The mortgage crisis has caused credit tightening, which in turn can make buying a home more difficult. This article explains some of the effects of the credit crunch including the disappearance and temporary appearance of some loans.
The acute losses suffered by Wall Street firms, Government Sponsored Enterprises (GSE's), and other investors across America led to credit tightening and the vanishing of the loan products that caused these losses. The principal culprits were the high-risk, 100% CLTV (combined loan to value) second mortgages on investment properties, most of which were transacted with Stated Income and Stated Income Stated Asset (SISA) documentation. This type of loan began disappearing two to two and a half years ago with credit tightening or discontinuance occurring quickly. Other high-risk loan categories that wrecked havoc were the Owner Occupied SISA and No Doc loans. These loans are no longer available from most lenders.
The fight to correct the predicament of high losses was so severe that maximum loan-to-value (LTV) percentages were reduced for conforming full-documentation loans for properties in declining markets (geographic areas where home values have decreased). The reduction was intended to decrease default rates and is being lifted this summer under certain circumstances.
Conventional/conforming loans (non-governmental loans equal to or less than $417,000) and FHA-insured loans were popular during the first six months of this year (2008). Borrowers with poor credit have the prospect of qualifying with both types of loans, although the FHA-insured mortgages may limited to a minimum credit score of 580. FHA mortgages permit a slightly higher loan-to-value ratio (lower down payment) than conventional mortgages.
Here are three new (and temporary) mortgage programs:
FHASecure - this is an FHA-insured refinance loan that is available for homeowners that currently have a non-FHA mortgage. It was originally intended for people who defaulted, or would likely default, on their ARM when the rate reset; it was later made available to a wider demographic.
FHA High Balance - The regular maximum loan amounts for FHA-insured mortgages was temporarily increased by HUD (the U.S. Department of Housing and Urban Development). The maximum loan limits depend on the county in which the home is located. The higher balance FHA loans can have better rates than loans that fall within the regular FHA loan limits.
Agency Jumbos - (also known as Conforming Jumbos). Jumbo loans are usually those that are greater than $417,000. Loans equal to or smaller than this amount are considered "Conforming" loans and have guidelines different than Jumbo loans that must be met in order to qualify. Through the rest of 2008, loans up to $729,750 qualify under the regular Fannie Mae and Freddie Mac conforming loan guidelines with the addition of some underwriting restrictions. The actual maximum loan amount depends on the county limits established by HUD and is valid only for 1-unit purchases (i.e., the maximum does not apply to duplexes).
