East Valley Connection

Many of the programs that have been long available that allowed good borrowers to get 100% financing just got a lot more complicated.  Fannie Mae and Freddie Mac (the 2 congressionally sponsered entities that help people get loans) have now started labeling many, if not most, zip codes in the Arizona real estate market “distressed”.  The outcome of this change is that lenders then take 5% off of the highest allowable “loan to value”.  In other words, if Joe Borrower is approved for a MyCommunity mortgage that allows him to get 100% financing, the loan officer then runs his loan through the computer applications for Fannie Mae or Freddie Mac which gives Mr. Loan Officer the flag that tells them that this property is located in a defined distressed real estate market.  All of the sudden, Joe Borrower is required to make a 5% down payment in order to make this loan work.  This is also the case for home owners looking to refinance.  If your appraisal says that you have about 20% equity in your home and the computer flags your area, the bank will look at it as if you only have 15% equity and you will be forced to pay mortgage insurance.

What does this mean for you?  Simply put, if you are considering purchasing a home, FHA has more flexibilty so that you should only need the standard 3% down as long as you have a good solid appraisal.  Also, the down payment can be gifted from a family member.  You will have to pay an upfront mortgage insurance fee of 1.5% but it is financed in and the unused portion is refundable if you move out of the loan without defaulting (after being pro-rated).  If you are considering refinancing, factor in the possibility that your loan to value may be looked at by the lender as being 5% higher than you think it is.  Better safe than sorry.

Need help with finance.  Please don’t hesitate to call!!

Well, many economists are predicting that the Fed will cut consumer rates again at the end of this month.  Wishful thinking?  Maybe not.  Inflation seems to be holding fairly steady and unemployment seems to be on the rise.  The hope is that further rate cuts can also stimulate the badly faltering housing market.  This is great news for home owners hoping to refinance or buyers looking for a great deal in the housing market……IF they can qualify.  One factor having a drastic impact on the housing market is that many of the programs that used to exist to put people into homes are now gone.  For many of those programs, that is good news.  For others, valid programs that were good for consumers are gone.  New and more flexible programs will not see a return, however, until the lenders no longer have to continue declaring large losses every week due to failed loans.  I know the word “subprime” is considered a four letter word now but the truth is, it had it’s place.  For people who had many credit difficulties, a 2 year loan was the perfect stepping stone into what would hopefully turn into a more conventional “A-paper” product.   The problem is they became too easy to get and less than honest loan officers made it sound like the all purpose answer to any loan question.  Hopefully the difficulties now will eventually bring sanity and balance and allow for a stepping stone instead of a way of life.  In the mean time….a rate cut for the right borrowers can be a nice place to start!