I’m getting so many questions from folks about financing lately. Jerry Baker, Senior Loan Officer with Northwest Mortgage sent the below info in an email this week and has given his permission to share with you here:

This is obviously the most tumultuous time that the mortgage industry has ever faced. We’re seeing the very largest global financial companies taking billions of dollars of losses in each of the last two quarters (Citibank & Bank of America), and the largest independent mortgage company in our industry (Countrywide) has just accepted a bailout by one of the largest banks in the country. Chase Bank has just recently stopped all of their agency stated income, stated asset programs for both Conforming and 2nd mortgages.

Due to liquidity constraints and worse-than-expected performance, we have seen an unprecedented contraction of guidelines in all corners of the industry. What was originally limited to Subprime guideline cuts has now adversely impacted Agency flow (Fannie Mae & Freddie Mac), Alternative “A” paper and Super Jumbo guidelines.

Listed below are some of the changes we have seen in the last 6 months:

2nd Mortgages: (which have become passe’)

• Elimination of 80/20’s for 100% purchases.
• Elimination of the ‘really good’ pricing for 2nd mortgages.
• Elimination of any stated income, stated asset programs for 2nd mortgages.
• 80-10-10’s available, but not priced well.
• Stated Income Stated Asset (Fannie-Freddie).
• Higher credit scores for the best rates.
• 680+ minimum acceptable score for a ‘decent’ rate.
• Minimum 3 months reserves after closing.
• More credence given to amount of income being stated & verification of 2 year employment history with no job gap longer than 2 years.
• True NO Doc loans (no job, no income, no assets indicated on loan app)
  NO longer available in ANY form.
• NON-owner occupied loans.
• Stated Income, cash-out refinances - NO LONGER EXIST.
• Purchases, Stated Income: 70% and lower LTV only.

Other Product changes:

• NO Ratio loans (2 yr job, no income shown on loan app) - only available with LTV’s 75% or less, with 700 credit score.
• NO Pay-Option ARM’s unless 10% down, good credit, fully-documented - qualififed at fully-index rate.
• NO Doc loans (see above) are eliminated.
• 100% purchase loans - only available at 620 credit score or higher & carry mortgage insurance - at higher rates than previously.
• Job gaps in last 2 years more carefully scrutinized.
• Depth of credit looked at more closely - not just score.
• Reserves after closing usually needed (2 months or more).
• Lower debt-to-income ratios for qualification.

Pricing for Agency Loans:

It’s all risk-based pricing now. That means an add-on to the interest rate for lower credit scores. 620-639 = +.25% add to rate; 640-659 = +.375% add & 660-679 = +.500% add.
Rate “shoppers” are encouraged to get it writing and speak to reputable sources; otherwise they may be disappointed when they go to closing…..

With losses mounting for all lenders nationwide, there is a general ‘tightening up’ of underwriting standards affecting all mortgage lending in all markets. It is so important for you as realtors to get your buyers pre-approved properly BEFORE you show them any property - that means they have done their homework up-front with the lender (actually sent in the required documentation for loan approval - not just talked to them over the phone). Sometimes the slightly little variance in documentation received can mean the difference between a “surprise at closing” and actually getting loan approval for you. The ‘easy-qualify days’ of lending are over for many buyers, with the reality that it’s back to good old-fashioned responsible lending - which will make a better economy and a better housing market in the long run for all of us.

What’s the GOOD NEWS??

It’s still ‘business as usual’ for people with good credit, good employment history, with down payments from acceptable sources and reserves after closing to weather a financial emergency.
Rates are GREAT (right now) - 5.625% today with NO points, 30 year fixed, full doc, 20% down.
You can contact Jerry Baker at Northwest Mortgage by calling 503.452.0001 or visit http://www.nwmortgagegroup.com/ .

Opinions expressed in this article are the opinions of author, and not to necessarily the opinions of Meadows Group Inc.
All rights reserved on all original content, non-original content is given credit | Michelle Berry | 2009