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The news media keeps telling us that things are improving in the housing market. We NEED things to be better in the housing market, but every time we turn around, Fannie, Freddie, FHA, or some regulatory agency are slapping new “well intentioned” rules on lenders. These new rules are unfortunately resulting in more confusion, and an extreme tightening of lending guidelines. The end result is that fewer people will qualify for loans, and loans will take ever longer to close.
Lenders are telling us that only approximately 1 out of every 5 loan applicants will qualify. I'd love to hear from realtors about how many of the people they talk to will be likely to qualify for a loan. The reasons are so numerous, but here are a few:
1. The #1 obvious reason is the mortgage is under water – too much to even qualify for the HARP program refinance.
2. Too large a percentage of those that would have qualified for HARP financing have mortgage insurance, either borrower paid, or lender paid. While these borrowers technically qualify for a HARP mortgage (the loan is owned by Fannie or Freddie), lenders are not yet doing these loans.
3. Income and asset requirements are getting tougher,making home buyers ineligible to buy.
Perhaps the number one reason why people do not qualify for financing are the higher minimum credit score requirements for almost all types of loans.
We were recently notified that Fannie is imposing even tougher lending guidelines beginning September 1, 2009. The new rules were announced in June, but I'm re-announcing in case you haven't heard about them. Here’s a recap of some of the new rules:
1. Credit, income and asset documentation cannot be more than 90 days old. While this sounds logical, remember that most retirement statements are issued quarterly, so just when you think your loan may be ready to close, you need to update that retirement statement.
2. Lenders must compare the actual IRS tax returns to income documentation you have provided. While lenders have long had the ability to get copies of your tax return from the IRS, this is now required on every loan.
3. “Tip” income must be documented and verified. How many of you will be impacted by this? Did you actually claim all your tip income on your taxes for the last two years? Is your employer documenting your tip income so you can verify it now?
4. Are you moving because of a job? If so, your spouse’s income from his/her prior job is no longer allowed until he/she gets a job in the new location.
5. Stocks, bonds and other investments are now worth only 70% of their value. Prior to this change, lenders accepted 100% of their value to document reserves required to qualify for a loan.
6. Retirement assets are now valued at only 60% of the actual value.
There are actually 15 changes coming next week, but those noted above can eliminate lots of borrowers out there. In order to fall under the existing guidelines, your loan application has to be submitted to a lender before September 1, 2009.
At the expense of sounding like an alarmist, this is not a lot of time, so if a refinance is something you have been considering, and these guidelines might affect you, you need to get going today! If you are a home buyer negotiating a purchase, you are almost out of time already. Remember, your loan does not have to close by September 1, it just has to be submitted.
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