The subprime meltdown and the subsequent credit crunch have completely transformed the US mortgage industry.
The past decade has become a distant memory, with almost all financing options beyond conservative "vanilla" 30-year fixed and 15-year fixed loans no longer available. The remaining mortgage products demand full proof of income, excellent credit, and a history of stable employment. Wow....these new rules are in reality just a return to the previous mortgage guidelines that existed before the mortgage market exploded with creative options.
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 deliver high LTV and low documentation mortgage financing catering to borrowers with credit scores from 620 and up have disappeared. Alt-A banks drove the creation and marketing through an army of mortgage brokers a series of innovative loan products, most introduced in the past five years. While these products were often sold to very strong borrowers with significant assets who couldn't prove income, these seemingly viable products have dried up. They were a victim of the credit tightening that ensued during the subprime mortgage meltdown. Secondary investors ceased buying these products, forcing mortgage companies to stop selling them. Alt-A lenders had ease to qualify, high DTI ratios, reduced income documentations, and the ability to add interest-only to most products. Alt-A lenders were the first lenders that popularized the use of 80-10 and 80-15 loans "piggy-back" loans for investors to avoid PMI.
Some examples of leading Alt-A lenders were Aurora, GreenPoint, SunTrust, First Horizon, and IndyMac. Besides these, there were literally hundreds and hundreds of lenders that emerged to fill certain niches. Many of these lenders are out of business, while others have just eliminated the Alt-A product line.
Post Subprime Meltdown:
Over 300 banks and other mortgage lenders have closed down or exited the wholesale mortgage market. As they disappeared, so went the litany of aggressive financing options that sprouted up over the past 8 years. The mortgage world is back to basics -- FHA and Conventional loans only. The one difference now is that the credit crunch is making it even tougher for a "normal", employed borrower to obtain financing. Credit score requirements are now in the low 700's. A 720 is the new 680 is the mantra of the remaining mortgage loan officers. The problem is that the economic recession of 2008 is having a negative effect on the credit scores of American buyers. Cash-out loans have become extremely difficult to obtain. Lines of credit, or home equity lines, are being reduced by lenders who are facing liquidity issues. This is happening to qualified borrowers as well as more modest borrowers. Additionally, financing for non-owner occupied properties has become extremely hard to obtain -- no matter what the credit, income, and assets of the customer.
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. - 15485
The past decade has become a distant memory, with almost all financing options beyond conservative "vanilla" 30-year fixed and 15-year fixed loans no longer available. The remaining mortgage products demand full proof of income, excellent credit, and a history of stable employment. Wow....these new rules are in reality just a return to the previous mortgage guidelines that existed before the mortgage market exploded with creative options.
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 deliver high LTV and low documentation mortgage financing catering to borrowers with credit scores from 620 and up have disappeared. Alt-A banks drove the creation and marketing through an army of mortgage brokers a series of innovative loan products, most introduced in the past five years. While these products were often sold to very strong borrowers with significant assets who couldn't prove income, these seemingly viable products have dried up. They were a victim of the credit tightening that ensued during the subprime mortgage meltdown. Secondary investors ceased buying these products, forcing mortgage companies to stop selling them. Alt-A lenders had ease to qualify, high DTI ratios, reduced income documentations, and the ability to add interest-only to most products. Alt-A lenders were the first lenders that popularized the use of 80-10 and 80-15 loans "piggy-back" loans for investors to avoid PMI.
Some examples of leading Alt-A lenders were Aurora, GreenPoint, SunTrust, First Horizon, and IndyMac. Besides these, there were literally hundreds and hundreds of lenders that emerged to fill certain niches. Many of these lenders are out of business, while others have just eliminated the Alt-A product line.
Post Subprime Meltdown:
Over 300 banks and other mortgage lenders have closed down or exited the wholesale mortgage market. As they disappeared, so went the litany of aggressive financing options that sprouted up over the past 8 years. The mortgage world is back to basics -- FHA and Conventional loans only. The one difference now is that the credit crunch is making it even tougher for a "normal", employed borrower to obtain financing. Credit score requirements are now in the low 700's. A 720 is the new 680 is the mantra of the remaining mortgage loan officers. The problem is that the economic recession of 2008 is having a negative effect on the credit scores of American buyers. Cash-out loans have become extremely difficult to obtain. Lines of credit, or home equity lines, are being reduced by lenders who are facing liquidity issues. This is happening to qualified borrowers as well as more modest borrowers. Additionally, financing for non-owner occupied properties has become extremely hard to obtain -- no matter what the credit, income, and assets of the customer.
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. - 15485
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