December 2009 Changes

Recent Changes in the Mortgage Industry

     A. Homebuyer Income Tax Credit


a. First-time buyers, people who haven’t owned a principal residence in the three years before purchasing the home. The principal residence may be a new or resale single-family home, condo, town home, mobile home or houseboat.

b. Repeat home buyers purchasing a principal residence.

* AMOUNT: Ten percent of purchase price, up to $8,000 for first time buyers and $6,500.00 for repeat home buyers.

* TIME FRAME: You must close on the home between November 6, 2009 and April 30, 2010.

* INCOME LIMITS: Single buyers may earn no more than $125,000 and married buyers no more than $250,000 to claim the whole credit. Above those incomes, buyers qualify for a partial credit.

* For more information on the new first-time home buyer tax credit, go to

B.   Making Home Affordable Refinances

* WHO QUALIFIES: Homeowners who are current in paying their mortgages, whose first mortgage is between 80 and 105 percent of the home’s value, and whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.

* TIME FRAME: The mortgage must have been originated before Jan. 1, 2009. The program runs until June 2010.

* LIMITS: The property must be owner-occupied. The primary mortgage must be no more than $729,750 for a single-family unit

C.  Making Home Affordable Modifications

* WHO QUALIFIES: Homeowners who are either delinquent in paying their mortgage or who can no longer afford the payments, either because their interest rate reset or they suffered a hardship such as reduction in income or medical problems. The primary mortgage payment, including taxes, insurance and homeowner association dues, must exceed 31 percent of monthly income. The aim is to bring the primary mortgage payment down to 31 percent of monthly income by dropping interest rates, extending the loan period or even forgiving principal.

* TIME FRAME: The mortgage must have been originated before Jan. 1, 2009. Borrowers can apply until Dec. 31, 2012. Modified mortgage interest rates can drop as low as 2 percent for five years and rise gradually after that period.

* LIMITS: The property must be owner-occupied. The primary mortgage must be no more than $729,750 for a single-family unit. Borrowers are allowed to have their mortgages modified only once.

* INCENTIVES: The program is largely voluntary for lenders and mortgage servicers. There are cash incentives both for servicers to modify the loan and for borrowers (up to $5,000 over five years) who stay current with their modified mortgage payments. The Treasury Department promises additional incentives to reduce second mortgages when servicers are working to modify primary mortgages.

* SPECIAL CIRCUMSTANCE: When an applicant is at least 60 days delinquent, the servicer must modify the loan if doing so is less expensive than proceeding with foreclosure.

* For more information on the federal program Making Home Affordable, go to

D. Continuation of Increased Loan limits from Economic Stimulus Package of 2008 For 2010 they are currently up to $625,000-$729,000 in certain “high cost” areas as provided by the Federal Housing Finance Agency (“FRFA”) while remaining at $417,000 in all other areas of the country.

  1. Lenders have created a subclass of loans known as “high balance” conforming loans as a way to differentiate from the conforming loans.
  2. The pricing on these loans is higher by about .25-.50% than the standard conforming loans on refinances.
  3. Substantial increase in rates for cash-out on these loans

E. Continued Absence of Jumbo Fixed Rate Loan Market

1. Banks cannot sell these loans so they must hold them in their portfolio

2. Rates are much higher to reflect this risk and lack of liquidity

3. Most jumbo loans are now adjustable rate loans made by savings banks not commercial banks

F. Difficulty in obtaining cooperative loans.  With the consolidation of some of the larger cooperative lenders such as Washington Mutual and Wachovia, there are fewer lenders available to make these loans.

1. Requiring much lower loan-to-values on larger loans

2. Increasing costs on conforming loans with loan-to-values over 75%

3. More scrutiny of cooperative including its insurance and fidelity bond

G. Virtual Elimination of No Documentation Loans and most No Income Verification Loans. Very few of these loans still exist and where they do the rates are much higher than on standard loans and require a much larger downpayment.

H. Significant reduction in loan to value ratios (i.e. the loan amount over the property value)

1. Jumbo loans-mostly need to put down 20%.

2. Conforming loans are made at standard rates up to 90%.  Certain programs usually tied to income are still available up to 95% and even 97%.

I.   Increased credit score requirements for all loans.  Minimum credit score was increased from 620 to 660.  On jumbo loans it is 680 with many lenders requiring over 700 credit scores. On home equity loans in many cases it is as high as 680 or 700.

J. Pricing of loans (i.e. interest rates) are now affected by credit score.

1. Best pricing requires a credit score of 740 or better and LTV less than 60%

2. Some programs now require 700 credit score

3. Interest rates significantly worse if credit scores are below 680

K. Home Equity Lines of Credit and Home Equity Loans

1. Loan to values reduced so much recently that there are effectively no HELOCs as piggyback loans to avoid PMI or private mortgage insurance.

2. Generally at maximum levels of 70-80% of the property value.

3. Existing home equity lines are being frozen when lenders reevaluate property values and find that they have dropped significantly.

L.  Limited number of subprime loans still available.  All require full documentation and lower loan-to-value.

1. FHA loans have replaced the subprime loans for people with poor credit and with low downpayments.  These loans all have private mortgage insurance (no matter what the loan-to-value) and higher fees.

M. Stricter adherence to debt-to-income ratios.  Lenders have reduced their debt ratios to 38-45% depending on the lender and the program

N. Elimination of many interest-only loans.

1. Only available on primary residences

2. Require credit scores over 700 to qualify for them

3. Qualification is based on fully amortizing loan

O. Declining home prices

1.   affecting value of appraisals (on large properties two appraisals may be required)

2.  lenders are reviewing appraisals carefully and requesting clarifications, reviews and additional comparable sales.

P. Mortgage Modifications

1. Companies being formed to do these.

a. Most of these companies are former subprime brokers

b. charging exorbitant fees of $3500 on average

2. Borrowers can accomplish this by themselves at no cost just by contacting their lender and discussing the options available or by using HUD approved counseling agencies at no charge (A list of lenders and counselors can be found at

3. Borrowers need to provide documentation indicating their inability to pay the loan.

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