Lenders lower the bar as business slows
By Jeff Lazerson
After last week’s fireworks, lenders across the land find themselves starting the second half of 2017 hurting for more loan volume, more transactions.
It’s a predictable, time-honored response when this industry gets hungry. Push the envelope. Get ready for a new race to the bottom. Open up that credit box so that more people can qualify. Hint: Whenever you read about responsible lending, it’s really code for lowering the bar.
Look at it this way: The lending slump may very well be your gain. So, let’s take a look at some examples of change that just might get you approved when you were previously denied.
As of July 1, many civil judgments and tax liens will no longer show up on your credit report. So, if you find yourself in that situation, re-run your credit scores by way of a residential mortgage credit report (the only reports and scores that lenders accept). Chances are you will find that your FICO scores rise nicely. This often means more favorable loan pricing.
Outstanding debts don’t go away just because they may not show up on your credit report. You will likely have to settle any outstanding judgments and liens that the title insurer finds when it does a records search on you.
Some lenders are offering conventional financing with just 1 percent down! The lender provides you with the other 2 percent down for a total down payment of 3 percent. So, if you are short on the down payment, here you go.
It deserves noting that the FHA Nehemiah loan program (wherein sellers made down payment and closing cost contributions) was banned in 2008 because of huge default rates. Make sure you can afford what you are getting into.
As of July 29, disputed items on your credit report may not get in the way of you receiving Fannie Mae credit approval. In addition, you may not need to provide any supporting documentation that the dispute was a creditor error, not you, that caused the original bad marks on your credit report. This may be your work around to loan funding. Oh, my word.
Subprime and hard-money loans also are making a gradual comeback, but we no longer call them that.
We call them near-prime or non-QM (non-qualified mortgage rule). These are the loans outside of the A-paper box with varying credit or income conundrums. Surprising, the interest rates and points continue to narrow the gap, getting closer to typical conventional rates and fees. I’ve seen non-QM mortgage rates as little as 1 percent higher and points as little as 1.25 percent more than A-paper.
Examples: (1) You may be able to get in with as little as 10 percent down with recent bankruptcies, foreclosures, short sales and the like, (2) Income? Hah! Not to worry. Cough up a year or two bank statements showing enough deposits and maybe we’ll call it good.
Don’t assume you can’t qualify, regardless of your scenario. The credit window is wide open as we enter the second half of 2017.
Jeff Lazerson - Mortgage Columnist since 2011