After the mortgage meltdown of 2007, the industry is continuing to feel the pinch. Lenders aren’t the only losers in the game; mortgage insurance companies are now facing their own storm of troubles. About 10% of all current mortgages have mortgage insurance, and when borrowers fail to make their payments, it is the insurance companies who step up to fork out the dough. With foreclosure rates continuing to skyrocket, insurance claims continue to reach all time highs.
Last week I received word that MGIC, the largest and most used mortgage insurance company in the nation, would probably be cutting their mortgage insurance coverage for owner-occupied loans with ltv’s (loan-to-value ratios) greater than 95% on 3/1/08. With the practical extinction of piggyback 2nds, what this means is that borrowers are going to have to start putting 5% down if they want to buy a home. Lenders are already starting to react, as I just received an email from US Bank that effective tomorrow they will no longer allow ltvs greater than 95%.
If you are a buyer who is pre-approved for 100% financing you may want to double check with your lender to make sure you are locked. If you haven’t decided on a property yet I recommend acting fast. Most lenders do not allow loans to be locked until you have found a home and can provide an address. If you are a seller with a pending sale, I recommend double checking with the buyer’s lender to make sure they are locked and good to go.
Hopefully this scare won’t last, but it seems to me that we haven’t yet fully hit bottom with the credit crunch. I am hoping that zero down mortgages don’t completely vanish since most first time home buyers I meet don’t even have money for closing costs let alone a down payment. If this does happen I see FHA loans being our next best bet.
The FHA (Federal Housing Administration) provides insurance for FHA loans giving great rates and lower mortgage insurance for borrowers. Since the mortgage meltdown FHA has taken the place of sub-prime loans since they only require a 580 fico score. Currently FHA requires a 3% down payment on purchases although there is talk of that being reduced to 1.5%.
Last week the economic stimulus plan was signed by President Bush temporarily raising the FHA loan limit from $304,950 to $401,250 until Dec. 31 2008. As a side note, the plan will also raise the conforming loan limits (a conforming loan is any regular loan that is less than or equal to $417,000) in some areas of the country to $729,750. Unfortunately, this will not affect us in Oregon as they have determined that our median home price is too low to qualify for the raise. So for now borrowers will have to qualify for jumbo loans if their loan amount is above $417,000. For that group of folks this translates into higher rates and more restrictions since jumbo mortgages are seen as riskier and less desirable.
If you have a question relating to mortgages, feel free to contact us with your questions. I am always happy to help!
Chelsea Collier is a licensed home mortgage specialist in both Oregon and Washington, as well as a frequent contributing writer for OHM. Please don't hesitate to contact her with any questions you may have about financing (or refinancing) your home.