Now more than ever, you will need a dedicated mortgage professional to help you find the exact right program for your new home, purchase home, second home, or investment. It can be done, it may take some work and perhaps even some time, but now is still the time to buy. Don't wait for prices to go back up to get in the market.
From the Washington Post
Like a spreading infection, restrictions on credit are moving into new and more specialized niches of the mortgage market.
Among those now feeling the pinch:
· Cash-out refinancings.
· Loans with anything less than full documentation of borrower income, credit and assets.
· Mortgages for certain second-home purchases.
· Investment loan applications in which the buyer owns at least three other rental properties.
· Mortgages to borrowers with "nontraditional" credit, such as "thin files" with scant information at the three national credit bureaus.
· Short-term construction loans that convert to permanent mortgages.
· Adjustable-rate mortgages in which the first rate adjustment occurs within 60 months after closing.
In a lender bulletin issued April 22 and scheduled to take effect for all loans delivered after Aug. 8, Freddie Mac said it plans to restrict financing to second-home and investment real estate purchasers who have "individual or joint ownership" interests in multiple properties. In the case of second-home buyers, they will be ineligible for new mortgages through Freddie Mac if they have ownership interests in more than four properties securing debt, including the one they propose to finance.
Similarly, loans for rental houses, rental condominiums and other investment properties will be ineligible if the borrower has ownership stakes in a total of four units. Previously Freddie Mac allowed investors to own as many as 10 rental properties carrying mortgages.
Freddie Mac also announced new cutbacks on refinancing of mortgages in which the property had secured a cash-out refinancing within the prior six months. The company defines a cash-out as any refinancing in which the replacement loan balance exceeds the previous balance by 5 percent or more. Recently, according to the company's quarterly surveys, more than 80 percent of refinancings involved equity-depleting cash-outs.
The rule changes, Freddie Mac said, are designed to "reflect the risk of these transactions" in the wake of post-boom property devaluations and higher rates of delinquency and foreclosure.
Meanwhile, private mortgage insurers, who provide loss coverage for lenders and investors on loans where down payments are less than 20 percent, have begun rolling back a variety of products, especially in areas they define as distressed or declining.
Genworth Financial, one of the largest insurers, recently told lenders that after May 5, it no longer will consider applications for second-home purchases in Florida. The policy is irrespective of borrowers' credit scores, assets or other characteristics.
Also effective that date, in what it defines as "declining/distressed" markets, Genworth will not touch cash-out refinancings, investment properties, nontraditional credit applications, construction/permanent loans or adjustable-rate mortgages with initial adjustments within the first five years.
In its advisory, Genworth said the new restrictions are intended to promote "prudent underwriting standards" in light of higher risks prevailing "nationally and at localized levels."
PMI Group, another high-volume insurer, banned cash-out refinancings, limited-documentation loans and all mortgages secured by investment properties in "distressed" markets. In nondistressed areas, cash-out refinancings on second homes and rental houses are no longer eligible for coverage, nor are interest-only loans on investment real estate and all mortgages on properties containing three to four units.
PMI also boosted minimum credit score requirements for "jumbo" loans nationwide to a 700 FICO, and now will require at least 10 percent down payments. The company also ruled out "stated income/stated asset" mortgages on duplex purchases, in which one unit is occupied by the owners and the other is rented out.
MGIC, the largest private mortgage insurer, recently eliminated coverage of all "option ARM" loans that have either scheduled or potential negative amortization features that increase borrowers' principal debt rather than reduce it monthly. During the boom years, option ARMs were wildly popular in major metropolitan markets across the country. MGIC's new ban is nationwide. The company also will no longer insure cash-out refinancings using limited documentation, temporary rate buy-downs on investment real estate, and nontraditional credit applications to buy second homes.
Why the continuing rollbacks, and how long could they continue? Lenders and insurers are carefully studying the sources of their greatest losses from mortgages written between 2003 and 2007. Where they see inordinate risk, they are reacting much as they would to a disease: They are eradicating it.
Some of those high-loss loan products -- mass-marketed option ARMs with minimal down payments and "stated" incomes, for instance -- probably will never be seen again. Others are likely to return only with tougher underwriting standards and higher fees tied to credit and geographic risks.
In the meantime, consumers have little choice: Get used to it. The excesses of the boom begat the credit squeeze, and it's not going away anytime soon.