Mortgage California Blog

Are Mortgage Refinance Rules Becoming More Flexible?

April 4th, 2013

Approved Mortgage loanAre Mortgage Refinance Rules Becoming More Flexible?

While we’re seeing recovery of the housing market in some areas, many people are still underwater in their home mortgages. We’ve talked about strategies before. The current news is that the Obama administration is strongly encouraging lenders to make it easier for people to refinance or to qualify for a first time mortgage even if your credit score isn’t perfect and you don’t have 25% down. And Fannie Mae is now offering more low down payment loans.

Before, the only available loans for people with credit scores as low as 500 and as low as 3.5% down were government backed loans through FHA.

The great rates on new home mortgages are making some people think about selling their homes, or renting them out and buying a new home. But they may want to try lowering the mortgage on their current home, and some people are refinancing before they buy a new home.  This does walk the fine line of fraud, and additionally, it could cause your credit score to go up after the refinance, and cause you to lose out on a good mortgage rate.

Due to the low rates, investors and first time buyers are snapping up single family homes, and there is a shortage in some areas. This should be changing soon as mortgage rates may start increasing with the increase of housing prices.

From the Washington Post:

“The financial risk of just one mistake has just become so high that lenders are playing it very, very safe, and many qualified borrowers are paying the price,” said David Stevens, Obama’s former FHA commissioner and now the chief executive of the Mortgage Bankers Association.

The FHA, in coordination with the White House, is working to develop new policies to make clear to banks that they will not lose their guarantees or face other legal action if loans that conform to the program’s standards later default. Officials hope the FHA’s actions will then spur Fannie and Freddie to do the same.

The effort requires sign-on by the Justice Department and the inspector general of Department of Housing and Urban Development, agencies that investigate wrongdoing in mortgage lending.

Fees may be on the increase. And all loans with less than 20% down payment require private mortgage insurance (PMI).

“My view is that there are lots of creditworthy borrowers that are below 720 or 700 — all the way down the credit-score spectrum,” said FHA Commissioner Carol Galante. “It’s important you look at the totality of that borrower’s ability to pay.”

Per Yahoo Homes:

The only low down payment loan left was through the Federal Housing Administration (FHA)—the government’s loan insurer. The FHA took on a huge share of the market, far more than it was ever meant to, and while that helped prop up the mortgage market in the short term, it was not sustainable, and the FHA took on huge losses.

Now, facing a $16 billion shortfall, the FHA has raised premiums and will raise them yet again in April. FHA loans are becoming increasingly expensive.

Meanwhile, as the housing market improves, private mortgage insurers are starting to remove overlays on higher loan-to-value loans, meaning the percentage of the home value that is mortgaged. Low LTV’s and high credit scores were the rule recently for the private insurers, but that may now be loosening, making these loans cheaper than FHA.

To find out what you qualify for, contact a reputable mortgage loan officer. They spend a lot of time staying on top of market trends and programs to help you find the one that best suits your situation.

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