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Mortgage Latest News
Mortgage News and Changes
Everyday we hear something new that is changing in Mortgage Latest News. It is usually about all the government owned entities to include Fannie Mae, Freddie Mac and FHA. We do not seem to hear as much about VA (Veterans Administration) or Ginnie Mae. But, of course that does not mean there is nothing changing for the latter two, just not as much.
It is evident that the housing market is still not stable nor does it seem to be going in a fast pace to become stable. The big guys; FHA, Fannie and Freddie are making the median guys re-purchase loans, terminating them from submitting loans to them (especially FHA) and making the guidelines harder as the days go by, to get approved to sell loans to them.
Remember, Fannie Mae, Freddie and FHA do not originate the loans. However, they make the guidelines and purchase the loans (FHA insures a portion of the loan) after the lenders, who have been approved; originate, close and fund the mortgages. If the minimum guidelines are not met; then the loans are considered non-saleable and the lender (whomever they are) must re-purchase the mortgage. If too many re-purchases occur, they will get suspended from delivering loans to these agencies. Do we blame Fannie, Freddie and FHA? Not in the least.
If the lender wants to submit loans to these agencies, they must use their minimum guidelines at least. The lenders can also have stricter guidelines (higher standards for making these loans) than the agencies and per related news; some are raising their minimum credit scores for FHA. That is a good thing; especially if they intend to keep up with the standards for having a performing loan.
So why is there still some scrutiny going on with the lenders by these agencies after all the housing industry has been through? Well, quite simple...someone is still not paying attention to the overall process of making a mortgage loan that will perform over the entire term of the loan. They are still more interested in making money, than they are making loans that have been underwritten with sound underwriting practices and approving loans that will perform.
Lender's Changing Minimum FHA Credit Scores
To name a few; Wells Fargo, Bank of America and J P Morgan Chase, per reports have changed their minimum FHA Credit Score to 640 from 620 for loans they are buying from other lenders. These are the big lender who buy loan from other lenders. In their retail business they are still accepting loans with FHA's minimum guidelines to some extent as reported by Bloomberg. These lenders do not have to use FHA's minimum credit guidelines to do business. They are actually acting in a constructive, prudent way when only accepting score that represent someone who is considered a positive credit risk. They have been burned and some lender have not learned their lesson very well. Per the FHA Commissioner; if they continue to make loans that are non-performing and not documented properly; they will be dealt with. It is stated that over 1500 lender have been suspended from FHA approval list.
This is definitely not a bad thing that the larger lenders are changing the minimum scores and as an underwriter, let me tell you why. Usually individuals with credit scores below 620, do not have sufficient credit, and what credit they have, in many cases, is poor. This is not always the case, but it is a clear indication that they will not do any differently paying their mortgage payment, if they have not paid their installments and revolving charges as agreed. Unless of course it was an extenuating circumstance, that will not occur again. If they have not established credit; that is another story and sometimes lower scores are related as stated; to insufficient recent/current trade lines, but that is when a non-traditional credit history must be established, and the loan is manually underwritten. According to NAMU (National Association Mortgage Underwriters) the files are becoming more and more scrutinized and manually underwritten at all points to eliminate the deficiencies of the AUS (automated underwriting system) anyway. Again, these lenders do not have to make loans with credit scores as low as FHA's minimum requirements.
As we have previously stated FHA will allow a lower credit score to 580 with 3.5% down payment and 10% down payment to 500. Of course that does not mean that FHA wants a credit report that has all collections, charge offs or federal liens on it. Not any more; it must be a score where there are possibly items which have been paid off without re-established credit and using non-traditional credit history to build credit. Certain restrictions apply, it depends upon the entire case file and again; does not mean that they want to insure a non-performing loan. They do not. FHA is getting stricter and stricter.
FHA Commissioner has also stated that he is adamate that they will enforce their minimum standards and guidelines with proper documentation with the lender and they must adhere to these standard if they are to continue to submit loans to them for insurance. If 1500 already suspended; I think he means business.
That's it for the Mortgage Latest News this time...