The Challenges Facing Today`s Mortgage Market

The Challenges Facing Today’s Mortgage Market Presented by Lori Stillwell

Presentation Overview 

Yesterday

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Today

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Qualification Changes

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“New” Products

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Relocation Policy and Procedure

Yesterday… 

Strong appetite for investors to buy mortgage backed securities

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Low down payments

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Low credit score options

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Limited documentation; even on high balance loans

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Speculators: Lenders and consumers jumped into the real estate market

Today… 

Private securities still not selling; investors continue to consider (this makes conventional jumbo loans difficult to originate)

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Significantly tightened underwriting standards

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Transactions more complex for lenders and consumers

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Government business consists of 13% (YTD 2008) vs. 3% (2007) of originations in overall mortgage market

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New FHA guidelines as well as Freddie & Fannie Conforming loan limits

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Mortgage companies and brokers continue to exit the market

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Lenders working with consumers to avoid foreclosure

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Increased loss on sale; reluctance to move

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Great market for first time home buyers

Qualification Changes General Tightening of Underwriting Guidelines 

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Increased minimum FICO Score Increased down payment requirements Increased documentation requirements Enhanced Appraisal Review

What is “new”…again? 

Fixed Rate Products

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FHA Financing – increased loan limits

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Fannie Mae/Freddie Mac – conforming loan limit increases

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VA Financing

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Private Mortgage Insurance (PMI)

FHA Financing

increased loan limits 

FHA created in 1934 – became part of HUD in 1965 

Go to www.hud.gov for more information on FHA

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FHA often viewed as a first time homeowner program – it’s more than that!

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FHA loan limit increases available through 12/31/2008  

$271,050 - $729,750 – varies based on location (higher for multi-unit dwellings) Lenders acceptance will vary and will likely overlay their policies into FHA guidelines

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FHA now a solid alternative to subprime

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FHA still allows low down payment options

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Down Payment can be gifted from family, government source or a non-profit agency

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Lenders are beginning to leverage FHA flexibility in order to serve customer needs

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Currently, LTV is not impacted by declining markets

VA Loans Home financing for: Active and previously active military personnel Reservists & Surviving spouses       

Certificate of eligibility required for each customer 100% financing available VA funding fee can be rolled into the mortgage VA funding fee waived for disabled veteran VA appraisal requires an in-depth property inspection with work orders to be completed by the seller prior to closing Expanded maximum loan amount to $417,000 ($625,500 in designated high cost areas) Seller concessions allowed up to 4% of the appraised value

PMI and Lender Paid Mortgage Insurance 

Required when customer’s down payment is less than 20%

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Utilization dropped as a result of increase in blended loans (80-10-10, etc.)

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Blended loan guidelines have tightened across industry

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Home equity has reduced due to declining property values resulting in smaller down payments

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Borrower paid PMI   

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Low upfront paid at closing = higher monthly PMI cost High upfront paid at closing = lower monthly PMI cost Moderate upfront paid at closing = moderate monthly PMI

Lender paid PMI – lender covers cost of PMI through increased interest rate 

No upfront cost

Relocation Policy and Procedure 

Tighten policy language around reimbursement of VA funding fee

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Tighten policy language around PMI up-front fee reimbursement

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Down Payment Assistance  Wells

Fargo Recommendation: Consider Corporate Second Guarantee Program

Overcoming Payment Challenges