It seems that every time I turn around Fannie, Freddie, or even FHA are either raising credit score requirements, or tacking on higher fees - OR BOTH. Several years ago, you could find 100% financing for people two years out of foreclosure. In a rapidly appreciating market a loan product like that still might be safe for the investor, because someone that is months behind in mortgage payments could list their home and sell it in 30-45 days, and net a profit even though they bought just 6 months prior. Many people "won"!
However, it seems like we all are losing today. If you hang around the office nowadays, you'll hear things like, "Sir, you need a 740 or better FICO score, and will have to put 30% down or more." Even FHA, the savior to us all in this market, is hitting back hard. Rumor has it that after this Friday, February 20th, lenders such as Wells, Chase, and Citi will no longer accept FHA loans with a FICO score less then 620. (You better lock them in now!) Even if other lenders are initially going to accept FHA loans below 620, there is a good chance that they will follow suit.
This will again cut a HUGE segment of today's buyer out of the picture.
Mr. President and staff, everyone is glad you are making efforts to beef things up and get first-time buyers out and buying, but don't forget, a very large percentage of these buyers have credit scores at or below 620. What can be done about that? Our first time buyers will never realize the $8,000 tax credit.
Fannie, Freddie, and many portfolio lenders would finance anyone with a pulse a few years ago. And now our nation is really hurting because of such lending practices. And yet here again, another tidal wave is coming against the "average" buyer. Except this time, lenders are going overboard restricting good, solid buyers.
It is hard to stimulate a housing market when the lenders are increasingly working against it.
In case you do not know, it is not hard to have a 620 score. You can pay EVERY bill you ever had, on time, and have a 620 or lower score just by carrying high balances on you credit cards. The reality is lenders see scores in the 570's with NO late payments.
No one is suggesting that there is no additional risk with such a borrower that heavily utilizes credit cards. However if such a borrower can fully service this debt along with their new housing debt, and have a good debt ratio around 41%, then they should have a loan available to them. We used to love FHA for their "common-sense" underwriting. Now even FHA is getting credit score requirements tacked on. Even if FHA themselves aren't restricting, the end result is the same.
Isn't this the very reason FHA was initiated?
Who's to say the future doesn't hold even higher FICO requirements for the home buyer? One would hope FHA will step in and try and regulate investors from getting out of hand. There is such a thing as good regulation, after all.
Steve Kappre is a Certified Mortgage Planner with Treasury Mortgage, a subsidiary of Aurora Financial Group, serving all 50 states, focusing on Gloucester, Camden, and Salem County, NJ. Steve specializes in;
• All areas concerning First-Time buyers; First-Time Buyer mortgages, grants, down payment assistance, tax credits, police and fire loans, rehab loans for first time buyers, and more.
• Reverse Mortgages for seniors age 62 or older.
• Equity Management strategies for high-end homes and high net worth individuals.
Contact Steve Kappre directly at 856-419-3561 or at www.stevekappre.com