LENDERS TO TIGHTEN SCREWS EVEN FURTHER for Many Home Buyers!
CASH-OUT REFINANCES, STATED INCOME LOANS LIKELY CASUALTIES FOR MANY!
In response to the high level of mortgage delinquencies occurring within the last year, with more predicted to come throughout 2008, lenders are likely to tighten lending rules even further to reduce their exposure to loss. To better protect lenders, national mortgage underwriter Freddie Mac has issued tighter underwriting rules within the past week, effective for loans commencing after August 8th, that will severely restrict certain types of heretofore-common mortgage loans.
Those who pulled additional equity out of their home in a re-finance by taking "cash out" may no longer be able to do so. Homeowners with re-financed loans with cash out within the last six months, where the mortgage balance exceeds the old loan balance by more than five percent, will no longer be able to do so again. Freddie Mac is imposing this restriction after research indicated that more than 80% of re-fi mortgages involve large cash-out balances.
Loans to buyers of second homes and investment properties will be severely curtailed. For loans to be funded after August 8th, those who appear on title, either individually or jointly, for four or more investment or second-home properties will no longer qualify for Freddie-backed financing. The four properties INCLUDES the property the potential borrower is planning to purchase.
Additionally, several Private Mortgage Insurance Companies, who provide protection to lenders for loans where the borrowers put down less than 20%, are strengthen their standards, especially in markets they consider to be in decline.
One of the largest mortgage insurance issuers, Genworth Financial, will no longer issue mortgage insurance for second-home buyers with less than 20% equity in the state of Florida. They will also not insure cash-out refinances, investment property mortgages, certain construction loans, or adjustable-rate loans whose first reset occurs within five years, in any market on their "declining" list.
Another mortgage insurance company, PMI Group, will no longer insure cash-out refinances for those with less than 20 percent down. Stated income or limited-documentation loans. investment property mortgages, and those for three or four unit multi-family buildings will not be insurable.
For jumbo mortgage loans, those greater than the current threshold of $417,000 here in the Chicago area, PMI will only issue Private Mortgage Insurance to those with at least 10% down, and a minimum 700 FICO Credit Score - a very high standard!
MGIC, another Private Mortgage Insurer, will refuse mortgage insurance nationwide for those taking an "Option ARM" loan, where periodic rate increase resets are instead folded back into the mortgage balance, potentially creating negative amortization. These Option ARM loans were somewhat popular in Chicago and other big cities a few years ago, as many borrowers did not understand the double-punch risk of rising rates and reduced property appreciation as a threat.
Mortgage insurer MGIC will no longer cover cash-out re-finances for those with less than full income documentation, temporary reductions ("buy-downs") in interest rates on investment properties, and certain non-traditional loans on second homes - all for those with less than 20% down.
See Kenneth R. Harney's article today in The Chicago Tribune for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
