Mortgage Lenders Tighten Underwriting Guidelines but are they also Tightening the Noose

May 23, 2008 by admin

Mortgage lenders are severely tightening their underwriting guidelines (as perhaps they should have done 3 or 4 years ago) but are they also tighening the noose on the housing recovery.

Interest only, 100% financing, no-doc loans/refinancing and other creative products are all but gone from the marketplace save those will all but the most stellar credit. But lenders are not only tightening up on requirements moving forwards but they are also scrutinizing borrows’ pasts more closely as well.

Whereas a late payment on a mortgage 3 years may have previous been seen as unremarkable, lenders now are looking as far back as 5 years for such delinquencies and penalizing borrowers for them.

In addition, they are tightening their methodologies and requirements for appraisals, providing very strict guidelines for comparable. In many coastal and beach areas where the market has been slow or dead for the past year or more homes not appraising the offer price could be a huge problem.

We have entered a VERY difficult time. Whereas before banks and lenders were competing for the business of the borrower they are now competing for the business of the secondary mortgage market; all clamoring now to orginiate and package mortgage that are more scrutinized and risk-mitigated than their competitors.

The secondary mortgage market for US mortgages has lost all faith and credibility as an investment in the global marketplace and until faith is restored by the lenders through the excercising of (what will be extrememe) due diligence these draconian and severe lending practices are here to stay and with it tough times.

Cash is again king but even 20% down will not guarantee a loan with a shaky credit history and/or difficult to appraise properties.

You should keep your buyers and sellers informed of the difficulties they might face in your particular market. Talk to your local lenders and get the low down on what mortgage products are actually available tell your buyers early if they are not already informed. You may save yourself a lot of time if your know early on your buyer won’t qualify.

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