Mortgage outlook for ‘08
Mortgage shoppers will find a more difficult landscape to navigate in 2008 than in recent years. Borrowers will find loan standards have been tightened for many products and costs are going up for other. Some mortgage products have vanished entirely, along with many lenders.  In fact, in the wake of a turbulent year, you may not find your previous mortgage specialist under the same banner, as many have relocated… however, Choice Finance® is still here for you.   As a  lender, we have new products that are only available in-house.  

You may have also noticed the continuation of historically low mortgage rates, especially this week and last.  Thirty-year conforming fixed-rate mortgages actually dipped the first week of December.  Rates had not been lower since September 2005.  A week later they were again higher, but that was almost exactly where they were at the same time in 2006.  What do these rate differences really mean?  For each $100,000 of loan amount, a 5-year ARM would save about $14 and a 1-year ARM about $38 (for one year, anyway).  The lower interest rate for the 15-year mortgage will require that you make a payment $225 higher than with the 30-year mortgage.  To calculate the effect for a higher loan amount, just multiply. For a $250,000 loan amount, you would multiply by 2.5, giving you a savings of $35 for the 5-year ARM, $95 for the one-year ARM and a $562 payment increase for the 15-year fixed. 

The 2007 conforming limit of $417,000 will stay the same in 2008, the third year in a row at that level.  Conforming loans are eligible for purchase by Fannie Mae and Freddie Mac, which makes them more marketable and thus cheaper and more widely available than “jumbo” loans that exceed the conforming limit.  Good credit scores, always important, will be even more so for homebuyers in 2008. Likewise, downpayment money from your own pocket is once again highly valued. Fannie and Freddie are, in general, demanding higher scores and bigger downpayments. 

What is a good credit score?  That has gotten stricter. A score of 620 used to demarcate subprime territory, but that dividing line is getting muddied.  Scores into the upper 600’s now can carry significant penalties versus those closer to 700 and up.  One example of the new credit score inflation is that Fannie Mae and Freddie Mac are adding new fees to the pricing of mortgages in which the credit score is less than 680 with a downpayment of less than 30%. Fannie Mae and Freddie Mac both posted losses for their last quarter and are looking to this “risk-based” pricing to help get them back in the black. The fees take effect on March 1st, but most lenders are already charging them. 

Similarly, some private mortgage insurance companies are also raising premiums on borrowers making low downpayments who have credit scores in the mid- to upper-600s. Again, the companies have suffered losses on just these types of loans, they say, so higher premium prices are their answer.  It has long been understood that having little downpayment money in a home creates a situation where the homeowner has less commitment to working things out if problems arise.  For that reason, FHA has sought to end a practice by which sellers could make a contribution to a nonprofit group, which then grants the money to the homebuyer for a downpayment, technically bypassing rules that prohibit direct seller downpayment assistance.  A federal court blocked the FHA move temporarily, keeping the program in place for now, but FHA is a good bet to get its way eventually, either winning in a higher court or through other administrative action. If you intend on using this program to purchase this year, understand that it is vulnerable.
© 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®
  John Burley of Choice Finance®