Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – August 5th, 2008

Qualifying For A Loan...Times Are Changing

Big Changes On The Horizon

This week I’m going to be extremely brief with my comments on the economic reports and educate you a little about major changes in the real estate lending market.  So, let’s rock and roll!

First, the government lifeline extended to FannieMae and FreddieMac was signed into law by President Bush.  I’ll be addressing that in forthcoming issues.  Second, 2nd Quarter GDP come in at 1.9% while expecting 2.3%.  Previous quarters’ numbers were also revised lower.  Third, initial jobless claims shot up to 448,000.  This is a huge number, however, is somewhat misleading, as the government has laid out a new federal benefits program that will manipulate this number for about a month…interesting…Fourth, a better than expected jobs report showed we only lost 51,000 jobs.  WooHoo!  Unemployment moved to 5.7% so the better than expected jobs numbers, that’s right a loss of 51,000 is better than expected!  Fifth, I told you I’d report on the Fed’s favorite inflation gauge, the Personal Consumption Expenditure Index.  Core PCE moved to 2.3%.  This is outside the governments comfort zone of 1.0 – 2.0%.  Last, the Fed left the overnight rate unchanged at 2.0%.  They did indicate that they felt like inflation pressures should start easing toward the end of this year, however.

BIG Changes in Mortgage Insurance

The changes that have occurred, as of August 1 of this year, is in regard to mortgage insurance.  Years ago, you couldn’t buy a home unless you had twenty percent down.  Mortgage Insurance (MI) companies got involved and said if you let someone put five or ten percent down, they would insure a percentage of the loan amount.  This enabled more people to buy homes because they didn’t have to wait longer to save twenty percent.  This past week four of the seven major mortgage insurance companies changed their guidelines.  Basically, if you do not have a credit risk score of 620 or higher, you’re not getting a FannieMae or FreddieMac loan unless you put twenty percent down and avoid mortgage insurance all together.

FHA Will Return As “King Of The Loans”

Only one MI company left enables you to put five percent down.  All others are requiring ten percent down.  So, if you know of people that only have five percent down, make sure they continue to call other lenders if their lender is telling them that they HAVE to put ten percent down.  And there are a lot of major banks that are not approved or not contracted with this one, MI Company!   Refinances on investment properties will have to have twenty percent equity in the subject property.  Also, if more than 55% of your income is going toward all of your monthly obligations, than you can not qualify for a loan with mortgage insurance.

Monthly Guideline Changes

Now, these changes are changes to July’s changes.  We are seeing guideline changes on at least a monthly basis, sometime weekly.  Make sure you’re working with an expert in the field that follows these changes closely.  Also, make sure you have an option to work with an FHA expert!  FHA has new guidelines taking effect on January 1, whereby the buyer would have to put 3.5% down as opposed to the current 3%, but they have more flexibility regarding their qualifications than MI companies.  Until next week…

This entry was posted on Tuesday, August 5th, 2008 at 7:12 pm and is filed under Chico Home Loans, Home Buying, Loan Qualification, Mortgage Industry Updates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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