David Neal's Mortgage Blog

Right now we're still seeing quite a bit of changes in the mortgage industry. Two things have really changed the options for people who are looking for a mortgage now.

One of which, is the across the board price changes by Fannie Mae and Freddie Mac. This affects all lenders, since the prices have changed at the source of "conforming paper". What they have done is rates now have an automatic increase that's adjusted for credit score. The crazy thing is that for people with a 700 to 720 credit score, there's still a price increase of somewhere between .125% and .25% and you don't even want to know about the increase for people with a 620 credit score.....which is the minimum required now for a conforming mortgage. FHA on the other hand has no such policy, so there is a huge price advantage to going with an FHA loan....I don't think this is merely a coincidence. It just seems to perfect. In a time when lawmakers are trying to expand FHA, but you have to go through the long drawn out process to get anything done, it's seems far easier to make it so that FHA is the only logical choice for their financing. Am I making sense or am I starting to sound like a conspiracy theorist?

Second, is the fact that 100% financing is being restricted by the PMI companies. What I mean by this is that while Fannie Mae and Freddie Mac still have a program for 100% financing, they do require you to have PMI and if you can't get the PMI, well......you can't get the loan. So, since the PMI companies have stopped providing mortgage insurance on 100% loans, that pretty much means the only way to buy a home with no money down.....is, would you believe....FHA! Now, I know what you're thinking, FHA requires a 3% cash investment, let me explain. There are a number of different down payment assistance programs, in which the seller contributes 3% to the affiliated program and then miraculously you are approved for a down payment grant. Tricky, huh....So, this effectively provides 100% financing through FHA.

Combine those two factors and it makes it so that most people are going to choose and FHA loan, because it makes sense.