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| Residential Mortgages in the Age of the Credit Meltdown |
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| Written by Emily Winkle |
| Tuesday, 16 December 2008 10:19 |
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The subprime mortgage meltdown had a chaotic effect on the US economy and world financial markets in 2008. After the subprime banks closed en masse, the Alt-A lenders were shut down, eliminating all aggressive financing options in the US mortgage market. This has led to a major credit crunch and has had a disastrous effect on the US mortgage industry and overall economy. The past decade has become a distant memory, with almost all financing options beyond conservative "vanilla" 30-year fixed and 15-year fixed loans no longer available. The remaining mortgage products demand full proof of income, excellent credit, and a history of stable employment. Wow....these new rules are in reality just a return to the previous mortgage guidelines that existed before the mortgage market exploded with creative options. Pre-Subprime Meltdown: Before the much discussed mortgage meltodown, 100% financing was available for virtually everyone. If you had a pulse, you could get 100% financing regardless of past credit. Today in November 2008, there are no longer any options for 100% financing available outside of VA and USDA loans. If anyone tells you differently, they are leading you astray. These do not exist at this time. Alt-A loans , which used to deliver high LTV and low documentation mortgage financing catering to borrowers with credit scores from 620 and up have disappeared. Alt-A banks drove the creation and marketing through an army of mortgage brokers a series of innovative loan products, most introduced in the past five years. While these products were often sold to very strong borrowers with significant assets who couldn't prove income, these seemingly viable products have dried up. They were a victim of the credit tightening that ensued during the subprime mortgage meltdown. Secondary investors ceased buying these products, forcing mortgage companies to stop selling them. Alt-A lenders had ease to qualify, high DTI ratios, reduced income documentations, and the ability to add interest-only to most products. Alt-A lenders were the first lenders that popularized the use of 80-10 and 80-15 loans "piggy-back" loans for investors to avoid PMI. Leading Alt-A lenders included GreenPoint, SunTrust, Lehman/Aurora, and First Horizon. Beyond these market leaders, there were hundreds and hundreds of small niche banks and mortgage companies that arose to fulfill the demand for certain niches. Almost all of these lenders are now out of business, and the ones remaining have removed all Alt-A products from their product line. The big loser with these products drying up are the small business owner with great assets and credit, but income "reduced" through their desire to reduce taxes. Where are we now? Or...after the 2008 collapse of the US mortgage market: Over 300 banks and other mortgage lenders have closed down or exited the wholesale mortgage market. As they disappeared, so went the litany of aggressive financing options that sprouted up over the past 8 years. The mortgage world is back to basics -- FHA and Conventional loans only. The one difference now is that the credit crunch is making it even tougher for a "normal", employed borrower to obtain financing. Credit score requirements are now in the low 700's. A 720 is the new 680 is the mantra of the remaining mortgage loan officers. The problem is that the economic recession of 2008 is having a negative effect on the credit scores of American buyers. Cash-out loans have become extremely difficult to obtain. Lines of credit, or home equity lines, are being reduced by lenders who are facing liquidity issues. This is happening to qualified borrowers as well as more modest borrowers. Additionally, financing for non-owner occupied properties has become extremely hard to obtain -- no matter what the credit, income, and assets of the customer. As 2008 comes to an end, mortgages are still very difficult to obtain. Fannie Mae and Freddie Mac have imposed stricter guidelines effective December 1st, 2008, that will further restrict the ability to obtain residential mortgages for most of us. There are tighter restrictions on the number of properties owned, more stringent credit requirements, and additional restrictions for borrowers who have had a past BK or foreclosure. About the Author: Learn more about Georgia mortgage and Atlanta mortgage from Brian and the team at Anderson Lending Group Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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