MAKING SENSE OF THE NEW MORTGAGE ENVIRONMENT

The new mortgage environment has changed dramatically in 2010, leaving many consumers very confused and uncertain. Borrowers that closed on a mortgage loan within the last ten years have probably heard of the terms “no-doc,” “limited-doc,” “stated income,” “zero down 80/20 loans”, and even “zero down-payment loans with 580 credit scores.”
Several of these mortgage programs were part of the subprime market, also known as non-conforming loans. We had a culture of “underwrite the file with automated underwriting systems,” then document them according to those underwritings findings. Many loans were originated and closed with nothing more than an appraisal and title work based solely on credit score. However, many buyers of those mortgages (AIG, Lehman, etc.) decided to no longer buy this type of paper, or they became financially insolvent, due largely to these types of loans. That was, essentially, the official end of the “subprime” mortgage market.

What remains is FHA, VA, and conforming lenders. They require full disclosure and documentation, which means two years of tax returns and W-2’s, a month of pay stubs, as well as a list of assets and reserves, among other things. This can be frustrating for those formerly able to get financing with as little less as a credit report and an appraisal. The self-employed individual that “writes off” or deducts most of the income on their returns, has little-to-no options in regards to conventional financing. Couple this with the decline in home values, and the mortgage market has become more challenging than ever before.
However, it’s not all gloom and doom. Mortgage rates for purchasing and refinancing are at 30 year lows. We are seeing signs of home values on the rise. There are also several low down-payment options for potential home buyers. FHA still only requires 3.5% down, and there are some down payment assistance programs that can even reduce that. A blood relative can still gift 100% of that 3.5% down payment and in Ohio the Ohio Housing Finance Agency (OHFA) still offers grants for down payment assistance. If you are a military veteran, VA still offers 100% financing for eligible veterns.

So keep the faith and have hope. Guidelines will ease as time passes. We’ll probably never go back to the lending policies of the 1990’s and 2000’s, but home ownership is still the American dream and it will always be for those willing and able to pursue it.

Mike Lang has over fifteen years experience and is a mortgage loan officer at Fifth Third Bank in Gahanna, Ohio; Mike.Lange@53.com; 614-775-5138.