Today's Low Mortgage Rates Aren't for Everyone!

Mortgage rates have been historically low for several months, even years. According to Ben Bernanke, the Federal Reserve chairman, they could remain at these low levels for another 18–24 months. While these rates are great, they aren’t for everyone. Taking advantage of them takes preparation and patience.

It has been well publicized that the cause of the "mortgage meltdown" was the proliferation of easy-to-get mortgage loans. While the fingers of blame may point in many directions, it has resulted in an avalanche of rules and regulations from the U.S Government that is ongoing and ever changing. The motives behind the increased regulations are to protect consumers from less-than-worthy lenders that may still exist. Unfortunately, the implementation of all these new regulations puts the consumer through the wringer in the mortgage loan application process.

Let me clarify this with some background on the two main sources of mortgage money. The first is your local bank or credit union, which lends directly to the borrower from its own funds. If these institutions keep the loan in their own portfolio, they can be more flexible, as long as they meet prudent lending standards and traditional FDIC requirements. The other source is the secondary market, which is represented by loan originators whose sole purpose is to originate the loan to you and sell it through channels that eventually go to Wall Street. Today the secondary market is comprised of FHA (HUD), Fannie Mae and Freddie Mac.

Both avenues are fine if you understand the details. The secondary market players have set strict guidelines for originators and low rates for borrowers, but the secondary market comes with some challenges. After the loan is originated and is funneled to one of these secondary market agencies, two issues commonly arise. If there is a discrepancy to their guidelines or process they can make the originator buy the loan back. This “buyback risk” has created the second challenge: Qualifying for these mortgages has become much more complex and detailed.

It used to be that if a borrower had a minor deficiency (income or minor credit issue) but was strong in another area (assets, job stability, minimal debt, etc.) a lender could compensate one for the other, looking at the whole profile. Portfolio lending banks can still do this, but for loans heading to the secondary market the “risk of buyback” is clouding the picture. The underwriting process of evaluating income, credit and assets has become an audit process dwelling on the minutia. Borrowers are being asked to explain details as small as where deposits in their checking account came from, variances in their paychecks and credit report inquiries.

If you are looking to take advantage of these current rates, be sure your lending officer is well versed in the current criteria and reviews your documentation very closely. Having your documentation in order and being patient can increase the success of your loan experience.

We are all in it together. Being well informed and working together is the key.

Peter Hart
V.P., Mortgage Department Manager
Ojai Community Bank

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