by Miles Grant
WHAT’S GOING ON IN THE MORTGAGE INDUSTRY?
I have been getting calls from Realtors and principles asking if we are still going to be able to fund loans, and other questions. Following is a list of questions and answers.
What is going on? Most lenders sell to Wall Street and Wall Street stopped buying loans. Prices for these lenders went up 1 to 1.5%. Portfolio lenders, lenders who lend their own money, are unaffected by this change, except for the fact that the volume of their business has greatly increased. Most of the portfolio lenders that we work with are not getting overwhelmed by the volume, although the time it takes to get an approval is now 3 or 4 days, and that is expected to go up to a week shortly.
What is a portfolio lender? A lender that lends their own money. These are local or regional banks. Chances are good that if you’ve heard of a lender, it is not a portfolio lender.
We hear stories that lenders are backing out of deals and loans are not closing. What’s going on here? Most likely these principals were pre-approved at a retail bank. They must not be working with any retail lender, because any one lender can use only their rates and guidelines. If either change and become unfavorable, like they just did, then the principle is stuck. Right now, most if not all rates at retail lenders start at 7.5%, and typically they start at 8%. Our rates start at 6.125% with NO POINTS (3-year fixed, interest-only). Furthermore, if any lender changes their guidelines and the principle becomes outside of the new guidelines, we just switch them to a lender who will do their loan. Remember, consumers do not have access to the wholesale lenders that have the loan programs that they need at low rates; only we do.
What loan programs are not available? Stated income loans over 90%, and jumbo 30-year fixed loans (these are technically available, but priced at least one full percent over the rate for a 10-year fixed, so literally everyone who is interested in a 30 year fixed is purchasing a 10-year fixed loan). Jumbo loans are loans greater than $417,000, which is the current conforming loan limit.
What loan programs are available? With a good credit score, all loan programs (except the two listed above) are available at rates generally under 7%; this includes: adjustable rate mortgages (1 to 10 year fixed terms); interest only loans; traditional TICs; fractional tics; option arms; etc. etc. etc.
What is the minimum down payment for stated income loans? 10%
What credit score is needed for stated income? 700
What about people with relatively bad credit, like 620 to 680 scores? Loans are available but there are some restrictions and pricing will likely be over 7%.
What about sub-prime, scores below 620? Loans are available with restrictions, and rates will likely be over 8%.
How long of a loan contingency should buyers use? 10 days absolute minimum if you want to have a loan approval before signing off on a loan contingency. Check with your loan agent to see what the turn times are at the lender that you are approved with.
· Why is this the case? It takes a minimum of 3 to 6 business days to get a loan approval now, and that is likely to get longer before it gets shorter.
· What about no loan contingency offers? This should be based on the strength of the borrower and of the property, and should be discussed with your loan agent on a case-by-case basis.
How long is this “credit crunch” going to last? I am hearing 2 or 3 months, after which time, things are expected to return to normal.
So, as you can see, we’re still in business, and despite all of the alarmist press you have been hearing, loans are getting approved and funded on a routine basis. Based on what I have been hearing from the lenders that we work with, it is my opinion that the real shake-up has already occurred, and that things will remain like this up until around Thanksgiving time, and then return to normal.
Keep in mind that we constantly monitor which lenders have competitive rates, and that this list is never over about 10 lenders, and now it is down to about 5 lenders. So, really for us, the situation is not so abnormal. The only real changes for us are: stated income loans over 90% are not available, sub-prime loans are more restrictive and more expensive than they were a few months ago, and turn times for approvals are increasing. Otherwise, it’s pretty much business as usual.