Major Atlanta Mortgage Guideline Changes
02/29/2008

Things continue to change very rapidly on the home financing front. Over the past 9 months we have seen many areas such as Florida, California, and the northeastern US labeled as “declining markets” by Fannie Mae and Freddie Mac. Recently, mortgage insurance companies have set their own standards for declining market and the Atlanta Metro has been named as a declining market.

Major Changes to Mortgage Insurance

• 100% financing using mortgage insurance is gone as of March 10th. 95% is the new maximum. And that is not just Atlanta, this is nationwide.  The March 10th date means that we have to have a full loan package and appraisal sitting with an underwriter by 3/10.  The underwriter will pull an MI certificate at that time.  Once that certificate has been pulled there can be NO CHANGES to the loan.

• No Investment Properties with MI in the Atlanta Metro. Did I read that right? Yes, unfortunately it is true. Basically, unless you can bring a 20% down payment (and 25% is preferred), you will not be able to finance an investment property.

• No Cash Out Refinances with MI in the Atlanta Metro. Again, if you are doing cash out, then you will need a 2nd mortgage (which are hard to come by right now) or you will only be able to go to 80% Loan To Value.

• 90 to 95% Loans With MI in Atlanta now require a minimum 680 FICO.

Other Recent Changes That Affect Financing

Fannie Mae and Freddie Mac have gone to a highly risk based pricing model. What that means is that credit scores have become more important than ever before. These rules originally went into place in February 2008, and already the rules are completely changing effective June 1st. But, lenders will begin to implement the new rules in the next few weeks. Some of the highlights:

• FICO score of 680 to 720 and LTV > 60%? 0.5% hit. (Example: Borrower has a middle credit score of 805, co-borrower has a middle score of 719. They are putting down 20% to avoid MI. Loan amount is $300,000. The lender will take the lower of the two middle scores and this couple with what was once considered fantastic credit will pay a $1500 penalty at closing for having a sub-720 score. 0.5% of $300,000 is $1500.)

• FICO score of 660 to 680 and LTV > 70%? 1.25% hit. With the same $300,000 loan this would be a $3,750 penalty.

• FICO score of 640 to 660 and LTV > 70%? 1.75% hit or $5,250 on our $300,000 loan.

• FICO score of 620 to 640 and LTV > 70%? 2.50% hit or $7,500 on our $300,000 loan.

• FICO score of less than 620 and LTV > 70%? 2.75% hit or $8,250 on our $300,000 loan.

What Other Options Are Available?

One option is FHA. With FHA you can go to 97% or sometimes 100% using a down payment assistance program and currently there are no pricing hits based on credit scores. In Atlanta, the current FHA loan limit is $252,890. That limit is going to be raised somewhat in the next several weeks and the estimate is somewhere in the $320,000 range. But again, that is just an estimate. If you need more than that, FHA is out of the question.

For 100% financing we are one of the few lenders who can still do an 80/20 or 75/25 piggyback loan for primary residence purchases. It is unclear how long the investors will continue to offer that program when the new MI rule goes into effect early in March, but we are not counting on that program continuing for much longer.

The bottom line is that if you are planning to buy a home in Atlanta after early March 2008, you had better plan to bring at least 5% to the transaction unless you can qualify for FHA financing.

How Will This Impact Atlanta Housing Prices?

In our opinion, this is almost certainly going to have at least a short-term detrimental impact on an already reeling housing market in Atlanta. Essentially, we are significantly reducing the pool of qualified borrowers. Just two short years ago, nearly anyone with a 620 or higher FICO score would qualify for 100% financing without a problem. Now, even the top credit borrower cannot get 100% financing if mortgage insurance is required.

For properties that are in areas of town that were heavily purchased by investors, those values have already taken a serious beating and this will make the problem much worse. The problem is two-fold. First, most investors who have the capital do not want to tie up their capital on a 20 or 25% down payment of an investment property. Second, very few investors have that kind of money to put down. The good news on this front is that for the investors who have capital to work with and the guts to enter into this market, there are incredible deals to be had. We have little doubt that in 2018 when you look back at 2008, you will either say “That’s where I made some great money in real estate” or “If only I had the guts to buy real estate in 2008…..”.

Economic Stimulus Package and Mortgages
02/23/2008

We have a lot of clients who are asking about the impact of the new stimulus package signed last week by President Bush on mortgages.  The press has been reporting this as if everyone will see an increase in the conforming loan limit from the $417,000 that we have been sitting at for the past few years.  This is simply not the case.

For the vast majority of the US, the limit will continue to be $417,000.  Only certain high cost areas (as determined by the HUD median sales price) will see an increase in the conforming limit.  HUD has not yet released the final numbers, but we should see the final numbers in the next couple of weeks.  For those of us in Georgia (including metro Atlanta), the conforming mortgage limit appears very unlikely to be increased in any part of the state.

Wild Ride for Atlanta Mortgage Rates
02/15/2008

Rates have been all over the map over the past 2-3 months.  We had a fantastic rally in December and were able to get many of our clients into a no closing cost loan to save them money each month.  Rates came back up in early January, then with recession fears on the horizon, we had another rally in late January where we saw the lowest rates in 3 years.  Some clients who were in our RateWatch system were able to nail the bottom of that cycle and get in at no closing cost rates on a 30 year fixed as low as 5.5%.

Unfortunately, all good things must come to an end.  The past 3 weeks have seen rates climb by over 3/4%.  Many clients missed the boat while waiting for "the bottom".  As I always explain to clients who want to float, no one knows we hit the bottom until it is in the rear view mirror.  Always take your money off the table whenever you can get 1/4% or better by doing the no closing cost loan.  It's a no lose situation since you aren't putting any skin into the game other than a couple of hours of time to gather paperwork and close the loan.

The good news is that the economy appears as though it is still faltering.  I anticipate another bond rally over the next few months and I believe we will see another excellent refinance opportunity.  If you have not already done so, I encourage you to give us your basic information and get into our RateWatcher program.  To get started, just take 2 minutes to fill out our form here:  http://www.primacymortgage.com/mortgage-management-form.html.  We'll watch the market for you, and when we hit your target rate, we'll get you locked into that rate immediately.