(Birmingham, AL) The most recent fallout from the mortgage crisis that began last summer is now rearing it's ugly head in the form of Fannie Mae approved loans that cannot get insured by Mortgage Insurance companies.
Mortgage insurance companies, spurred on by recent recommendations in congress, are tightening their credit standards for providing insurance. Without mortgage insurance, borrowers are forced to provide a down payment equal to 20% of the purchase price of a home - something very few home buyers can afford to do. Just this past week, mortgage insurance companies raised their credit score requirement to 620, effectively cutting out 50% of home buyers from the home buying market. The move came unnanounced and without any notice to lenders or to Fannie Mae.
In fact, lenders are still approving loans that meet Fannie Mae guidelines for purchase in the secondary market, but then find, just before closing, that there is no mortgage insurance available to insure the loan. Without insurance on money loaned that is over 80% of the value of the property, the loan is declined. Buyers that have a "loan approval" from a lender should immediately ask their lender if the lender can get their loan insured. Otherwise, homebuyers could spend hundreds and even thousands in the days leading up to the closing only to find, at the last minute, that loan insurance is not available to them.
This move by the Mortgage Insurance companies will only add fuel to the fire that is the current US Housing market. By effectively eliminating more home buyers from the market, at a time when the housing market needs more buyers, not fewer, the mortgage insurance companies have put another nail in the coffin of the housing market. The resulting effect on the market will be an even bigger drop in home prices. The immediate impact of this new policy will be felt quickly in the market, not over time as has been the case with loan defaults, adjusting loan interest rates, and foreclosures.
Be forewarned: if you are a seller, drop your price now before the market itself forces an even larger price reduction. If you are a home buyer, your credit score must be above 620 or you cannot get a loan.