Political & Real Estate News

Banks to Borrowers: “Go Away!”

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Banks are in business to make money. A lot of that cash has to come from lending customers money for a price – interest. Why, then, are banks currently allowing deals to fall out of escrow or even refusing to discuss a loan with credit-worthy customers who can afford to repay the loans? We’ve gone from the sloppy lending standards during the boom to draconian standards. Is there no happy medium? According to a recent article in the Los Angeles Times, buyers applying today for most types of purchase loans must provide two years’ tax returns, current pay stubs, and have a down payment available and ready – with proof of its origin. At least five percent of the purchase price must come from the borrower’s account – 15 percent may be a gift…even if the total down payment is 20 percent.

And what about the much-ballyhooed raise of the conforming rate – loans that meet the lending limits of government-backed Freddie Mac and Fannie Mae – from $417,000 to as much as $729,750 in expensive areas (San Diego County’s is close to $700,000)? The goal was to get more borrowers out purchasing homes. Hasn’t happened, and, again, it’s because the standards have become absurd and people just can’t qualify.

“They’re a useless proposition by the government,” Beverly Hills mortgage broker Mark Cohen told the Times, echoing a number of brokers. “I’ve done only one of those loans so far.”

Photo by Bob Thompson

Photo by EyeLens
Photo by Bob Thompson

The Times explained that the reason brokers and many borrowers are turned off by these so-called “jumbo conforming loans” is that they require a ream of documentation and high FICO scores. Also, they offer only 15 and 30-year fixed terms, currently at 6.625 percent with one point. Interest-payment-only loans are unavailable. The final part of the joke is that the conforming rate raises are scheduled to expire at the end of this year.

Seeking to buy a condo? You face even more pain. “If you own or plan to buy a condominium, an ominous new phase of the mortgage credit squeeze could be looming on your horizon,” wrote Ken Harney of the Washington Post Writers Group. “As a result of underwriting changes by giant investors Fannie Mae and Freddie Mac, plus severe new restrictions by private mortgage insurers, getting a loan – or even refinancing one you already own – could prove tougher than you imagine.”

As an example, Harney wrote about AIG United Guaranty, a major private mortgage insurer. Private mortgage insurance is usually required by a lender if the borrower puts anything less than 20 percent down. On May 1st, the company stopped writing coverage on condominiums in hundreds of ZIP codes throughout the USA that it designates as having “declining” market conditions. The ban is irrespective of applicants’ credit scores, assets, or equity. If you go to the company’s website and click on its “Declining Markets List” you’ll find every single ZIP code in San Diego, Orange, and Los Angeles counties.

Photo by Bob Thompson

Photo by scol22
Photo by Bob Thompson

Fannie Mae, wrote Harney, a dominant financing source for condominium projects, has rolled out new procedures that some lenders and mortgage brokers say could tighten up availability of loans to condo purchasers in the coming months. Freddie Mac has issued similar new guidelines.

“Under Fannie Mae’s changes, most of the due diligence research on condominium projects’ key characteristics – their legal documentation, the adequacy of condo association operating budgets, percentage of unit owners who are late on association-fee payments, percentage of space allocated to commercial use, and percentage of units owned by investors – must now be performed upfront by loan officers,” said Harney. “Not only is this time-consuming and costly, but under the new procedures, Fannie Mae expects the lender to warrant the accuracy of its research. Some condo project legal documents run into the hundreds of pages of text, yet lenders are supposed to take legal and financial responsibilities for their accuracy.”

Print Date: 9/25/2020
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