GOT GOOD CREDIT? You'll Still Feel The Squeeze!
MORTGAGE-LENDING STANDARDS GETTING TIGHTER - FOR EVERYONE!
Last Summer, when the sub-prime crisis was just simmering to a boil here in Chicago, and across the country, we noticed a few of our credit-challenged buyer clients having difficulty obtaining financing that most likely would have been easy pickins' the previous year. A couple of these folks decided to wait it out - they're still on the sidelines today! The others needed more down payment, with help from family, tighter scrutiny of their financial credentials, and several months reserve money in the bank. They got their loans!
Today, in February, 2008 - those marginal borrowers would most likely not have been even given a second look. Now, those with even strong credit are given far closer scrutiny in their mortgage loan applications.
In a survey conducted by the Federal Reserve Board last month, more than 50% of bankers who responded stated they had tightened their underwriting standards for ALL borrowers - even those with the best credit. Only 40% made that statement last October.
With mortgage defaults and lender exposure growing by the day, over 70 percent of banks expect the problem to worsen this year. As a result, most mortgage lenders now demand larger down payments and higher credit scores from prospective borrowers.
MGIC Investment Corporation, a large issuer of Private Mortgage Insurance - typically needed when borrowers put less than 20% down on their new homes - is raising its standards here in Chicago, and 29 other metro markets across the U.S. In effect, these tighter restrictions could block many with very low down payments from getting conventional mortgage loans - regardless of credit quality.
The PMI Insurer's new standards apply to borrowers who have what they define as "multiple risk factors" - lower credit scores, limited or no income or asset documentation, and low potential equity (high loan-to-value). Beginning March 3, 2008, borrowers in MGIC's 30 targeted metro market areas must have a down payment of at least 5% in order to qualify for Private Mortgage Insurance. Those with credit FICO Scores of less than 680 will usually need a minimum of 10% down. Also, MGIC is no longer going to insure certain "exotic" loans, those made by some investors, and those involving cash-out when refinanced.
Please read Mary Umberger's article in today's Chicago Tribune for more details.
DEAN MOSS & DEAN'S TEAM CHICAGO
