By Melissa Cohn
There has been a lot going on in the past week alone in the financial markets. Last Friday, IndyMac Bank was seized by the FDIC — the largest bank failure in nearly 25 years.
Then over the weekend, the Fed came in with a rescue plan for Fannie Mae and Freddie Mac — the two mortgage agencies that guarantee or own approximately half of all outstanding mortgage debt in our country.
In addition, there has been talk of further bank failures, most notably banks located on the West Coast and in the Mid-West and Southern regions of the U.S.
The good news is that the Fed will not let Fannie Mae and Freddie Mac go under. They may get reorganized, broken up or consolidated, but one way or another, our mortgage giants will survive and continue to buy and guarantee loans in the marketplace.
While Fannie Mae and Freddie Mac are purchasers of “conforming” loans only — traditionally to $417,000 and temporarily to $729,000 — and therefore not a big player in our marketplace, all eyes are on their survival and all banks are watching to see the impact that the trouble with FNMA and Freddie Mac will have on mortgage rates in general.
What Does This Mean to US?
New York is primarily a Jumbo mortgage marketplace, and we are lucky to have a large group of healthy portfolio lenders (banks that lend off their own deposits) that are here and willing to lend in our market. Our portfolio lenders never got involved in sub-prime loans or the Option ARMs that have hurt the big banks so badly; therefore, they are out there still lending.
We also have new lenders coming into the marketplace everyday and they will become an integral part of our lending marketplace. These new lenders may include hedge funds and private equity firms with lots of cash in their pocket. They have already entered the commercial marketplace and we should see them shortly in the residential market.
Have Banks Changed Guidelines?
Yes, banks have changed guidelines. It is definitely harder to qualify for a mortgage today. Banks are demanding larger down payments, better credit scores and verification of income.
The rate that you will be able to get on a new mortgage will be dependent upon how strong you are from a credit standpoint. The rate on a five-year adjustable rate mortgage (ARM) is going from a low of 5.50 percent to a high of well over 7 percent. The bigger your down payment, the lower your ratios, and the better the rate that you will get.
Foreign Borrowers
International residents living in the United States can still get financing today. There are lenders that will entertain up to 80 percent loans for a foreigner who is able to document their income, assets and credit history. The rates offered to foreigners are competitive.
The biggest challenge we face is a non-resident who doesn’t want to verify their income and assets. We still have a bank available today that will entertain no income verification loans for foreigners but they demand a larger down payment and escrows of mortgage payments for 6 months.
New Development?
The good news is that banks are lending in new developments projects today, willing to be the first to close. It’s very important to be in touch with buyers who signed contracts last year as they may not understand the changes in the mortgage lending environment. A pre-approval they obtained last year may no longer be valid. Bottom line: mortgages are to be had, but don’t look to the old players to be the lenders of choice these days. There are plenty of portfolio lenders that are taking their place and if you have never heard of them, take it as a good sign that they are solvent!
Melissa L. Cohn is President and Chief Executive of the Manhattan Mortgage Company.
source:http://www.theimproper.com/Template_Article.aspx?IssueId=4&ArticleId=1988
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