GETTING A MORTGAGE IN 2009: BUYING A HOME IN THE NEW WORLD OF FINANCING May 5, 2009

Recent underwriting changes have made mortgage lending decisions look more like the 1990 ’s which makes getting a mortgage harder.  These new policies should inject some needed sanity into the lending process and make lenders and borrowers more secure which will help the real estate market and the economy as a whole.  Expect to be asked about your credit, income, down payment and the value of the house and if the answers are not sound your loan request will be denied.

In response to the current lending/foreclosure crisis lenders have seriously increased the amount of paperwork and qualifying requirements needed to get a new mortgage.  Today a lender make an informed decision on the qualifications free of the need to re engineer the American social contract.  Just like the pre-Bush days a borrower needs to show good credit, a reasonable down payment and the ability to afford your mortgage payment based on your income.  Let the wailing begin.  Didn’t groups like ACORN and politicians like Barney Frank declare that owning a home is a basic constitutional right even if you can’t afford it?  Lender’s refusing to lend based on sound underwriting practices, it almost seems un- American!  But what about all the defaulting homeowners and all the people who still want to be homeowners even though they can’t afford to, doesn’t the Government owe these people something?   I’ll leave fixing those problems to the next Obama bailout but for now lets hope that the new banking rules make sure that the mistakes of the 2000’s are not repeated again.  Hopefully a return to sound lending practices will prevent the large scale destruction caused by the wild lending practices of the past.
From 2002 until mid 2008 getting a mortgage to purchase a new home was relatively easy as government policies were crafted to helped more Americans to become homeowners.  Fannie Mae and Freddie Mac loosened underwriting guidelines and introduced new products with lower credit score, income and down payment requirements.  Unfortunately the new underwriting rules coupled with an increase in exotic variable rate products combined with a general weakening in home values lead to a perfect storm for many homeowners.  With lowered property values owners who used low down payment variable rate loans found themselves unable to take advantage of low interest rates as they did not have enough equity in their homes to allow them to refinance.  Unable to refinance and with the interest rate on their adjustable rate mortgages increasing from the low initial rates mortgage payments increased.  Unable to refinance and without equity many homeowners found themselves unable to afford their payments and unable to sell their homes.  The downward spiral began and the foreclosure crisis struck.  Banks found themselves with thousands of bad loans and lost billions of dollars and many stopped writing loans.  Without writing new loans the struggling real estate market came to a halt as potential buyers could not find a place to get their loans.  It came back to the federal government to realize that its goal of encouraging homeownership without regard to ability to pay was a misguided policy.  While money to lend was made available to banks it came with a general tightening of underwriting requirements.  Now your lender wants to make sure before you get a loan that

1) GOOD CREDIT – – no more crazy products which sought to qualify every deadbeat for a loan.  Once again your banker can say if your credit is bad you are not a good risk so maybe you should get approved for a mortgage.
2) INCOME THAT CAN BE VERIFIED – no more stated income products where the borrower just signed a paper saying how much he made.  Just like in the old days, your lender wants to see actual tax returns, pay stubs and confirm with your employer that you are gainfully employed and make enough money to pay the loan back.
3) A DOWN PAYMENT – no more borrowing the purchase price plus the closing costs.  The days of 106% mortgages and people getting into a house for NO MONEY DOWN  are over.
4) TOUGH APPRAISAL STANDARDS – the bank appraiser can’t do the mortgage broker any favors.  No more exceptions or using dissimilar comparable sales.  The new (old) rules make sure the appraiser uses the best up to date valuations and any questions lead to lower appraisals.
Hopefully with a return to sane underwriting rules lenders will feel secure that the loans will actually be repaid and in the event of a default a conservative appraisal will not expose a lender to thousands of dollars in losses. I can only hope that ACORN and Barney Frank leave mortgage lending to lenders and their social engineering skills are focused on less costly areas.

Steven Decker is a New York Personal Injury attorney specializing in New York real estate law , New York business law, and New York franchise law. You can visit his Law Firm Decker, Decker, Dito and Internicola website by clicking here, download his FREE New York Car Insurance book, or call him at 718-979-4300 or 1-800-310-5520 for a free case analysis.

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