After a half-decade of tightening mortgage guidelines, banks are starting to “loosen up”.

The Federal Reserve conducts a quarterly survey of its member banks and, last quarter, not a single responding bank reported having tightened its mortgage guidelines for prime borrowers.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

53 banks responded to the Fed’s survey and none said that mortgage guidelines “tightened considerably” or “tightened somewhat” between September and December 2011; 50 said that guidelines remained “basicaly unchanged”; 3 said that guidelines “eased somewhat”.

Mortgage applicants sometimes remark that the mortgage approval process can be challenging. Last quarter’s Fed survey hints that looser standards are coming. 

Not since before the recession have banks lowered mortgage approval standards like this and it bodes well for this year’s  housing market. Real estate agents report that 1 in 3 home sale contracts fail with “declined mortgage applications” as a leading cause.

Looser mortgage lending standards should mean more home loan approvals for buyers, and fewer contract cancellations. This can spur the housing market forward.

Make note, though. “Looser standards” should not be confused with ”irresponsible standards”. It remains more difficult to meet bank standards as compared to 5 years. Today’s underwriters are more conservative with respect to household income, overall assets and credit scores. 

Even as compared to one year ago:

• Minimum credit score requirements are higher
• Downpayment/equity requirements are larger
• Maximum allowable debt-to-income ratios are lower

For buyers and refinancing households gaining approval, though, the reward is the lowest mortgage rates in a lifetime. Mortgage rates continue to fall, helping home affordability reach new highs.

If you’re in the market to buy a new home or refinance one, your timing is excellent.

Related posts:

1. Mortgage Guidelines Start To Loosen At The Country’s Biggest Banks
2. Mortgage Guidelines Starting To Loosen?
3. Banks Resume Tightening Mortgage Guidelines

A conforming mortgage is one that, literally, conforms to the mortgage guidelines as set forth by Fannie Mae and Freddie Mac. 

Conforming mortgage guidelines are Fannie’s and Freddie’s eligibility standards; an underwriter’s series of check-boxes to determine whether a given loan should be approved.

Among the many traits of a conforming mortgage is “loan size”.

Each year, the government re-assesses its maximum allowable loan size based on “typical” housing costs nationwide. Loans that fall at, or below, this amount meet conforming mortgage guidelines. Loans in excess of this limit are known as “jumbo” loans.

Between 1980 and 2006, as home values increased, conforming loan limits did, too, rising from $93,750 to $417,000. Since 2006, however, despite falling home prices in many U.S. markets, the conforming loan limit has held steady.  This will remain true for 2012 as well. 

In 2012, for the 7th straight year, the national, single-family conforming mortgage loan limit will remain at $417,000.

The complete 2012 conforming loan limit breakdown, by property type :

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

However, there are some areas nationally that have earned ”loan limit exceptions” based on the local median sales prices. These areas are known as “high-cost” areas and loan limits within these regions range from $417,001 to a maximum of $625,500.

Some examples of high-cost areas include San Francisco (along with a most of California), New York City, and most of Hawaii and Alaska. Nationally, there are approximately 200 such “high-cost” areas.

Verify your local conforming loan limit via the Fannie Mae website. A complete county-by-county list is published online.

Related posts:

1. 2011 Conforming Loan Limits : No Change From 2010
2. The 2010 Conforming Loan Limits
3. What The New Conforming Loan Limits May Mean To You

After a brief return to lower, pre-2009 levels, FHA loan limits have been restored. As signed into law last Friday, maximum FHA loan limits are — once again — as high as $729,750.

The move creates additional mortgage financing possibilities in more than 650 U.S. counties, and promises to increase the FHA’s mortgage market share, which has grown from 6% in 2007 to roughly 30% today.

The change in FHA loan limits also marks the first time that FHA loan limits exceed those of conventional mortgage-backers Fannie Mae and Freddie Mac.

Conventional loans remain capped at a maximum of $625,500.

For home buyers nationwide, FHA-insured mortgage offer several advantages over comparable conventional loans, the most commonly cited of which is that FHA-insured loans require a down payment of just 3.5 percent.

FHA-insured mortgages carry other advantages, too, however.

First, FHA home loans are not subject to loan-level pricing adjustments (LLPA). This means that, all things equal, buyers and would-be refinancers with credit scores below 740; or, who live in multi-unit homes; or, who have high loan-to-values are not subject to additional loan fees as a conventional mortgage applicant might.

Second, after 6 months of on-time payments, FHA-backed homeowners are eligible for the FHA Streamline Refinance. The FHA Streamline Refinance is among the simplest loan products for which to qualify with no appraisal required. Even if you’re “underwater” on your mortgage, you can still be streamline-eligible.

And, lastly, at least in today’s market, FHA mortgage rates are below those of the conventional market.

