After the Chaos - What Types of Mortgages Remain
The mortgage market and subsequently the entire US economy had a major meltdown in 2008. This originally stemmed from the subprime meltdown, and then the Alt-A lending collapse. As a result, the world financial markets have experienced a major credit crunch and this has resulted in a completely transformed US mortgage industry.
The past ten years have become a memory, with virtually every aggressive financing option no longer available. The only viable mortgage products remaining require full documentation of income, good credit, and stable employment. Wow....finally some common-sense in a mortgage world gone mad.
After the Subprime Disaster:
Before the financial crisis that destroyed the mortgage market, 100% financing loan programs were availalable to all. The only real requirement that existing in those days, were that you prove you were a US citizen. (non-citizens could only get 90% financing!). With credit scores in the high 500's, you could still obtain 100% loan financing. In November 2008, only USDA and VA loans offer 100% financing. FHA loans have removed their option to allow the seller to gift 3% to the buyer, so they are now capped at 97%. Fannie Mae and Freddie Mac offer 97% options, but no 100% programs at all. If anyone tells you differently, they are giving you bad information.
Alt-A loans, which used to offer aggressive loan financing products catering to borrowers with credit scores from 660 and up are also gone. While these lenders offered programs to borrowers with scores down to 620, the aggressive programs were typically not available to borrowers below a 660 middle score. Alt-A banks have driven the creation of innovative loan products over the last five years. Today, even these seemingly viable products have dried up. They were a victim of the mortgage chaos that ensued during the subprime meltdown. Anderson Lending Group does not offer these loans any longer. Alt-A lenders had relaxed debt-to-income ratios, reduced income documentations (stated income, no income / no asset, and no doc), and the ability to add interest-only to most products. Alt-A lenders were the ones that popularized the use of 80-10 and 80-15 loans for investors to avoid PMI.
Aurora, GreenPoint, SunTrust, First Horizon, and IndyMac were leading Alt-A lenders during the mortgage boom of the last decade. Besides these, there were literally hundreds of banks and lenders that delivered niche products to strong borrowers. Unfortunately, many of these lenders are now out of the mortgage business completely.
Where are we now? Or...after the 2008 collapse of the US mortgage market:
As 2008 ends, hundred and hundreds of banks are closed operations. The aggressive loan options that arose over the past decade are now gone, and more than likely will never return. The credit crunch is making it even tougher for average customers seeking home loans to get a loan. FHA is king again, as the only program that lenders are comfortably loaning money towards is the hallmark of the mortgage business -- the FHA loan from the Department of Housing and Urban Development. Credit score requirements are now in the low 700's, where before a 680 was sufficient. Cash-out refinance mortgages on single family homes are very hard to get, and for many people, impossible. HELOC's are being reduced for millions of customers. Additionally, investor loan financing is extremely hard to obtain, no matter how strong the client.
As we begin to plan for 2009, Freddie Mac and Fannie have created new strict rules and guidelines for lenders effective December 1st, 2008. These will continue to reduce options for customers seeking financing on purchase or refinance loans. Additional restrictions for borrowers who have had a past BK or foreclosure now push the dream of home ownership from 2 years after these blemishes to 4+ years.
The past ten years have become a memory, with virtually every aggressive financing option no longer available. The only viable mortgage products remaining require full documentation of income, good credit, and stable employment. Wow....finally some common-sense in a mortgage world gone mad.
After the Subprime Disaster:
Before the financial crisis that destroyed the mortgage market, 100% financing loan programs were availalable to all. The only real requirement that existing in those days, were that you prove you were a US citizen. (non-citizens could only get 90% financing!). With credit scores in the high 500's, you could still obtain 100% loan financing. In November 2008, only USDA and VA loans offer 100% financing. FHA loans have removed their option to allow the seller to gift 3% to the buyer, so they are now capped at 97%. Fannie Mae and Freddie Mac offer 97% options, but no 100% programs at all. If anyone tells you differently, they are giving you bad information.
Alt-A loans, which used to offer aggressive loan financing products catering to borrowers with credit scores from 660 and up are also gone. While these lenders offered programs to borrowers with scores down to 620, the aggressive programs were typically not available to borrowers below a 660 middle score. Alt-A banks have driven the creation of innovative loan products over the last five years. Today, even these seemingly viable products have dried up. They were a victim of the mortgage chaos that ensued during the subprime meltdown. Anderson Lending Group does not offer these loans any longer. Alt-A lenders had relaxed debt-to-income ratios, reduced income documentations (stated income, no income / no asset, and no doc), and the ability to add interest-only to most products. Alt-A lenders were the ones that popularized the use of 80-10 and 80-15 loans for investors to avoid PMI.
Aurora, GreenPoint, SunTrust, First Horizon, and IndyMac were leading Alt-A lenders during the mortgage boom of the last decade. Besides these, there were literally hundreds of banks and lenders that delivered niche products to strong borrowers. Unfortunately, many of these lenders are now out of the mortgage business completely.
Where are we now? Or...after the 2008 collapse of the US mortgage market:
As 2008 ends, hundred and hundreds of banks are closed operations. The aggressive loan options that arose over the past decade are now gone, and more than likely will never return. The credit crunch is making it even tougher for average customers seeking home loans to get a loan. FHA is king again, as the only program that lenders are comfortably loaning money towards is the hallmark of the mortgage business -- the FHA loan from the Department of Housing and Urban Development. Credit score requirements are now in the low 700's, where before a 680 was sufficient. Cash-out refinance mortgages on single family homes are very hard to get, and for many people, impossible. HELOC's are being reduced for millions of customers. Additionally, investor loan financing is extremely hard to obtain, no matter how strong the client.
As we begin to plan for 2009, Freddie Mac and Fannie have created new strict rules and guidelines for lenders effective December 1st, 2008. These will continue to reduce options for customers seeking financing on purchase or refinance loans. Additional restrictions for borrowers who have had a past BK or foreclosure now push the dream of home ownership from 2 years after these blemishes to 4+ years.
About the Author:
Learn more about Peachtree City Mortgage mortgage and Atlanta mortgage from Brian and the team at Anderson Lending Group
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