MORTGAGE RATES ARE DOWN! Have you noticed?
30-YEAR RATES AT LOWEST LEVEL SINCE 2004 - BUT WILL YOU QUALIFY?
Mortgage rates for new home purchases and home refinances have dropped into the mid-5% range within the last week. But some who seek these low rates are finding it more difficult to obtain the best mortgage rates, due to far-higher loan underwriting standards.
As mortgage defaults continue to rise here in Chicago and across the U.S., many lenders reserve the best advertised rates for those with top-notch credit scores, and lots of equity in their current or proposed home. Those with little or no money down, or with no or negative home equity, are not finding help from lenders, and their lower-rate financing programs.
"There's a widening gap between those people who can qualify for a mortgage and get great rates and those who can't," said Barton Pitts, president of Professional Mortgage Partners in Downers Grove. "It's a totally different world."
The problem pervades the entire economy, not just the housing market.
In reaction to international financial market turmoil last Monday, the Federal Reserve Board provided an emergency Fed Funds Rate Cut of 3/4% earlier this week, and is expected to lower benchmark rates further during their regularly-scheduled meeting this coming week. But with tighter loan approval standards, the effect of these actions, along with recent proposals by the President and Congress to offer sizable tax rebates and business incentives, may be drawn down.
For those seeking loans of greater than $417,000 - the threshold for "jumbo" loans purchased and resold by Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), even the most qualified buyers have to ante up, on average, up to 1% more than the prevailing rates on lower-value loans. In it's proposed legislation, the Jumbo Threshold would be raised, to as much as $730,000 in more expensive metro areas, to remove this additional charge.
Back in November, as the sub-prime mortgage crisis continued, Fannie Mae and Freddie Mac imposed new, more stringent rules for prospective home borrowers. These independent agencies purchase qualifying mortgage debt, and turn it into marketable securities for investors worldwide. With defaults projected to increase, they have increased surcharges and fees for borrowers with previously-acceptable FICO credit scores below 680.
In past years, anyone with a credit score in the high-500's could qualify for a low-rate, low-down-payment loan. Further, "stated" loan programs, where verification of income and assets was not required, were prevalent. Not anymore! Today, "good credit" means FICO scores at or above the low 700's, and most "no doc" loan programs have disappeared.
Here is the real crunch - those with adjustable rate loans, who purchased with low equity at the height of the market a couple of years ago, cannot refinance when their rates adjust higher. They are essentially stuck with the increased loan payments, as they would not qualify for today's lower fixed rates.
As lenders are demanding more home equity, or higher down payments, in order to make new loans, standards for appraisers have been tightened, especially in markets where values have declined - including some neighborhoods in Chicago and the suburbs. Many appraisers must now provide comparable sold properties within the last 30 or 60 days, as well as active properties nearby. When they can't find comparables acceptable to justify price, the appraised values are lowered. Previously, guidelines were more lenient - three comparable sold properties, within a roughly one-mile radius, within a six to nine month period.
Read more in today's Chicago Tribune, in an article by Michael Oneal and Mary Umberger.
DEAN MOSS & DEAN'S TEAM CHICAGO