The downside of FHA financing, however, is that all FHA mortgages require mortgage insurance and FHA mortgage rates are often higher versus a comparable conventional loan. This means that, although its mortgage rate may be lower, the payment for an FHA home loan may be higher as compared to a Fannie Mae mortgage with similar credit traits.

FHA loans aren’t always optimal, but with higher FHA loan limits, expect the FHA’s market share to increase.

Check your local FHA loan limit at the HUD website.

Related posts:

1. 2010 FHA Loan Limits Released
2. 2009 Conforming Loan Limits Return To $729,750 In High-Cost Areas
3. The 2009 FHA Loan Limits For Every U.S. County

Tuesday, Fannie Mae and Freddie Mac unveiled lender instructions for the government’s revamped HARP program, kick-starting a potential refinance frenzy nationwide.

HARP stands for Home Affordable Refinance Program. The updated program is meant to give “underwater homeowners” an opportunity to refinance at today’s low mortgage rates.

In the two-plus years since its launch, HARP’s first iteration helped fewer than 900,000 homeowners. HARP II, by contrast, is expected to reach millions.

Lenders begin taking HARP II loan applications December 1, 2011.

To apply for HARP, applicants must first meet 4 basic criteria :

1. The existing mortgage must be guaranteed by Fannie Mae or by Freddie Mac
2. The existing mortgage must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009
3. The mortgage payment history must be perfect going back 6 months
4. The mortgage payment history may not include more than one 30-day late payment going back 12 months 

If the above criteria are met, HARP applicants will like what they see.

For HARP applicants, loan-level pricing adjustments are waived in full for loans with terms of 20 years or fewer; and maxed at 0.75 for loans with terms in excess of 20 years.

This will result in dramatically lower mortgages rates for HARP applicants — especially those with credit scores below 740. Some applicants will find HARP mortgage rates lower than for a “traditional” conventional mortgage.

In addition, HARP applicants are exempted from the standard waiting period following a bankruptcy or foreclosure, which is 4 years and 7 years, respectively.

These two items are inclusionary and should help HARP reach a broader U.S. audience.

HARP contains exclusionary policies, too.

1. The “unlimited LTV” feature only applies to fixed rate loans or 30 years or fewer. ARMs are capped at 105% loan-to-value.
2. Applicants must be “requalified” if the proposed mortgage payment exceeds the current payment by 20%.
3. Applicants must benefit from either a lower payment, or a “more stable” product to qualify

And, of course, HARP can only be used once. 

Fannie Mae and Freddie Mac will adopt slight variations of the same HARP guidelines so make sure to check with your loan officer for the complete list of HARP eligibility requirements.

Related posts:

1. The Government’s Revamped HARP Program For Underwater Homeowners
2. How To Refinance When Your Home Is Underwater
3. Who Are Fannie And Freddie And How Do They Help Homeowners?

As part of its quarterly survey to member banks nationwide, the Federal Reserve asked senior loan officers whether last quarter’s “prime” residential mortgage guidelines have tightened, loosened, or remained as-is.

A “prime” borrower is defined as one with a well-documented, high-performance credit history; with low debt-to-income ratios; and who chooses to finance a home via a traditional fixed-rate or adjustable-rate mortgage product.

After a 2-year easing cycle, the nation’s biggest bank banks report that they’ve reversed course, and are raising the bar on mortgage approvals.

For the period July-September 2010, 88% of responding loan officers admitted to tightening their prime guidelines, or leaving them “basically unchanged”.

If you’ve applied for a home loan of late, you’ve experienced this first-hand.

High delinquency rates and defaults since 2007 have caused the banks to rethink what they will lend, and to whom. As a result, today’s mortgage lenders scrutinize assets, incomes, and credit scores to make sure that nothing “slips by”.

For today’s home buyers and would-be refinancers, the mortgage approval process can be challenging as compared to how it looked just 18 months ago.

• Minimum credit scores requirements are higher today
• Downpayment/equity requirements are larger today
• Debt-to-Income ratio requirements are more strict today

In other words, although mortgage rates are the lowest that they’ve been in history, fewer applicants can qualify. And, with more the housing market still in recovery, it’s likely that guidelines will tighten again in 2012.

Therefore, if you’re among the many people wondering if it’s the right time to buy a home or refinance, consider that, although mortgage rates may fall, approval standards may not.

The best rate in the world won’t matter if you’re not eligible to lock it.

Related posts:

1. Mortgage Guidelines Start To Loosen At The Country’s Biggest Banks
2. Mortgage Guidelines Starting To Loosen?
3. Fed Survey : Mortgage Guidelines Tighten Further, Freeze Out Would-Be Refinancers

The Federal Home Finance Agency announced big changes to its Home Affordable Refinance Program Monday. More commonly called HARP, the Home Affordable Refinance Program is meant to give “underwater homeowners” opportunity to refinance.

