ARE YOU IMPACTED BY THE CURRENT MORTGAGE CRISIS ?

You've heard and read the recent news reports: "The Mortgage Industry is in Crisis". The number of foreclosures are increasing, credit is less available, the subprime industry has collapsed, many companies are out of business and Wall Street is in trouble. What does all of this mean to you as a consumer.
First and foremost it means there will be new regulations in place. Every organization involved in industry oversight is reviewing, analyzing and adopting new policies. Mortgage bankers and lenders are adopting the recommendations and putting them into current policy and procedures for conducting everyday business.
Underwriting guidelines have been tightened considerably, requiring higher credit scores, lower debt to income ratios, verification of income and assets, and scrutinizing documents more thoroughly. One of the problems created recently involved stated income loan programs. Stated income loans were created for borrowers who are self employed or supplementing income, as in the construction trades and service businesses. Consumers don't benefit from all their earned income. Tax deductions may reduce the amount of income eligible to qualify for a mortgage.
Some approved stated income loans weren't based on income reasonable for the job. The income was often made up by unscrupulous loan officers and brokers to make the deal work. Borrowers didn't realize the income was overstated and they were approved for mortgages they couldn't afford to repay.
Stated income loans are not as available now, especially in the jumbo market. If you can find stated income programs, industry reasonability tests are conducted. Borrowers may also be asked if the stated income is accurate and they are reminded that fraudulent information on a loan application is illegal. They may be required to sign an additional document. Stated programs are often not available for salaried, W-2 wage earners.
Borrowers with low credit scores who have been slow paying or have collections or judgments filed against them are having a tougher time qualifying for a mortgage. Qualifying ratios (the percentage of your income used to qualify for a mortgage) are not as flexible and the verification of income and assets needed for down payment and closing c,osts are carefully verified and sourced.
Consumers are wary of ARM's (adjustable rate mortgage's) having heard about the 2/28 mortgage. The 2/28 ARM often had a lowpayment start rate, meaning the initial payments were very low, but not reflective of that the actual interest rate and payment would be later on. Some homeowners, shocked by the higher payment amount, have found themselves in foreclosure and unable to pay it.
With all the foreclosures and restrictive mortgage guidelines, home sales have declined. With the declining market, property values have also declined. The home purchased for $300,000 in recent years may be valued at only $250,000 or less today. Some homeowners owe more than the house is currently worth. Some parts of the country have been hit particularly hard.
With all this bad news, there is some good news. The good news is that interest rates are still relatively low, and if you have good credit and document your income and assets, you will qualify for a mortgage with a low interest rate. Because homes remain on the market for a longer time, there is more room to negotiate the purchase price to your advantage or negotiate a sellers concession. It will probably take a few years for the impact to subside and new regulations to help the industry adjust. The industry will be changed and doing business differently, and that is good news.