Friday, August 19, 2011

Are the Strict Underwriting Guidelines Coming to an End?

There's no doubt that the underwriting guidelines for mortgages have gotten stricter over the past few years. Today's winning question by Phyllis Ursetta of Integrity Realty addresses that subject. Phyllis receives a $25 Starbucks card and gets her contact information sent to the 6,600 people on our contact list. We also list her contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Phyllis's contact info follows:

Phyllis Ursetta, Broker/Owner
Integrity Realty
303-570-1344
phyllis@integritydenver.com

Phyllis's question is: "Do you see any end in sight to the strict enforcement of the underwriting guidelines, specifically, the requirement that a buyer have 20% down to buy an investment property, even though they have very high credit scores, excellent income, and plenty of money in the bank?"

Here's the answer: There probably won’t be a change to the stricter guidelines that are in place for conventional loans for quite a while, especially for investment properties. Investment properties have a significantly higher foreclosure rate than primary residences.

Fannie Mae actually only requires a 15% down payment for investment properties, but they also require mortgage insurance for any loan that is greater than 80% of the value (or sales price) of the property.

The problem is that the mortgage insurance companies refuse to insure investment properties, so the end result is that you need 20% down. If a loan has mortgage insurance and that loan goes into foreclosure, then the mortgage insurance company has to write a check to the lender. The mortgage insurance companies are losing millions of dollars right now and they have no desire to lose more, so they have all said they will not insure investment property loans. No mortgage insurance = 20% down.

Regarding the qualifications of the buyer, the days of loan decisions being made on an individual basis are long gone. It really doesn't matter if a borrower is incredibly well-qualified. As long as they are buying an investment property, they get lumped in with all the other people who want to buy investment properties. Unfortunately, many of those people do not pay their loans back, and everyone has to abide by the stricter underwriting guidelines.

Things will change when the foreclosures stop. That is going to take a long time.


Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:
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