How Everything’s Changed in Real Estate Finance

“Everything’s Changed!”  My favorite line delivered by Holly Hunter in “Raising Arizona ” sums up what’s been going on in the mortgage markets.  I started in the mortgage business just over 25 years ago and at that time the available options were Conventional, FHA, VA, & Private Money, that all were fixed rates.  We’ve almost come full circle with the exception that there still are a few Alt-A and SubPrime programs available (for those borrowers that don’t meet the more stringent FannieMae, FreddieMac, Federal Housing Administration, or Veterans Administration guidelines). Gone are NoDoc loans where income, employment, or asset information was not required, gone is NoRatio loans where income information was not required, mostly gone are Stated loans where income is stated, but not verified.  It’s pretty much if you can’t prove it, you can’t get it … not that that’s not the way it should be, but let’s admit it, there are very savvy accountants many self-employed people use, as well as there being a segment our economy that is cash.  That’s where some of these now defunct programs came into play, but over recent years lower down-payments were permitted along with lower credit score thresholds, that turned to be riskier than thought.

The current state of our economy related to housing foreclosures and delinquencies was caused by a number of issues: the burst of the housing bubble and resulting decline in values, job loss or illness impacting peoples ability to meet their budgets, lenders creating products with fast and loose guidelines, homeowners not getting the proper type of mortgage or even the rate they really qualified for from who they trusted, and of course there has been outright fraud.  Regardless of the causes, were are where we are now.

 

What are the options?  VA loans permit 100% financing and a Funding Fee (comparable to Private Mortgage Insurance on conventional loans) is added to the loan, which remains for the entire term.  FHA loanspermit 97% financing (soon to change to 96.5%) and have both a one time MIP (Mortgage Insurance Premiumcomparable to Private Mortgage Insurance) added to the loan amount as well as a monthly MIP fee added to the payment, these also remain the entire term.  Both VA and FHA require “project approval” if the home or town home has a homeowner’s association, or if it is a condominium.  Conventional loans technically permit up to 97% for special programs, but unfortunately here in Florida we are (along with many areas throughout the country) in what is termed a “declining market”, which reduces the percentage for loans.  Here in Florida , at present the maximum loan for a single-family detached home is 90%, if it is attached (town house or villa) or a condominium then it is limited at 80%.  These restrictions will undoubtedly be eased as our market recovers.  Conventional loans over 80% require Private Mortgage Insurance, which is typically paid as a monthly fee in your payment.

WOW! What’s the good news?  The good news is that mortgage rates are at historically low levels.  On December 15th a Conventional 30 year fixed ratewas 4.75% … in my 25 years in business I only remember a day or two about 6 years ago when I was able to lock a few clients this low.  Rates were over 12% when I started out in 1983 and for a long time if rates were in the 8’s, that was good.  With rates available at or below the 5% range and the available choices in property on the market it is a great time to buy.  Remember, interest rates can be very volatile and turn around faster than you think, much faster than real estate values move.

LaMarr Cromer is Broker/Owner of Cromer Mortgage Services, Inc. and has been a FloridaLicensed Mortgage Broker in Palm Beach County since 1983.  Contact LaMarr at 561-594-4025, email at lamarr@cromermortgage.biz, or additional information can be found at www.cromermortgage.biz.

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