A Lending Update: Re-Entering the Market After Foreclosure, Re-Building Good Credit and Guideline Changes

by Stephanie Sims and Natalie Terchek

More Lending Options for Good Credit Scores

Many municipalities, including the city of Chicago, cut first-time homebuyer initiatives due to budget restrictions, and on Nov. 16, Fannie Mae will put their new Desktop Underwriter (DU) version 9.1 to action; this will eliminate their interest-only products, reduce their maximum loan-to-value (LTV) ratio from 97 percent to 95 percent and tighten their ratio and credit score requirements.

According to James Currie, a mortgage loan officer with Fifth Third Bank, these changes will encourage many first-time homebuyers and those pursuing little to no money on down payment options to utilize the Federal Housing Authority (FHA) financing, which has a 96.5 percent LTV; VA financing, which has a 100 percent LTV; or niche portfolio products traditionally offered at banks and credit unions.

“Unemployment numbers continue to improve, helping potential homebuyers purchase while the interest rates and home values are low,” Currie says. “We will continue to see competitive FHA rates and niche products to be either created or reinstated to meet these goals in the future.”

With the real estate market moving forward and more people utilizing FHA financing, the government will reportedly try to phase out Fannie Mae and Freddie Mac, although President Barack Obama mentioned that it would happen gradually so it will not interrupt the delicate housing recovery. As this begins, Currie says,  the lending industry will go “back to the basics,” with fixed rate products continuing to be the norm and some ratio tightening, falling in line with where we were back in the 1990s and early 2000s.

“This trend should eventually strengthen home values as people will be able to afford the home they are buying, resulting in fewer foreclosures,” Currie says.

Chicago will also be bringing back the Tax Smart Mortgage Credit Certificate Program, starting Oct. 7, which provides a federal income tax credit to qualified homebuyers. Under this program, homebuyers receive an MCC to reduce income taxes by an amount equal to 20 percent of the interest paid on a mortgage. The tax credit may be claimed every year the homebuyer continues to live in a home financed under this program.

Niche Loans

As far as niche products go, the government is offering fewer than it used to. However, Currie mentioned that Fifth Third Bank does offer a New Doctor Purchase Program, which offers 100 percent financing up to $500,000. In order to qualify, the doctor must have a 700 credit score, must have been employed as a non-resident for less than 12 months or have an employment start date no more than 90 days of the note date.

New construction loans have also gained more popularity this year. According to Currie, lending institutions that dismantled their new construction divisions several years ago are considering offering these products again, because they are so high in demand.

Fifth Third Mortgage is offering One Time Construction loans and lot loans with as little as 20 percent down, and extended rate lock programs for new construction homes, featuring a rate cap at time of application and a free float down option prior to closing.

“Recently, new construction products seem to be more in demand, possibly spurred by low inventory levels in the existing-home market and the stabilization of markets,” he says. “It is nice to see that many of our homebuilders are walking around with smiles on their faces again.”

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  • Mike Moyer says:

    Kelly Price is a hard working, quality LO. Had the pleasure of working w her at 5/3.

  • Jose Garza says:

    Great to see good quality LO’s and friend’s on this panel! Congratulations to all !!!! A special shout out to Kelly, James, Brian, and Mary who’ve I had the pleasure of working with throughout my career.

  • Neil Coleman says:

    Excellent job. Good information well written.

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