Tuesday, July 12, 2016

Local lending market roars back

Local lending market roars back

         
                PATRICIA BORNS5:21 p.m. EDT July 11, 2016

The most sweeping Wall Street reform in generations happened six years ago this July in the wake of the housing crash.
But while the Dodd-Frank Act tightened the purse strings on home lenders, Brian Fulton’s business has been on fire.

Fulton, a mortgage broker at Tomasso Mortgage in Cape Coral. “We’re on track for the best year ever.”
The borrowers are “all over the map” in terms of income: from millionaires who want to take advantage of low interest rate financing, to people earning $37,000 a year.
“It’s not true at all,” Fulton says of the common perception that buying a home requires a 20 percent down payment. As the housing market has sprung back, so have home loan products targeted to the modestly heeled.
To name but a few:
  • Under Freddie Mac’s Home Possible Advantage program, Quicken offers a 1 percent down payment option, kicking in 2 percent in grant funds to make a 3 percent nut.
  • Bank of America, in partnership with Freddie Mac and Self-Help Ventures Fund, offers a 3 percent down payment loan with no mortgage insurance required.
  • Available from most lenders, Fannie Mae HomeReady loans allow a minimum of 3 percent down and the ability to qualify using the income of everyone in the household.  
  • FHA-insured loans starting at 3.5 percent down are available from most banks, and now allow credit scores as low as 500.  
The low down payments are meant to help people with jobs but no savings buy homes. Putting 10 percent down on a $200,000 home would mean shelling out $20,000, but make it 3 percent and buyers only have to fork over $6,000.

The products worry some local real estate professionals who see visions of loose lending behaviors past.
“While well intended, I don’t think those kinds of products are healthy because they make areas like ours more volatile,” said Fort Myers appraiser Matt Simmons of Maxwell, Hendry & Simmons.
In Simmons’ view, the right time to promote home ownership for everyone was before the housing bubble, or after it burst, when home values were lower.
“For people with rank and file jobs in the service sector, it’s a day late and a dollar short to do such loans now when the market is near its peak,” Simmons said.  “The very people who were hurt last time are the people who would now be targets for these loan programs.”
Today’s loans are different, lenders say.

“They must have a FICO score of 680 or above, earn less than the median income for their county, and their debt-to-income ratio must be 45 percent or less,” Quicken Vice President Bill Banfield, said of his company’s 1 percent program.  (FICO is the lending industry standard for rating consumer credit risk.)

Low-down payment loans have similar interest rates as their conventional 20 percent down counterparts, with variations based on your credit score and other factors. Mortgage insurance adds about a quarter of a percent to the interest rate.

A loan officer with Primary Residential Mortgage, Scott DiGregorio is comfortable with the conventional 3-and-a-half percent down mortgages he’s been writing; it’s the no income verification loans that give him pause.
“I saw a stated income product come across my desk with 9.627 percent interest on a seven-year adjustable — an awful loan program,” DiGrigorio said.  “It concerns me that programs that specifically led to the housing crisis are being reintroduced.”
(Stated or no income verification loans don’t require a W-2, pay stubs or other documentation to verify income.)
Even these loans have tightened up since pre-crash days, when people could borrow 25 percent more than the home’s value without documentation. Some require 30 percent down payments and come with interest rates upwards of 8 and 10 percent, intended to be cautionary.
But: “As long as those products are out there, people will buy them,” DiGrigorio said.
On the whole, people who should be getting loans are, and people who shouldn’t, aren’t, Fulton says.
With debt-to-income limits ranging from 30 to 45 percent. those carrying debt such as car payments will have a harder time qualifying for a home loan. (The limits establish how much income you should have left over after meeting your total monthly debts.)
It still rests with the borrower to bite off what he or she can chew. Lenders don’t factor income taxes, health insurance, child care, food or utilities when deciding if you’re capable of carrying the monthly mortgage payment.
You have to do that.

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