Mortgage loans available, but things have changed
Being in the mortgage business the last three weeks has been like being in a whirlwind sometimes, and at other times it’s like nothing ever changed. As everyone knows, the industry has been beset by a rising number of mortgage defaults and a lack of confidence on the part of investors who buy bonds that fund mortgage loans.
However, for the most part the media has vastly overblown the situation and I fear in many cases incited panic in the public where no reasonable grounds for panic exist.
Mortgage loans are essentially broken up into two major categories: conforming and non-conforming. Conforming mortgages consist of first mortgage loans under $417,000 and are generally full documentation loans. These loans are generally purchased by Fannie Mae and Freddie Mac, which are government, sponsored corporations that have their debt ultimately insured by the federal government. Companies such as Chase, Countrywide, Washington Mutual and Macro Financial originate loans and sell the paper to FNMA and FHMC.
For the most part, these loans have been untouched by the current state of affairs, with the exception that there have been some instances where FNMA and FHMC have refused to purchase any more paper from certain companies for one of several reasons.
These reasons might include an abnormally high default rate on loans purchased in the past (which might evidence fraud or sloppy underwriting), or a decline in the company’s fortunes that would leave inadequate reserves in the event the company was asked to buy back certain loans in the future if there were further evidence of fraud or inadequate underwriting.
In the non-conforming part of the business, loans involving low documentation levels (such as stated income loans) or loans over $417,000 have always been sold on Wall Street as mortgage-backed securities. These are often called “private label” mortgage-backed securities and companies such as Bear Stearns have sold billions of dollars of these.
In recent months the rising level of defaults on these non-conforming loans has caused a crisis of confidence as to the future value of these portfolios, and trading in these has pretty much ceased. There are we hear a few private deals going on here and there but the days of billions of dollars changing hands on a daily basis are gone, at least for now.
As a result, many companies could not securitize their loan portfolio and lost their liquidity to fund new loans, and that is what has caused the often spectacular implosions of large companies in recent months.
However, for the qualified borrower there are still plenty of loans available, and that includes jumbo loans (those over $417,000) and even some stated income products. Contrary to many media reports, the rates on conforming loans have actually dropped in recent weeks, and the rates on the jumbo/non-conforming programs are still pretty reasonable.
Before you decide you can’t get or afford a mortgage, sit down and talk to at least two lenders to see what they have available ” you might be surprised. Also there has probably never been a time when there is a greater range of rates and products between various lenders. Many small companies (and surprisingly a few large ones) have become pretty much “one-trick ponies” in terms of what they have to offer.
Independent mortgage brokers probably have never had more of an advantage in the marketplace as the well-capitalized, well-run ones have a wide range of investors to deal with and access to the best programs. Smaller companies that are undercapitalized may be limited to one or two investors due to the capital requirements of some of the larger and stronger lenders out there.
My advice is there has probably never been a worse time to shop for a loan on the internet and deal with an otherwise unknown lender. If ever there was a time to deal with a local company that you can deal with face to face, this is it.
Loan program guidelines have changed dramatically in many cases, and the consumer needs a savvy loan originator to guide them through the maze of issues in getting a loan. To shop online and deal with an unknown company just to get the lowest rate could leave you sitting at the closing table either with no loan or one far different than you were expecting.
Chris Neuswanger is a loan officer with Macro Financial Group in Avon, and can be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.
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