With average, 30-year fixed rate mortgages still hovering near 4.000 percent, there are more than a million homeowners nationwide who stand to benefit from the program overhaul.

To qualify for the re-released HARP program, you must meet 4 basic criteria :

1. Your existing home loan must be guaranteed by Fannie Mae or Freddie Mac
2. Your home must be a 1- to 4-unit property
3. You must have a perfect mortgage payment history going back 6 months
4. You may not have had more than one 30-day late payment on your mortgage going back 12 months 

Most notable about the new HARP refinance program, though, is that the government is waiving loan-to-value requirements on a HARP loans. Homeowners’ participation in the program  are no longer restricted by their home’s appraised value. In fact, the new HARP doesn’t even require an appraisal, in most instances.

With the new HARP program, underwater mortgages can be refinanced without LTV limit or penalty.

According to the government’s press release, pricing considerations for the new HARP program will be released on or before November 15, 2011; and lenders are expected to be offering the program as of December 1, 2011.

If you think you may be eligible, first confirm that either Fannie Mae or Freddie Mac is backing your loan. Both groups provide a simple, online lookup.

• Fannie Mae loan lookup : http://www.fanniemae.com/loanlookup/
• Freddie Mac loan lookup : https://ww3.freddiemac.com/corporate/

If your loan cannot be located on either of these two sites, your current mortgage is not backed by Fannie Mae or Freddie Mac, and is not HARP-eligible.

The FHFA’s official press release contains an FAQ section. In it, you’ll find minimum qualification standards, as well as information related to condominiums and to mortgage insurance.

The HARP program is meant to help a wide group of homeowners, but each applicant’s situation is unique. For specific HARP questions, be sure to talk with a loan officer. 

Related posts:

1. How To Refinance When Your Home Is Underwater
2. How To Know If You’re Eligible For A Making Home Affordable Refinance
3. Who Are Fannie And Freddie And How Do They Help Homeowners?

The FHA is insuring a greater percentage of loans than during any time in recent history. In 2006, it insured roughly 5 percent of the purchase mortgage market. Today, it insures one-quarter. ”Going FHA” is more common than ever before — but is it better?

The answer — like most things in mortgage — depends on your circumstance.

Like its conforming counterpart, an FHA-insured mortgage is available as a fixed-rate loan and as an adjustable-rate one. Payments are made monthly and come without prepayment penalties.

That’s where the similarities end, however, and decision-making begins. For homeowners and buyers , FHA mortgages carry a different set rules as compared to conforming loans through Fannie Mae or Freddie Mac that can render them more — or less — attractive for financing.

For example:

• FHA mortgages can be assumed by a subsequent buyer. Conforming loans may not.
• FHA mortgages require mortgage insurance, regardless of downpayment. Conforming loans do not.
• FHA mortgages do not have loan-level pricing adjustment. Conforming loans do.

FHA mortgages also require smaller downpayment requirements versus a comparable conforming mortgage. FHA calls for a minimum downpayment of 3.5%. Conforming mortgages often require 5 percent or more.

And, lastly, FHA mortgages are priced differently from conforming ones. Since 2005, the average FHA mortgage rate has been below the average conforming mortgage rate more than 50% of the time, meaning that an FHA mortgage’s principal + interest payment is lower than a comparable Fannie/Freddie loan.

Today, conforming mortgage rates are lower.

So, which is better — FHA loans or conforming ones? Like most things in mortgage, it depends. FHA-insured loans can be big money-savers or money-wasters. To find out which is best for you, ask your loan officer for today’s market interest rates and study the results.

With less than 20% equity, the answer is often clear.

Related posts:

1. 2011 Conforming Loan Limits : No Change From 2010
2. Why Now’s A Good Time To Consider An Adjustable Rate Mortgage
3. Mortgage Rates Are Going Up — But Not For The Reason You’d Expect

If you live in a high-cost area, keep an eye on your calendar. Effective October 1, 2011, temporary conforming loan limits will be lowered nationwide. Perhaps by as much as 14 percent.

These limits range up to $729,750 currently.

“Temporary loan limits” were enacted as part of the government’s 2008 economic stimulus package. At the time, the financial sector was entering its crisis and private mortgage lending had all but disappeared. Financing was scarce for both homeowners and home buyers for whom loan sizes exceeded Fannie Mae and Freddie Mac’s national $417,000 limit — even for those with excellent credit and income.

The issue was exacerbated in places like New York City where local home prices routinely topped $1 million. Buyers unable or unwilling to bring a substantial downpayment to closing (i.e. $600,000 or more) found themselves without financing.

