Wednesday, December 29, 2010

Manhattan Beach-Beach Cities: Home loans... the good, the bad and the ugly...

Interest rates continue to be at all time lows... even as they bounce up and down like an old time YoYo. Long term mortgage rates seem to have taken on a life of their own. The speculation was that if the FEDS would again purchase mortgage backed securities, home loan rates would continue to be low and stable... but like many government plans the devil is in the details or rather the bond markets.

I have clients who got loans over the last few months from 4.25%-5.5% depending on down payment, loan lock date and dumb luck. Current rates for jumbo conforming loans are hovering around 5% for a 30 year fixed with 20% down and a 760+ FICO. Jumbo loans are a bit higher but still low compared to rates a few years ago.

The current market is very much like the one we saw at the end of 2009. Rates are still good and inventory is slowly disappearing. Prices are flexible with some sub areas showing increases in value, others decreases but most market area prices are on the flat side.

On December 13, 2010, Fannie Mae instituted new mortgage guidelines for consumers looking to purchase or refinance a home. These new guidelines combined with tougher overall lender requirements make it harder to obtain financing for everyone.

Self employed people and those who work on a commission basis (1099 earners) will be hit the hardest by the new changes. While it has been difficult the last few years for those who were not straight salaried to obtain loans it hasn't been impossible if you had a consistent income and a lot of assets. Now that has changed as lenders weight income more heavily and downplay assets as the basis to make a lending decision. Money in the bank doesn't seem to be as important as money from a monthly check.

While I understand that asset values have seen a lot of volatility in recent years, I would think that with the high levels of unemployment continuing to plague the economy strong assets would be important. Historically lenders wanted to see good income along with assets to prove stability but that may be changing. Sometimes I think lenders may be their own worst enemy.

Banks are saying that if you are self employed you can't obtain a loan...which is silly. Many of my clients are self employed, have a lot of cash and assets but a variable income stream. The variable income is often higher on an annual basis then a borrower making a similar income but banks view these folks differently. Stated income loans made to borrowers with lots of assets were not bad loans. However stated income loans made to borrowers with fudged income and no assets were a disaster. Lenders need to learn the difference.

I can't fault lenders for only wanting to loan money to the best borrowers. However while lenders make things tougher for conforming borrowers, the FEDS have far less stringent qualifications for FHA and VA loans. On a national scale there are far more FHA and VA loans being made then conventional loans. Makes for some interesting speculation about future defaults.

No comments: