Where's The Mortgage Money?

This is a slight take off from an ad in the 80's in that Wendy's asked "Where's The Beef?" Well the mortgage money resides with the three government institutions Fannie Mae, Freddie Mac and Ginnie Mae. If your mortgage loan falls outside of any one of these three institutions guidelines, then you will have a harder time finding your beef or new mortgage money. Without trying to give a history of these institutions lets suffice to say that because each of these is backed by the Federal Government taxing ability to some degree (Ginnie Mae the greatest) that investors that buy mortgages in the market are comfortable buying these agency's mortgage debt.

Here is the current mortgage landscape. Fannie Mae and Freddie Mac lending guidelines are virtually the same when compared to one another. These agencies are primarily known for lending on residential property consisting of one and up to four units. A number you need to understand is the maximum loan limit allowed to be lent on a single family residence, including condominiums, which stands at $417,000. This loan limit has been consistently raised each year until 2006 where it has remained at the $417,000 (the limit in Alaska, Hawaii, Guam, and the U.S. Virgin Islands is 50 percent higher than the limits for the rest of the country.) You can go to http://rs6.net/tn.jsp?t=5yzpyicab.0.0.uoqzytbab.0&ts=S0313&p=http%3A%2F%2Fwww.fanniemae.com%2Faboutfm%2Floanlimits.jhtml%3Fp%3DAbout%2BFannie%2BMae%26s%3DLoan%2BLimits&id=preview for a history on loan limits and the current limits for 2, 3 and 4 unit properties. What is little known is that both Fannie Mae and Freddie Mac offer a wide variety of lending products to the lending industry. For example: Interest only loans both fixed and adjustable, 100% financing loans to both highly qualified and as part of community lending initiatives with income restrictions but mortgage insurance subsidies. On the adjustable mortgage matrix you can borrower on a 3, 5, 7 and 10 year fixed term with either a LIBOR (London Interbank Offered Rate) or US Treasury as the underlying index. They also offer what the industry calls expanded criteria or "A" minus loans - a higher credit standard than sub-prime but with loosened guidelines compared to its "A" paper counterpart. These agencies have been offering these products for the past several years as the Alt A and Sub-prime industry grew. The only difference is the lenders offering those loans did not have the backing of the government or our tax dollars therefore those lenders have gone out of business when the market "re-priced the perceived risk" of these loan products.

Ginnie Mae has also been sanctioned to step up to the plate and lend with the full and complete guarantee of the Federal Government taxing ability. This agency is better known for providing FHA and VA loans. In January the congress passed legislation allowing FHA to increase its loan limits to those of Fannie and Freddie. FHA via the Department of Housing and Urban Development is the insurer of mortgage debt that is pooled into Ginnie Mae Securities. So instead of having private mortgage insurance companies (PMI) underwrite the risk of mortgages when loans are greater than 80 percent of the property's value, the government underwrites this risk called MIP (mortgage insurance premium). Today loans that the private mortgage market priced at rates of between 9 to 15% the government is pricing this risk at 5.5%. Once you have an FHA loan you never have to qualify to refinance it again as long as you make your payments, the new interest rate is lower and you don't take cash out. FHA has effectively replaced the entire sub-prime industry in the last six months. One way to learn if a loan product is popular and profitable for a lender; listen for increased radio and television ads promoting the product. FHA also insures the Reverse Mortgage loan product that has become popular recently with seniors.

Ok you say that is all well and good for those that have mortgages that fit the government guidelines. What if you owe or need a mortgage larger than agency loans limits? The answer is stay highly qualified. Highly qualified translates into high credit scores - try to get them above 720 or at least above 680 middle score. By now the industry seems to be doing a good job of educating the consumer on what a credit score is, how to protect it and how to get it. If you need assistance in this area I will be more than happy to take the time to consult on your credit situation and how to improve your scores. Part of the real estate market downturn, raise of foreclosures and mortgage lenders imploding is the State's Legislature is working on passing more regulations to protect the consumer. Recently for example the Attorney General of Massachusetts, Martha Coakley, has issued an expansion on Chapter 93A laws governing unfair and deceptive business practices with respect to mortgage lending effective at the beginning of January 2008. I cannot comment fully on this expansion but it has had an affect to keep potential lenders from doing business in Massachusetts and others to pull out of the State all together. It also affects the mortgage broker and lenders that have offered no income verified loans to its borrowers. The new expansion does not ban these loans but it has effectively eliminated a lot of the programs that would offer this reduced guideline. Therefore if you are self-employed or have income from various sources that you are used to expensing to reduce your tax burden - you will have a harder time getting a loan unless you submit the tax returns and hope to qualify for a mortgage loan.

Yes lending has tightened outside of government agency mortgage loans because there are effectively no buyers (investors) of private (non-government backed) mortgage debt. This will change over time and as a mortgage broker we have a high likelihood of finding a loan product to meet your immediate needs so call for a consultation. We know where to look.