Latest Changes Eliminate More Borrowers From Mortgage Market

As written previously, for those without impeccable credit, adequate income and loan to value below 70%, the low advertised rates are not available.  See All Time Low Rates For A++ Borrowers Only and Few May Benefit From Lower Mortgage Rates.

Much more stringent underwritten guidelines for mortgage approvals were issued today by a major bank as follows:

Important Update Regarding Revised Minimum Credit Score for All Loan Products, Effective Immediately

Effective for locks on or after Tuesday, February 10, 2009, the minimum credit score requirement for ALL loan products is 640. This includes the following loan programs:

· Agency Loan Program

· Agency Affordable Lending Program

· Portfolio Affordable Housing Program

· Texas Cash Out Refinance

· FHA 203b (FHA),

· Veterans Administration (VA), and

· Rural Development (RD) Guaranteed Rural Housing (GRH) Program

Additionally, the following applies:

· a minimum credit score of 640 will be required for ALL scoreable borrowers regardless of the LTV/TLTV.

· A minimum credit score of 640 will be required for all traditionally underwritten and AUS (DU/DO and LP) processed loan transactions, regardless of the AUS approval or recommendation.

These new guidelines are far more restrictive than Fannie Mae, Freddie Mac and FHA guidelines.   The bank and mortgage company guidelines are the ones that really matter because a consumer cannot directly apply to the agencies for a mortgage.

Pricing on mortgages can be described as chaotic.  Guideline changes such as the ones instituted today are basically a message from the banks that the mortgage business is unprofitable to them.   Every customer is seen as a future default.  Simply put, the banks do not want new mortgage business, which is why virtually every major bank has eliminated their wholesale lending operations.   The mortgage bankers who sell their loans to the agencies or larger banks are restricted in lending activities by the lack of warehouse lines of credit.  All of the above factors combined have severely restricted mortgage lending and disrupted the established channels for mortgage lending.  A perfect borrower with a loan to value under 70% can still reap the full benefit of lower rates; all other borrowers will find it very difficult to qualify.

The Fed can buy mortgage backed securities and treasury bonds by the trillions to lower mortgage rates, but with the lending intermediaries either unwilling or unable to make new mortgage loans, the benefit of any rate reductions will be severely limited to  A++ customers.   The borrowers who need the benefit of lower rates the most will see the least benefit since many do not qualify under current guidelines.