Credit Requirements Loosening, Mortgages Becoming Easier to Obtain
Here are some Credit Requirements on Mortgages. Following the financial crisis, Americans are finding it simpler to secure a mortgage. As a result, more innovative loan products are emerging, as well as novel ways of utilizing current loan products.
The source of the credit thaw’s heat is a simple clarification. After the subprime mortgage market collapsed, Fannie Mae, Freddie Mac, and the federal government slapped lenders with billions of dollars in litigation and loan buybacks. Lenders refuse to lend to anyone with less than perfect credit because they are afraid of having to buy back future loans, even flawless ones. That is beginning to change.
“You’re seeing credit broadening across a wider spectrum now that we know more of the rules than we did before,” said Greg Gwizdz, executive vice president of Wells Fargo Mortgage.
Credit Requirements on Mortgages
The CFPB and FHFA have announced new guidelines clarifying which loans are shielded from buyback risk.
“We’ve listened carefully to your concerns about the impact of loan repurchases on your businesses, and we understand that addressing these concerns in ways that are mutually satisfactory to you and the enterprises is critical to ensuring that there is liquidity in the housing finance market and providing access to credit for borrowers,” FHFA Director Mel Watt told lenders at the Mortgage Bankers Association’s annual convention last fall.
Do I Have to Prove I can Repay a Loan?
Lenders must now verify a borrower’s ability to repay a loan, something that was rare during the housing boom. They must also authenticate their income and assets.
Lenders are getting more imaginative now that the laws are clearer. Such as Wells Fargo offering jumbo loan holders (mortgages worth above $417,000) a new way to lower monthly payments. This is because, rather of selling these loans to Fannie Mae or Freddie Mac, they keep them on their books.
“We re-amortize the loan and lower your monthly payment if you pay down your mortgage at Wells Fargo in an amount of $50,000 or more,” Gwizdz explained.
Historically, paying down a loan’s balance reduced the duration but not the monthly payment. This is especially common among borrowers with a high net worth.
“You have people in those wage brackets who get bonuses, and they sometimes choose to put their bonus toward their mortgage,” he continued. Read more to learn about Credit Requirements on Mortgages.
What is a Home Equity Loan?
Another choice is a home equity loan. An EverBank home equity line of credit can help you buy a house in Jacksonville, Florida. While this has always been feasible, borrowers rarely do it. Instead, they use the loans to enhance their homes or pay for their children’s education. Now they buy second residences with them.
If the buyer is in a highly competitive market where cash is king, having a home equity line can be an advantage. An open-ended line of credit, rather than a fixed-rate mortgage, is offered by EverBank. It allows the borrower to take future cash pulls. Again, this is a product for the wealthy.
“Having that available cash to close ahead removes some of the strain off the sales deal. The home is important to many people, says EverBank senior vice president of home financing Tom Wind.
EquityKey, a San Diego-based lender, now allows borrowers to sell future property value appreciation for cash. When selling a $500,000 home, expect it to appreciate by $300,000 with EquityKey.
“We call it a real estate participation agreement because unlike debt, we have no absolute right to get paid back the initial principal investment,” said Jeff Nash, co-founder of EquityKey. “If housing prices fall, we pay off our debts until we owe nothing.”
If you want to buy a second property with that money, go for it! After the sale, EquityKey earns 75% of the change in the S&P Case Shiller house price index.
John Norris, 70, sold his 20-year-old La Jolla, California, home to EquityKey last week. In his opinion, it was a better deal than a reverse mortgage.
“A reverse mortgage is very costly, with upfront fees, points, etc. With EquityKey, none.” Read more to learn about Credit Requirements on Mortgages.
Is it Riskier than a 30 Year Mortgage?
Some of them may appear riskier than the traditional 30-year fixed mortgage. But their existence shows that future finance may be more inventive.
“I wouldn’t attempt every wacky, innovative notion that comes along,” said David Blitzer of S&P Dow Jones Indices, a partner in the S&P Case Shiller home price indexes. “But I wouldn’t rule them out either,” he said.
According to Blitzer, the EquityKey product could be especially beneficial to young, first-time buyers who are having difficulty purchasing a home.
“Their future prospects may be great, but their cold cash on hand isn’t. Try helping them monetize part of the house’s future value in advance, that’s a huge advantage,” he added.