After the Chaos - What Types of Mortgages Remain
The subprime mortgage meltdown had a chaotic effect on the US economy and world financial markets in 2008. After the subprime banks closed en masse, the Alt-A lenders were shut down, eliminating all aggressive financing options in the US mortgage market. This has led to a major credit crunch and has had a disastrous effect on the US mortgage industry and overall economy.
The past ten years have become a memory, with virtually every aggressive financing option no longer available. The only viable mortgage products remaining require full documentation of income, good credit, and stable employment. Wow....finally some common-sense in a mortgage world gone mad.
Post Mortgage Meltdown:
Before the mortgage meltodown, 100% loan financing was available for almost every borrower. If you could prove you were a citizen, you could get 100% financing regardless of past credit. Today in late 2008, there are no longer any options for 100% financing available outside of VA and USDA loans. If anyone tells you differently, they are leading you astray. These do not exist at this time. Investors have decided that they will not buy any mortgage loans where the borrower does not have a sizable down payment or existing equity in their loan.
Alt-A loans, which used to offer aggressive loan financing products catering to borrowers with credit scores from 660 and up are also gone. While these lenders offered programs to borrowers with scores down to 620, the aggressive programs were typically not available to borrowers below a 660 middle score. Alt-A banks have driven the creation of innovative loan products over the last five years. Today, even these seemingly viable products have dried up. They were a victim of the mortgage chaos that ensued during the subprime meltdown. Anderson Lending Group does not offer these loans any longer. Alt-A lenders had relaxed debt-to-income ratios, reduced income documentations (stated income, no income / no asset, and no doc), and the ability to add interest-only to most products. Alt-A lenders were the ones that popularized the use of 80-10 and 80-15 loans for investors to avoid PMI.
Aurora, GreenPoint, SunTrust, First Horizon, and IndyMac were leading Alt-A lenders during the mortgage boom of the last decade. Besides these, there were literally hundreds of banks and lenders that delivered niche products to strong borrowers. Unfortunately, many of these lenders are now out of the mortgage business completely.
After the Subprime Chaos:
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.
The past ten years have become a memory, with virtually every aggressive financing option no longer available. The only viable mortgage products remaining require full documentation of income, good credit, and stable employment. Wow....finally some common-sense in a mortgage world gone mad.
Post Mortgage Meltdown:
Before the mortgage meltodown, 100% loan financing was available for almost every borrower. If you could prove you were a citizen, you could get 100% financing regardless of past credit. Today in late 2008, there are no longer any options for 100% financing available outside of VA and USDA loans. If anyone tells you differently, they are leading you astray. These do not exist at this time. Investors have decided that they will not buy any mortgage loans where the borrower does not have a sizable down payment or existing equity in their loan.
Alt-A loans, which used to offer aggressive loan financing products catering to borrowers with credit scores from 660 and up are also gone. While these lenders offered programs to borrowers with scores down to 620, the aggressive programs were typically not available to borrowers below a 660 middle score. Alt-A banks have driven the creation of innovative loan products over the last five years. Today, even these seemingly viable products have dried up. They were a victim of the mortgage chaos that ensued during the subprime meltdown. Anderson Lending Group does not offer these loans any longer. Alt-A lenders had relaxed debt-to-income ratios, reduced income documentations (stated income, no income / no asset, and no doc), and the ability to add interest-only to most products. Alt-A lenders were the ones that popularized the use of 80-10 and 80-15 loans for investors to avoid PMI.
Aurora, GreenPoint, SunTrust, First Horizon, and IndyMac were leading Alt-A lenders during the mortgage boom of the last decade. Besides these, there were literally hundreds of banks and lenders that delivered niche products to strong borrowers. Unfortunately, many of these lenders are now out of the mortgage business completely.
After the Subprime Chaos:
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.
About the Author:
You can contact Brian and his team directly at Georgia Mortgage Company . Learn more about Anderson Lending Group and the wide variety of investor loans available by visiting: http://www.andersonlendinggroup.com. You can apply online and receive a pre-approval within hours.
posted by Credit Counseling at
2:45 AM
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