by Misha Weidman:
I’ve been talking to lenders over the last few weeks to get a sense of the credit crunch from their side of the desk. Several were loan officers at big retail banks like Bank of America and Wells Fargo. Others were independent loan brokers who have access to a greater range of loan products because they are not tied to a single bank.
Though there was a range of views on how slow and difficult the home loan business has become, everyone agreed that underwriting standards – the rules the banks use to decide whether to lend or not – are a world away from where they were just a year ago. You’d better have a stash of cash ready to go for your down payment and your credit score better be impeccable – or you’ll pay for dearly for it, if you can qualify at all.
That’s the bad news. The good news is that with the Fed and the Federal government continuing to pump money into the system, mortgage rates are near historical lows and may continue to drop if the banks actually start lending in earnest rather than hoarding cash.
I asked the lenders to assume we were talking about a loan of around $1 million on a primary residence worth $1.2 to $1.5 million. Here are some highlights from my conversations:
· Underwriting standards. Is it hard to get a loan right now? “Don’t even bother unless you’ve got perfect everything,” said one loan officer. You’ll need perfect credit, a stable job, assets, and the paperwork to back it all up. Perfect children and teeth are not required – yet.
B of A says they still have some flexibility and that their underwriting standards have always been pretty strict — that’s why they’re still around. Still, you’ll need a minimum credit score of 680 to get in the door.
All the lenders said that they offer discounted rates to the best-qualified customers. A credit rating over 720 could result in an increase in the maximum loan amount, a one percent reduction in interest rate, and zero points on the origination fee. What’s the new mantra for this? “Risk-Based Pricing.”
· Downpayment. Figure 20 to 25% of the home’s value. 30% if you’re looking for a loan over $1 million.
· Fixed Rate Mortgages. On a fixed-rate 30 year jumbo loan (those over $625,500) I got quoted rates as low as 6.0% and as high as – wait for it – 7.5%. Figure 1 to 1.5% points for an origination fee. Unless you’re a “preferred client” with a bank, zero point loans are effectively non-existent or at such high rates that you’d be unwise to take them under most circumstances.
· Adjustable Rate Mortgages (ARMs). Fuggedaboutit. They are effectively a thing of the past – at least for now.
For the masochistically curious B of A is quoting 6.85% on a 5/1 year ARM, plus 0.95 points for the privilege. In case you missed it, that rate is higher than the rate on a 30 year fixed rate loan. Go figure.
One independent loan broker had exactly one ARM product that sounded sensible: 3 years at 6% for zero points, but you’ll need to be a top-tier borrower in every respect to qualify.
· Banks versus Brokers. Craig Thomason, an independent broker with over 20 years in the business, says “the jumbo market [loans over $625,500] is very limited right now.” If you’re looking for a loan over that amount, you’re going to get the best rates from a retail bank, preferably one with whom you already have a hefty bank account.
Thomason said he and other loan brokers are competitive on non-jumbos loans and in situations where you need some flexibility because you can’t meet the retail banks’ qualifying standards. You’ll pay for that privilege though swith higher interest rates and origination costs.
· Refinancings. Basically the same underwriting requirements and rates as for a new loan. Expect to pay more if you want to take money out.