Home mortgage horror heightens
By Louise Bolger
sun staff writer
We may be more than a month away from Halloween, but if you’re thinking of applying for a home mortgage, the ghost and goblins of Halloween past could make your experience a complete horror.
In the good old days of home financing, you went to your local three-piece suit banker with all your qualifying paperwork, held your breath for a few weeks and in most cases, were granted a fixed-rate, 30-year mortgage on the home of your dreams. Then some time in the late 1970s, some Wall Street types decided that home mortgages could be bundled and traded like stocks. This opened up a whole new world of mortgage financing, which were usually arms length transactions with either mortgage brokers or lending institutions that knew the loan would be sold. The mortgage products available became very creative, with much more liberal guidelines and a lot less scrutiny. Which in a nutshell brings us to today’s mortgage mess.
At this point, just about everyone knows that foreclosure rates are through the roof all around the country, fueled primarily by zero or no down payment adjustable rate loans. These mortgages were sold to investors who thought they could get in and out of properties fast, or marginally qualified buyers who can’t afford their monthly payments now that the rates have reset.
The fallout of all this is starting to result in more restrictions for individuals who are applying for home financing in our current turbulent housing market. Although the 30-year, fixed-rate loan is just above the 6 percent mark, the jumbo mortgage rate is over 7 percent. Jumbo mortgages are defined as any loan that exceeds the Fannie Mae and Freddie Mac limits which are currently set at anything over $417,000. Also, these jumbo rates are very much in flux and can change from region to region, with 8 and 9 percent rates not unusual. Since many properties both on the Island and on the mainland would require jumbo loan financing, the fickleness of these rates is very important to our local real estate market.
In addition, the whole qualifying process is starting to tighten up. For example, previously as little as a 620 FICO score could get you into a sub-prime loan. In recent weeks this number has migrated upward to at least 680 or even higher than 700, with full documentation required. Also, some lenders are abandoning zero down programs and requiring a minimum of 10 percent equity investment. Qualifying guidelines are also being bumped up, requiring higher verified financial reserves up to six months in the bank. In an effort to ward off fraud, lenders are ordering credit reports and appraisals from their own vendors and requiring fresher comparables within three to six months on properties.
And fair or not, even geographic locations are coming into play. If you are purchasing a property located in an area that has high delinquency rates, it could influence your ability to qualify.
The bottom line on all of this is that only the most qualified individuals and properties are going to get financing as we transverse our rocky horror real estate market. On the other hand, when we do come out the other end, there should be better mortgage regulations in place to help educate people, and hopefully, prevent easy money from artificially influencing the real estate market.
In the meantime, if you have a 30-year, fixed-rate mortgage, give it a great big kiss, and be thankful creative financing never worked its way into your vocabulary. I predict the days of the three-piece suit banker are coming back, probably a good thing.