David Neal's Mortgage Blog

 Saturday, February 16, 2008

WOw...the last several weeks have been just that... an interest rate rollercoaster. As many of you know, interest rates change daily, and sometimes several times a day. Normally we don't see many days that the rates will change more than once during the day, but here lately, we've seen a regular stream of interday reprices. It's pretty crazy when rates change three times for the worse and then once for the better....all in the same day. I have had several instances over the last 30 days where we go to lock the rate, and by the time we get the rate actually locked the rates have changed. Or where the lock went in after the market closed (which means the lock desk is closed), and when it locked the next day after the market opened rates are different than what I discussed with my clients.

Now more than probably ever, it's important to be working with an expert for your mortgage, one that you feel you can trust and have confidence in. A person (including me) could make themselves crazy right now trying to shop rates across different lenders. I gotta tell ya, that if you're working with someone that isn't keeping track of what's going on in the market, to stay ahead of the price changes....beware you may be in for a rocky road!

The good news is that, even with all of this volitility in the market in general (rates, stocks, futures) interest rates are very low overall...and even if you get caught on an uptick, rest assured, you're getting a great rate.

 Saturday, February 23, 2008

As part of the Stimulus package that President Bush signed just over a week ago, FHA lending limits will be increased. Hooray! It won't impact a lot of people here in Indiana, but it sure will in Florida. I think Leroy may have actually done a little dance, because that is where he is. Don't get me wrong the people here in Indiana that do benefit, will really benefit. Especially, those with higher loan-to-values that are trying to refinance from an adjustable rate to a fixed rate and have been unable to take advantage of the FHA programs, due to their county FHA loan limit.

So far, it looks like the FHA loan limits will increase from 95 % to 125%, of the area median home price. The "floor" limit is being increased from 48% to 65% of the new GSE limit. What in the world does that mean, you ask? The GSE limit is the conforming mortgage limit, before it's considered a jumbo mortgage. The GSEs’ loan limits increase to 125 percent of the area median house price for the property up to a statutory cap of 175 percent of the current GSE limit of $417,000 or $729,750 for a single-family property. Clear as a bell, huh? Call me or one of my loan officers and we'll go through it with you, if you like.

There are a lot of issues that surround the pros and cons of credit scoring in today's world. They really strike a "love/hate" chord in my day to day business, let me explain. I'll start with the pros, but before I am done, I will probably have said something that really irritated you. But, before you blast me, please remember that I am speaking from an industry point of view, to help you understand the system from the lenders standpoint, or even a higher view yet. The reason is that, even though we don't like it, there are necessary evils to keep the whole thing running....as we all saw last year!

The Pros

• Credit scores help quickly identify qualification for certain program levels and what loan to value a borrower can get.
• They also help standardize underwriting among many different people and companies.
• They can help people gage their own credit and potentially, what needs to be done to make it better.
• it more readily allows loans made, to be grouped into risk categories. This allows rates commiserate with  a little better or  a little worse credit.

The Cons

• There are many times the scores don't seem to reflect how someone pays their bills. I've seen it hundreds of times, where just because a person has high balances to their max on credit cards, especially when, say the max is $300 and they owe $280 is treated the same as someone that owes $20,000 on a $21,000 card (which is absurd)...and their scores are decimated, even though they have outstanding pay history.
• It lumps people, that have had 10 years of solid credit history and well rounded credit that includes mortgages, installment loans, and credit cards, in with people that have had three credit cards for a year with balances of only like $1000. The one person, has clearly demonstrated over time that they pay...where the other, may just not have hit a bump yet.
• This one's easy - They can be manipulated!
• They remove the common sense aspect of underwriting, which is huge.
• They punish people that close out accounts they don't use. How does this make somebody a higher risk?
• Here is what I think is the biggest one. It allows for loans to be made, with little regard for overall credit, just because the credit score. It helps deflect responsibility and put through loans that make no good sense, just because the score is there and everything is in the file. While loans that actually make sense get blanket turn downs for something as simple and stupid as the local library filing a $35 collection for a debt that may not even be owed, but it destroyed their score.

This subject could and has been debated for years. What's the solution? I don't know, but I do know that with the credit tightening going on right now, credit scores are a very popular topic of discussion among a lot of people and we may see some changes to the system, but then again who knows.........