Credit Guidelines Change - The Future of the Financing of 100% sub-prime, and first home buyers

You've probably seen the television news or read newspapers and know something about the disappearance of the business of sub-prime mortgages.

For now, you or someone you know, thought they were getting a mortgage, and suddenly, without warning, were rejected by the loan because the bank no longer offers this program.

You may have even seen The Mortgage Lender Implode-O-Meter that many of my colleagues have sent in the website.

You also know that this was mainly due to a record number of foreclosures and the highest percentage of people who are behind on their mortgages in nearly four years.

As a result, almost all mortgage lenders in the country has dramatically changed their patterns of borrowing over the past 30 days, especially high-risk banks that decided to stay in business.

Many banks have taken the decision to close. According to the implosion-O-Meter, this number is at 39 from today.

New Century, the third largest lender of subprime mortgages in the U.S., is no longer accepting loan applications. They are on the verge of bankruptcy or closure, depending on the reports you read. Its shares, which had been 51 in the last year, hit a low below 4. Fell almost 70% in one day.

You've probably tried to Fremont and Aurora as well. Fremont is the second largest U.S. mortgage lender independent. That division recently closed its subprime.

Aurora recently deleted a very popular program of subprime mortgages they had.

You may even have been very escrow fall for it. The buyer, who was a slam dunk loan a month ago can not now qualify.

Why these guidelines change so quickly and so

The mortgage business runs like a river with a stream below. All the water ends up in the same group at the end of river.

Almost all mortgage loans originated by all parties end up being bought by a handful of companies. This handful of companies buy almost all of the mortgage made in the U.S. These are large, institutional, investment firms on Wall Street.

These investment companies buy mortgage bonds, as they have been very profitable in recent years. They were profitable because the market was vibrant. People make their payments on time and if not, just sold their properties at a profit before losing the house to foreclosure. Mortgage bonds are lucrative and came with little risk.

The rewards are huge and almost all the great institutions of Wall Street at Morgan Stanley Goldman Sachs Lehman Brothers Credit Suisse won the game. Even General Motors has two mortgage companies.

However, with foreclosure rates higher than payments for ever and also very high, these mortgages are no longer profitable for investors on Wall Street. In fact, it has become a liability threat to kill them.

Sure, it's great to have a $ 60,000 in a second mortgage at a rate that you pay 11.000%. However, when it comes in default and take you back to his house and he is upside down $ 100,000 and lost his entire $ 60,000 because it is in second position to the holder of the mortgage in the first place, which is a beating first class.

Some experts say that investors now stand to lose billions of dollars. General Motors announced this week that he is writing a check for $ 1 billion to cover losses in its mortgage division. That's billion with a B

The biggest loser of these investors on Wall Street has been sub-prime mortgage and second mortgage notes. His research shows that these losses are mostly directly related and first-time buyers and 100% financing.

Therefore, these Wall Street investors have decided to fight. Which together have determined that the second mortgage notes are the riskiest of all and it will limit their purchase. They have decided to buy only the best grades. Those with the least risk. The people who have made some of his own money in the supply and  or only those with better credit.

They have determined that the sub-prime notes not worth owning unless the borrower has more of his own money into the property, so they are limiting the purchase of those as well unless the borrower has a substantial pay down or a lot of equity in a refinancing.

They have determined that the notes for borrowers state their incomes are much more likely to end in foreclosure, so it is limited to borrowers with better credit score.

They have determined that first-time homebuyers without a down payment or a verifiable history of rent or a very good credit scores are too risky, so they are limiting investment in those notes as well.

So mortgage companies to sell to investors on Wall Street these notes, including Countrywide, Option One, New Century, Fremont, Aurora, and almost all mortgage lenders that you, or your dealings with the agent is put on notice of these Wall Street investors.

They said, Doing business as it deems necessary, but just know you do not buy the notes of risk, such as those mentioned above.

Without a place to sell these notes, these banks had to change its guidelines to allow only the notes they can sell and that's where we are today.

OK, so what does this mean for you and me

In recent weeks, almost all mortgage banks have eliminated the programs stated income loans for credit scores 660 which allow 100% financing.

They want buyers to have their own money on the deal, believing it will make them less likely to be willing to lose your home.

If you do an 8020 loan to cover 100% of funding, 20% second mortgage can be very difficult to obtain. It will be almost impossible if your credit score is below 660 and that the state of their income.

If your credit score is below 620, which makes subprime mortgages to most lenders, so it is very likely to need at least 5% down payment and probably more like a 10 -20%.

If you have to declare your income, you should plan on at least 5% -10% down payment, if your credit score is at least 660.

If you have to declare their income, the plan in a bank seriously considering their impact on the payment before your approval. Many new banking guidelines is limited this in no more than twice the current payment. For example, if you pay $ 2000 today for your home or rent, it will be difficult but not impossible, to find a bank that will allow your payment as a height greater than $ 4000.

If you are a first time buyer and not the income of a professional management company, you should make sure you have the canceled checks to prove his last 12 months rent and history of your credit score should be decent. If not, is likely going to face a greater challenge and possibly a higher interest rate.

If your credit score is at least 660, and you can not disclose all their income, it is very difficult or expensive to borrow 100% new home purchase or refinance.

When I say expensive, I mean if you are doing an 8020 loan and your credit score is at least 660, and have to declare their income, plan on that last 20% that it costs between 8.3 % on the loan as a loan discount rate, if you can find.

