostly due to the lack of liquidity within their own portfolio. They no longer have the resources to fund deals that aren't "A" paper deals (which means good credit, adequate reserves, significant down payment, etc.). This has caused most investors/lenders to reduce the amount they will lend on purchases and refinances. Programs aren't available without a 5% cash contribution for purchases and upwards up 10-15% in value on refinances. In addition, Mortgage Insurance companies are too reeling from the credit and housing crisis. Some have put a cap on how high they will allow LTV/CLTV to go for coverage. In AZ the cap is at 90% (though some exceptions can be made - it is a difficult process). Add to all this that rates are about .375%-.50% higher than they were 30 days ago and the plot continues to thicken.
The above may sound bad but in reality it is a switch for the better. People that can afford homes and have adequate resources are getting into great loan programs that will help them for years to come. Lenders and Investors are not just thinking about the money they are thinking about the borrower and making the best decision for their company as well as the borrower. Though it isn't always easy, it is necessary.
Two newsworthy events occurred within the last 10 days. The first is in regards to FHA. In Maricopa County, the loan limit was raised from $263,500 to $346,250. The second was in regards to the Federal Reserve. "The Fed said it will make $200 billion available to financial institutions in an effort to ease a crisis of confidence that is making it harder for families and businesses to borrow money" (Tomoeh Murakami/Washington Post). What does this mean for borrowers?
FHA Change to $346,250.00
1) LESS DOWN PAYMENT/CASH TO CLOSE: FHA loans allow for at least a minimum contribution of 3%. (In light of most programs outside FHA, currently requiring a 5%contribution).
2) CREDIT ISSUES: If there are some deragatory issues on your credit, you still may qualify for FHA based on your DTI ratios and Income Stability.
3) REFINANCES: For those borrowers that have ARM's that may be adjusting, if your loan is less than this amount you may be able to refinance up to a higher LTV if your home's value was hit by the recent market turndown.
FEDERAL RESERVE INFLUX OF $200 BILLION
1) INCREASES LIQUIDITY WITH LENDERS/INVESTORS: It is no secret that Mortgage Companies and Banks were hit by this recent change in home values. The companies lost so much money that there is very little room to offer products that may cost the companies more money. They have become safe and so in turn it becomes more difficult to find a decent program with little cash requirement. This extra liquidity may give some companies the opportunity to loosen their standards.
We may not know how all of this will eventually shake out but we do know that relief in some form may be available. That is good news. Keep your eyes and ears open for more updates down the line. Make it a great day.