Vail Daily column: Mortgage products could help local sales
April 5, 2013
Sales of real estate are vital not only to the health of our local economy and markets but also for the health of the national markets and the global economy when one gets down to it. Any of us who earn our living within the real estate industry ranging from real estate and title agents, to appraisers, to bankers and mortgage brokers will tell you first-hand how sales of local real estate feed our families and keep the wheels spinning on our local economy.
The U.S. government has done everything within its power to prop up or subsidize the industry for the health and prosperity of the national economy. Tax credits were offered in mass amounts to first-time home buyers for a long period of time. Now, the Federal Reserve Board is purchasing mortgage-backed securities off the balance sheets of banks at the rate of $85 billion per month.
We are now seeing individual lenders and banks step up their various offerings to entice folks to buy real estate. The most recent of which I have seen is the elimination of mortgage insurance requirements and premiums for properties being purchased without a standard 20 percent down payment. Mortgage insurance is essentially an insurance policy for the lender to protect their financial investment in the case of borrower default. Properties purchased with less than 20 percent are deemed to present more lending risk and therefore need an insurance policy of sorts.
Mortgage insurance premiums are not necessarily a bad or unadvisable means of financing depending on the variables of the situation. However, if they can be eliminated, then that’s all the better. Mortgage insurance premiums, if financed in a monthly payment, can be up to 1.3 percent of the loan (in the case of FHA financing). If the premium is paid as one lump sum up front, it can easily be well over 2 percent of the loan amount due at closing.
Options now exist for those purchasing a home to have that premium eliminated altogether. In order to be eligible for the product offering, a borrower’s credit ratings need to be considered excellent with a FICO score above 740. The option only exists for those purchasing a primary residence, and a minimum of 5 percent down payment is required. Even though mortgage insurance premiums are tax deductible for the time being, the elimination of mortgage insurance premiums will save homebuyers tens of thousands of dollars over the life of the loan.
In my opinion, the availability of various mortgage products and various types of mortgage lenders (i.e., not just government-backed mortgage products) is a key to a vital and healthy mortgage lending industry. A product offering purchase money with a minimum of 5 percent down without mortgage insurance is an example of such.
The natural instinct is to see or hear about such product offerings and begin to think that this is the type of financing that got us in to this whole economic mess in the beginning. Given the fact that excellent credit ratings are required, income and employment are documented and strictly underwritten, down payments are required, additional money is required to be in the bank after close and the product is only available for primary residences, I don’t think this type of products presents risks to the lender, borrower nor the real estate market. I see this as a lender thinking outside the box and offering a loan product with significant financial advantages to the right type of borrower.
William A. DesPortes, of Central Rockies Mortgage Corp., can be reached at 970-845-7000, extension 103, or firstname.lastname@example.org.