Don’t Expect Mortgage Guidelines To Change Soon
By Paul Esajian on September 27, 2013
It is no secret that the real estate market is in the midst of a prolonged recovery, as home values are slowly rising and sales are picking up. The question remains; what will it take to accelerate the speed and growth of the market rebound? Many analysts say that the market will never fully recover, unless we see an increase in the volume of first time homebuyers. This is one of many areas that will help, but what we should not expect is a drastic change in mortgage guidelines and policies.
Sooner or later, lenders are going to revert back to 2003 mortgage guidelines that were highlighted by low down payments and liberal credit scores. What people like to forget is that we are now five full years removed from the worst financial crisis in our countries’ history. Many of these same lenders are still around and dealing with foreclosure backlogs and short sale issues. The last thing they want to do is to get right back in the same mess they just got out of. If anything, mortgage guidelines are expected to get even stricter with lenders wanting to even further reduce the number of defaulted loans.
Most of the mortgages that are written are sold to government agencies and follow the same set of guidelines. Some lenders may have minor tweaks to their individual programs and guidelines. Even though they may be able to get a few more deals underwritten if they loosen policies, they will have a much tougher time selling these loans in the secondary market. The last thing they want to start doing again is holding notes for loans that are nonperforming. The costs associated with foreclosure and dealing with a non performing asset is still greater than lost revenue from prospective mortgages.
Many of the maverick lenders that made the most aggressive programs are not in business anymore. This will prevent the presence of lenient mortgage guidelines. We are left with a core of six or so lenders that are mostly backed by the government. If the government does decide to make any changes, you can believe they will be modest at best and very slow in doing so. We will never see 100% financing again, especially for investment properties. We may see a few lenders increase debt to income ratios or credit score requirements, but the amount of a down payment is never going to be zero ever again.
Beginning around the first of the year, Fannie Mae announced that they are revamping their FHA guidelines with higher credit score levels and increased mortgage insurance monthly payments and higher upfront premiums. All of this means that if you are waiting on loan programs to change to buy or sell a house, you may be waiting for a long time. There is no argument that the housing market needs a bigger push then low interest rates to attract home buyers, but going back to softer mortgage guidelines is not the answer. The housing market managed to survive for years with buyers having to put 10-20% down. Having just come out of a crippling crisis and with things just starting to look good, now is not the time to get us right back in the same hole again.