The mortgage crisis has caused credit tightening, which in turn can make buying a home more difficult. This article explains some of the effects of the credit crunch including the disappearance and temporary appearance of some loans.
The serious losses suffered by Government Sponsored Enterprises (GSE's), Wall Street firms, and other investors across the United States brought about credit tightening and the disappearance of the loan products that caused these losses. The leading culprit was the high-risk, 100% CLTV 2nd mortgages on investment properties, most of which were executed with Stated Income and Stated Income Stated Asset (SISA) documentation. This loan type started disappearing two to two and a half years ago with credit tightening or discontinuance happening rapidly. Other high-risk loan types that resulted in significant damage were the Owner Occupied SISA and No Doc loans. Most lenders no longer offer these loans.
The struggle to mitigate high losses led to maximum loan-to-value (LTV) percentages being reduced for conforming full-documentation loans for homes in declining markets (areas where home values have gone down). The reduction was done with the hope that default rates would decrease, and is being lifted this summer under certain circumstances.
FHA-insured mortgages and conventional/conforming loans (non-governmental loans equal to or less than $417,000) and have been popular thus far in 2008. Both types of loans can be obtained by borrowers with low credit scores, but FHA mortgages may not be available if the borrower has a credit score below 580. However, a slightly lower down payment (higher LTV) is possible with FHA mortgages.
Here are three new (and temporary) mortgage programs:
FHASecure - this is a refinance loan insured by the Federal Housing Administration and is available for homeowners with a non-FHA adjustable rate mortgage (ARM). Originally intended for people who had defaulted on their ARM, or would likely default when the rate reset, it is now available to a wider demographic.
FHA High Balance - HUD (the U.S. Department of Housing and Urban Development) has established limits for its FHA-insured loans that vary by county. It has temporarily increased the allowable size of the loans that it insures. These higher balance loans may actually have better rates than smaller FHA loans.
Agency/Conforming Jumbos - Mortgages greater than $417,000 are considered "Jumbo" loans. Loans for amounts equal to or smaller than this are called "Conforming" loans and have different guidelines than Jumbo loans that must be met in order to qualify for the loan. Agency/Conforming loans are mortgages starting at $417,001 that can go up to $729,750 and that qualify under the regular Fannie Mae and Freddie Mac conforming loan guidelines -- with some additional underwriting restrictions. As with FHA High Balance loans, the actual maximum loan amount is determined by the HUD county limits is valid only for 1-unit purchases (i.e., the maximum does not apply to duplexes).
HUD's county limits can be viewed at: https://entp.hud.gov/idapp/html/hicostlook.cfm
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