If you buy a home for $ 300,000, and is doing a 8020, it means that your first mortgage is $ 240,000 and a second mortgage is $ 60,000.

Based on these numbers, that second mortgage will cost you a discounted rate of $ 1800 and $ 4800 just to get the second loan in additional closing costs.

But this is still definitely cheaper to put 5% down or $ 15,000 in the same house, but makes it much more difficult for home buyers and first time with little or no money for down payment .

Most banks limit the seller contribution programs 100% to 3% of the loan amount for additional expenses in the second mortgage without doubt means that it takes money from your pocket.

The market for subprime mortgages, primarily for borrowers with credit scores of 620, is almost dead now for more credit to the securities. If you have between 5% -20% to put down, you should be fine for now.

Here are some things you can expect to see

• The lightest in its documentation (stated income, stated assets, etc.), the larger the down payment and the higher your rate.

• The lower your credit score, the higher the initial payment, the higher your rate.

· More intense scrutiny of subscribers. They are told to take their time and be very careful about all the loans they make. Many of them have been fired as a scapegoat for the current high rate of crime. As the land in new businesses, you can expect the lesson to be learned.

• The acceptable documentation needed for loan will be more important and need further verification by third parties such as income, employment, previous rental history, reserves, payment history, credit and depth, including more and more lines trade.

• All investment loans will likely require 6-12 months in the reserves.

• Plan of all loans that require more and more hard asset reserves guidelines seasoning.

Option to ARM is likely to only be available with one or more equity down payment.

• Plan of loans to borrowers at a cost more in the front. Banks are slashing the yield spread premiums and discounts to riders attention and bankers, and is likely to pass some of this in the borrower.

If you've been reading this newsletter for some time, you know that I am an optimist!

So, what is the good news

The good news is we still live in one of the most vibrant, amazing real estate markets in the HISTORY OF THE WORLD!

People keep coming here en masse and will for years to come.

In 1989, at the age of 23 years, I bought my first house. It was on the south coast in West Lake Mead, at the base of a giant desert that is rumored to soon be a development called Summerlin. I was a first-time homebuyer. I made about $ 6hr. working for a television channel after graduating from college.

My soon-to-be wife and I found a house we loved it for $ 136,000. That looked like it was all the money in the world. It was at that time.

I have an 80% loan because it was all I could qualify for and received a generous gift from my parents to help with the down payment. My interest rate was 12.000% and that it was of interest only.

How did that payment each month once appeared in a segment of the television program Unsolved Mysteries.

The point is that found a way. Las Vegas exploded during those years, as it does today, with people find a way.

There was no interest only or hybrid ARM or option ARM or 100% financing for borrowers a day of BK. That was a down payment or else get a house. I had decent credit or leased until it could be improved. Many lenders made loans to the FHA and nothing else.

However, our city exploded. More than any other city in American history.

In my opinion, creative financing has not created real estate boom. The real estate boom created creative financing. Wall Street wanted, and did so by creating something for everyone.

I can remember the day, not long ago, when I make tons of FHA loans, which requires a 3% down payment, loan and mortgage insurance is required, and loans that did not go to Wall Street, but went straight to agencies such as Fannie Mae and Freddie Mac, and guess what Those days are back.

Sure, it will take some getting used to it and we have to say no a couple of times more than it did in recent years. We'll talk to more people, try to prequalify, and then we'll have to make that call to all lenders hate to do. We will deliver the bad news that their dream of home ownership is not today. However, with good solid guidance and counseling that the dream must stay alive, as one day it will happen.

And, yes, the timing is horrible when you factor against what is already happening in the market with inflated inventory and fewer buyers, so sales and values ??is likely to fall further in previous years as a result.

However, this is important to remember, yet there are thousands of home sales and more sales each month than in most other cities.

I was talking about it to one of my representatives in one of the largest investors in U.S. mortgages He said his company went through the files and lending guidelines are now very similar today to how they were in 2000.

In 2000, a 30-year mortgage fixed rate averaged 7.75%, however, was the year of making the third best in home sales in the last 37 years, according to the Office of the U.S. Census. UU. and Clark County saw its population of over 300% since 1990. Even with interest rates higher than today and similar guidelines for loans, people bought homes and get loans.

A point of optimism for you. 100% financing still exists and is likely to exist for borrowers with credit scores over 620 if they can prove their income and 660 for which the status of your income.

Please see the table below. This is the national distribution of FICO scores table found in This breaks the Americans for their credit scores.

800 +.............. 13%

750-799 .......... 27%

700-749 .......... 18%

650-699 ........ .. 15%

600-649 .......... 12%

550-599 .......... 8%

500-549 .......... 5%

at 499 ........ 2%

As you can see, almost six in 10 have scored 700 or higher and nearly three in four Americans has a score of 650 or more. Does not take much work for a mortgage of an experienced professional to consult with a 650 in the clean credit problems to overcome the mark of 660.

And finally, there are still lending agency like the FHA (loan limit is now $ 304,000 in Clark County), and some very exciting Fannie Mae-backed loans that allow 100% financing for borrowers with credit less than perfect, low-income and prices are fantastic!

I just got a single mother, a school teacher this week approved funding of 100% with a 626 credit score and debt to income ratio of 55% with an interest rate of 6.000% fixed 30 a year.

No, not just interest, and yes, they have to pay mortgage insurance, but last week was an innocent victim of a Wall Street-backed bank that decided it was too risky. In the next two weeks will be a pride for the purchase of a home to raise their children.