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October 20, 2010

Home Loan Qualifications Getting Tougher

Category: Mortgage News,Published Articles – admin – 11:44 am

Mortgage professionals continue to complain that not enough consumers qualify for a home mortgage today.  Even with record low home loan rates, qualifying has become a serious concern for millions of home buying prospects.  Two years after the depths of the financial crisis, the pendulum is still swinging away from the days of “Everybody’s Approved” regardless of credit.  It was not that long ago that mortgage bankers required almost no proof that a customer had the ability to pay back a home mortgage. Before the housing market crashed, even industry insiders ridiculed certain popular mortgages as “NINA” — “no income, no asset” mortgages.  No income verification loans are hard to find these days.  Banks and lenders are approving home loans with a lot more scrutiny. In an effort to minimize loan defaults, they have significantly raised underwriting requirements needed to get approved for a home loan.

The crackdown comes as major banks find themselves mired in controversy at the other end of the credit spectrum. What is described by some as a technical error signing thousands of affidavits for foreclosures without proper review — has turned into a political scuffle ahead of next month’s U.S. elections. Facing pressure from U.S. lawmakers, Bank of America said on Friday it would halt foreclosures in all states, fueling concern that outstanding FHA-mortgage loans will further hinder housing’s rebound from its worst crisis since the 1930s.   Yet, as Shipe’s case suggests, the market for new home loans is not much more encouraging. And while foreclosures are capturing most of the headlines, barriers to credit affect far more Americans and could be a bigger drag on any recovery.

Shipe never gave a moment’s thought to the possibility that she would struggle to secure a mortgage.   After all, she has a credit score above 800, far higher than most Americans. And as the chief executive of the Council of Real Estate Brokerage Managers, an industry group that is affiliated with the National Association of Realtors, she happens to be an insider.  Shipe is also debt-free. In her last home she not only paid her mortgage on time, but also put an extra $1,000 per month toward the principal. To top it off, she has banked with JPMorgan Chase — whom she came to for a home loan, for more than a quarter of a century.   But when Shipe applied for a jumbo mortgage loan over $417,000 toward a $630,000 town house in Chicago’s affluent Lakeview neighborhood, she was told she needed 20% down instead of the 10% she was expecting. So she reluctantly used cash savings and withdrew money from her money market account.   Then came the tedious process that has recently become almost unbearable for solid borrowers trying to take advantage of a sluggish market and alluring low mortgage interest rates.

The push on documentation has been exacerbated by the growing struggle between the nation’s largest lenders and Fannie Mae and Freddie Mac, the U.S. institutions that help provide some three-quarters of funding for residential loans.   Known as government-sponsored enterprises, or GSEs, Fannie Mae and Freddie Mac have required taxpayer bailouts of $150 billion since late 2008, and have warned they will need more mortgage relief from the U.S. Treasury.

Today, the two companies are scrambling to recoup some of the losses that continue to pile up on the $5 trillion in home loans they helped fund. To that end, they are scrutinizing loan data for minutiae that would disqualify them under their standards. Banks are then being asked to buy back billions of dollars in loans Freddie and Fannie deem as problematic, forcing the lenders to increase reserves and legal teams to contest claims.   All told, the U.S. banking industry stands to lose up to $44 billion as they “repurchase” such mortgages. More than half of that total is expected to be absorbed by five big banks: Bank of America Corp, JPMorgan, Citigroup, Wells Fargo and SunTrust, according to Paul Miller, an analyst at FBR Capital Markets.

Mortgage lenders, brokers and borrowers are caught in the crossfire. During the housing boom, a borrower could turn to private investors. But today Fannie Mae and Freddie Mac along with the Federal Housing Administration and Ginnie Mae — have a hammerlock on market share.  See the original MSNBC article.


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