How the Mortgage Meltdown Affects You
It has been an eventful few weeks for the mortgage industry, and it’s easy to see why more than a few consumers watching at home could be confused.
Many are wondering what the developments mean for their own finances.
“Many of my clients are reading the news but not understanding how it directly relates to them personally,” said Dan Green, a certified mortgage planner specialist in Chicago and author of the blog TheMortgageReports.com.
Here are some of the mortgage questions on consumers’ minds these days, based on interviews with industry professionals and postings on Web logs and online discussions.
• Will I still be able to get a mortgage?
• One of the widest held misconceptions Alex Stenback has been hearing is the assumption that the current problems will have a negative impact across the entire mortgage spectrum. Stenback is a mortgage banker in Minneapolis and St. Paul, Minn., and author of the blog BehindTheMortgage.com.
So far, borrowers with decent credit histories and the ability to document their income - “the majority of the home-buying public” - aren’t being shut out from getting a loan, he said.
“Home loan applications are still being accepted, and home loans are still being approved. The difference is that there are fewer choices,” Green said in an e-mail interview.
What is getting harder to come by is an Alt-A mortgage. They often don’t require income documentation. Jumbo loans - those that exceed the $417,000 conforming limit and thus can’t be purchased by Freddie Mac and Fannie Mae - are more expensive.
“Credit cycles boom and bust over time. As soon as Wall Street figures out the current risk-reward model, (more) mortgage products will be available again,” he said.
• Can I still get a no-down-payment loan?
• There are still programs that can get prime borrowers into mortgages with little or no money down to begin with, Stenback said.
“The perception is you need money down and have to wait until you save more,” Stenback said. “It’s not the case. It may be a good idea, but you don’t have to.”
However, no-down-payment loans are now requiring “strong credit, verifiable W-2 income and healthy assets in reserve,” Green said. “Homeowners whose tax returns include large write-offs - including small business owners and 1099 employees - will have a much harder time qualifying for 100 percent financing.”
• My mortgage lender declared bankruptcy. What do I do?
• Don’t fret - and plan to keep making payments, said David Podgursky, a Florida-based mortgage broker and author of TheMortgageGoToGuy.com.
“In fact, get ready to make your September payment as scheduled. Just keep your eyes open for your letter regarding who will be servicing your loan from now on,” he wrote on his blog.
• Should I be concerned if I currently have a subprime mortgage?
• The above question was posed by a Denver-based real estate agent on a Trulia.com discussion board. The consensus from the several real-estate professionals answering the question was a qualified “no.”
Podgursky chimed in with this comment: “Subprime loans are not the end of the world … unless you are at the end of the term and the new adjusted payment will hurt you financially.”
The holders of subprime adjustable-rate mortgages need to be aware of when the initial, lower rate on the loan will expire. By looking ahead - preferably a year in advance of the reset date - borrowers can improve their credit and consider their options so that they’re not saddled with monthly payments they can’t afford, Podgursky said in a telephone interview.
• Is now a good time to buy a home?
• Every real-estate market is unique. Many areas throughout the country are buyer’s markets, where those on the buyer’s side of the table have the upper hand in negotiations, said Matt Vernon, retail sales executive for Bank of America. While it may be a different mortgage landscape, it still can be a good market in which to buy - as long as people are buying for the right reasons and are paired with loans that ensure they’ll be able to keep the home in the future, he said.