We all have seen in the newspaper and on television that the mortgage business is in some turmoil. Nationally known sub-prime mortgage lenders have closed up shop and the number of mortgage investors has dropped dramatically over the past three years. So what effect is this having on those of you who do have a good credit history, a stable work history and money in the bank?
The most obvious change that I have seen in the mortgage marketplace is the minimum credit scores required for many mortgage programs. As an example, a few months ago potential borrowers with credit scores in the low 600's were able to obtain a mortgage without documenting their incomes. The borrowers could "state" an income that was within reason for their employment and not have to provide any pay stubs or federal tax documents.
Now, most of those stated Income programs are gone, and those that remain have minimum credit score requirements much higher. Scores for many programs have been raised to the high 600's and some investors have the minimum scores well over 700.
The next big change that I see is that the loan-to-value amounts now allowed for second homes. Since we live in an area where a majority of the properties are second homes, I see how these changes have affected our market. We were able to finance 100 percent of the purchase price of second homes not too long ago. Now, most investors have limited the loan-to-value on second homes to 80 percent. The idea is that if times do get tough for the owner of that second home, it is a bit easier to walk away from that property if they have no money in it. If they have at least 20 percent invested in the property, it makes it harder to walk away. It also makes it better for the mortgage investor as they have a 20 percent cushion in case they do have to foreclose on the property.
Another big change is the way the underwriter looks at the property if it is a condominium. If one unit in the complex is a time-share or one is a fractional-ownership unit, many investors are just refusing to offer a mortgage on any units in that complex. This is true for buyers who are going to make the condo a primary residence, second home or even an investment property. Being in an area when we have thousands of condos, this has become a real problem for some buyers and even more for sellers.
So are these changes going to cripple the mortgage business? No! Tightening up the rules every so often happens in all businesses. It seems that this is a speed bump in the mortgage business. Things will calm down before long and the rules will adjust just as they have done before. This time next year we all will be on to another subject and the mortgage business will have cleansed itself and good qualified buyers will have many more mortgage programs available to them once again.
For answers to your mortgage related questions call Bob Kieber at (970) 453-4700 or email him at firstname.lastname@example.org. Bob is a local mortgage lender with Centennial Bank. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country. Member FDIC, Equal Housing Lender. NMLS Bank #401640 Broker #289610. For tax benefit information please consult with a professional tax advisor. The opinions expressed are those of the individual, and do not necessarily reflect those of Millennium Bank.