Buying a home has been tougher due to the mortgage crisis and the resulting credit crunch. This article describes some of the consequences of the crisis including the discontinuance and temporary appearance of some loans.
The acute losses suffered by Wall Street firms, Government Sponsored Enterprises (GSE's), and other investors across America led to credit tightening and the vanishing of the loan products that caused these losses. The principal culprits were the high-risk, 100% CLTV (combined loan to value) second mortgages on investment properties, most of which were transacted with Stated Income and Stated Income Stated Asset (SISA) documentation. This type of loan began disappearing two to two and a half years ago with credit tightening or discontinuance occurring quickly. Other high-risk loan categories that wrecked havoc were the Owner Occupied SISA and No Doc loans. These loans are no longer available from most lenders.
The struggle to correct the plight of high losses was so severe that maximum loan-to-value (LTV) percentages were decreased for conforming full-documentation mortgages for houses located in declining markets (areas where home values have decreased). The reduction was instituted to ameliorate default rates, and is being lifted during the summer 2008 under certain circumstances.
Conventional/conforming loans (non-governmental loans equal to or less than $417,000) and FHA-insured loans have been popular during the first six months of this year (2008). Borrowers with poor credit have the prospect of qualifying with both types of loans, although the FHA-insured mortgages may limited to a minimum credit score of 580. FHA mortgages permit a slightly higher loan-to-value ratio (lower down payment) than conventional mortgages.
The following are three temporary mortgage programs that came about because of the current mortgage crisis:
FHASecure - this is a refinance loan insured by the Federal Housing Administration and is available for homeowners with a non-FHA adjustable rate mortgage (ARM). Originally intended for people who had defaulted on their ARM, or would likely default when the rate reset, it is now available to a wider demographic.
FHA High Balance - The regular maximum loan amounts for FHA-insured mortgages was temporarily increased by HUD (the U.S. Department of Housing and Urban Development). The maximum loan limits depend on the county in which the home is located. The higher balance FHA loans can have better rates than loans that fall within the regular FHA loan limits.
Agency/Conforming Jumbos - Mortgages greater than $417,000 are considered "Jumbo" loans. Loans for amounts equal to or smaller than this are called "Conforming" loans and have different guidelines than Jumbo loans that must be met in order to qualify for the loan. Agency/Conforming loans are mortgages starting at $417,001 that can go up to $729,750 and that qualify under the regular Fannie Mae and Freddie Mac conforming loan guidelines -- with some additional underwriting restrictions. As with FHA High Balance loans, the actual maximum loan amount is determined by the HUD county limits is valid only for 1-unit purchases (i.e., the maximum does not apply to duplexes).
HUD's county limits can be viewed at: https://entp.hud.gov/idapp/html/hicostlook.cfm
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