If the property is a rental, the charge is 1¾ points (1.75%) if loan to value is under 75% and 3 points (3.00%) if over 75%. If your credit score is 679 and you want a 30 year fixed of $400,000 including $50,000 cash out on a house worth $500,000, you will pay 4 points (4%) or $16,000. If the property is a rental, you'll pay 3 additional points (over 75% loan to value) for a total of 7 points, or $28,000! Can you understand why rentals aren't popular and why someone who has a 679 credit score, which used to be considered good, is considered a poor risk today? Quick answer: Fannie and Freddie went under and are now owned by the government.
Low Appraisals Under the Home Value Code of Conduct (HVCC)
Courtesy of Andrew Cuomo, HVCC is killing many transactions. Under HVCC, the appraiser doesn't know the nature of the transaction -- cash out, refinance, combining a first and a second, etc. -- and assigns the lowest possible value to the property to avoid any problems with the lender or those who oversee the industry. A quick reminder that low appraisals continue to drive prices lower, which doesn't seem to bother anyone until they need a loan. Most people do not realize the bank that is making the loan has the right to obtain a second appraisal if the bank feels the first one is too high. In the boom period, most banks didn't bother to do so. Now everyone is paying the price as values continue to decrease.
Restrictions on Loans to Self-Employed People
Self-employed people, who have a multitude of business-related write-offs, and, therefore, usually don't show much in the way of earnings, have had the rules changed in the middle of the game. They used to be able to validate income by showing the cash flow from a year's deposits in the bank. Not now! They used to be able to show reserves reflecting twice the amount of the loan, but no more! They used to be able to demonstrate the ability to make over 3 years of payments from their savings, and, thus, prove to be a good risk, but not any longer. Even with a loan with a value of under 50% and a credit score of 780, self-employed people need not apply... (without tax returns with enough income to qualify).
Fewer Jumbo Loans Available
Wall Street and the banks have increased their capital positions through the sale of their stock, liquidation of investment positions, and the receipt of government money (TARP). However, instead of extending credit for jumbo loans (those over $417,000), the banks appear to be investing the money in Treasuries so as to get a very safe (?) return, even if it isn't all that large.
I conclude with a question for you to ponder. With politicians overreacting to the crisis (yes, the same politicians who were talking very differently prior to the meltdown), who is going to stand up and advocate common sense rules so desperately needed by the mortgage industry? An industry that is rudderless can only end up at the bottom, over a cliff, or stuck on the shore. None of that seems awfully appealing. Over two-thirds of Americans own their own homes and thus have a vested stake in the future of real estate in this country. For the vast majority, their homes are their largest assets; and for many, their homes constitute their retirement accounts. We all should be concerned about what is happening. It's time to pay attention and to let your elected representatives know you aren't happy with what is going on. After all, they just found out this summer that they actually work for us!