The February 2008 package addressed this issue, using a math formula to change loan limits nationwide. The government assigned to each U.S. metropolitan area a temporary, new loan size limit equal to 25% greater than its respective median home sale price, not to fall below $417,000, and not to exceed $729,750.

Then, later that same year, the Housing and Recovery Act made “high-cost areas” permanent, but with a reduced 15% increase to median home prices, and loan sizes not to exceed $625,500.

These new limits take effect October 1, 2011 — one day after the temporary limits expire.

If you live in a high-cost area, therefore, take note. Mortgage rates may be low, but the amount of loan for which you qualify may be less than you expect, and you may find yourself ineligible.

Whether you’re planning a refinance or a purchase, keep an eye on the calendar.

The complete list of high-cost areas is available online.

Related posts:

1. 2011 Conforming Loan Limits : No Change From 2010
2. What The New Conforming Loan Limits May Mean To You
3. County-By-County: The 2009 “High-Cost” Conforming Loan Limits

Another quarter, another sign that mortgage lending may be easing nationwide.

The Federal Reserve’s quarterly survey of senior loan officers revealed that an overwhelmingly majority of U.S. banks have stopped tightening mortgage requirements for “prime borrowers”.

A prime borrower is one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

Of the 53 responding “big banks”, 49 reported that mortgage guidelines were “basically unchanged” last quarter. Of the remaining four banks, two said mortgage guidelines had “eased somewhat”, and the remaining banks said guidelines “tightened somewhat”.

It’s the second straight quarter in which fewer than 5 percent of banks tightened guidelines, and the first quarter in nearly 5 years in which the number of banks that loosened guidelines equaled the number of banks tightening them.

The easing in mortgage lending is a positive development for the housing market; and for buyers nationwide. Looser lending standards means that more buyers will be approved for home loans, and that should spur home sales forward across the region.

However, don’t confuse “looser standards” with “irresponsible standards”. It’s much more difficult to get financing today as compared to 2006. Delinquencies and defaults have altered how a bank reviews a loan application.

Today, underwriters are more conservative with respect to household income, total assets and overall credit scores. Even as compared to just 6 months ago:

• Minimum credit score requirements are higher
• Downpayment/equity requirements are larger
• Maximum allowable debt-to-income ratios are lower

If you can get approved, though, your reward is that mortgage rates are especially low. Since early-April, both conforming and FHA mortgage rates have been on a downward trajectory, and pricing is near a 6-month low.

Home affordability is at an all-time high, too.

Looser guidelines and lower rates should help fuel home demand through the summer months. If you’re in the market to buy, your timing appears to be excellent.

Related posts:

1. Mortgage Guidelines Starting To Loosen?
2. Mortgage Guidelines Don’t Tighten, But Don’t Loosen, Either
3. Fed Survey : Mortgage Guidelines Tighten Further, Freeze Out Would-Be Refinancers

When a mortgage applicants chooses an adjustable-rate mortgage over a fixed-rate one, he accepts a risk that — at some point in the future — the mortgage’s interest rate will rise. Lately, though, that hasn’t been the outcome.

Since mid-2010, conforming mortgages have adjusted below their initial “teaser” rate consistently, giving homeowners nationwide reason to ride their respective adjustable-rate mortgages out.

For example, this month, conforming 7-year and 5-year ARMs are adjusting near 3.011 percent based on the most common loan terms of 2004-2006. It’s because of how adjustable-rate mortgages are structured.

Adjustable-rate mortgages follow a defined lifecycle. First, the ARM’s mortgage rate is pegged; held fixed for a set number of years. This period ranges from one year to 10 years; periods of five and seven years are most common.

When the initial fixed-rate period ends, the mortgage rate then adjusts based on a pre-set formula. The formula is established by contract in the mortgage closing paperwork, and is commonly defined as:

(Adjusted Mortgage Rate) = (2.250 percent) + (Current 1-Year LIBOR)

Next, every 12 months, based on the same formula as above, the ARM adjusts again until 30 years have passed and the loan is paid is full.

It’s important to recognize that in the above equation, LIBOR is a variable so as LIBOR goes, so goes your adjusted mortgage rate. And because LIBOR is ultra-low right now, adjusted mortgage rates are ultra-low, too. LIBOR is expected to stay this way until the global economy has recovered more fully. Analysts predict a higher LIBOR by mid-2012.

So, if you have an adjustable-rate mortgage that’s due to reset this season, don’t rush to refinance. For at least one more year, you can benefit from low rates and low payments.  As for the next adjustment, though, that’s anyone’s guess.

Related posts:

1. As LIBOR Falls, Homeowners With Adjusting ARMs Get Lower Rates
2. Adjustable Rate Mortgages Adjusting To 3.000 Percent Right Now
3. Don’t Rush To Refinance That ARM — It May Be Adjusting To 3 Percent Or Lower