Under 740? Ask for an improved credit score for Christmas

With all the subprime loan problems that have hit this country this year, (see my earlier blog entries) we are starting to see new guidelines for obtaining a home loan. My friend, Mickey Carlton wrote me about one of the changes that we will see in the next few weeks. To understand what he shares below, I'll explain a little about the home loan process.

When you go to a company to get a home loan, they are considered the primary mortgage market. After closing your loan, they are usually sold to the secondary mortgage market, including Fannie Mae and Freddie Mac. When they put out new guidelines, everyone has to follow them, or they cannot sell their loan. Given that background for those of you who are new to the market, here are Mickey's words:

Historically, an approval by Fannie Mae or Freddie Mac's proprietary software meant that a borrower qualified for "good rates" regardless of his or her credit scores. The computer software considered the scores along with loan amount, income and employment history, and liquid assets. An approval obtained by the 640 credit score applicant was as marketable as an approval by a 740 credit score applicant.

This is no longer true. The agencies are changing their pricing models on loans delivered after March 1, 2008. A loan that closes in January might not make it to the agency until March so most banks are already adjusting their pricing. In the very near future, buyers are going to be priced depending upon their credit scores. Lower scored borrowers may be priced out of the Fannie/Freddie market even if they qualify for a Fannie/Freddie program. The answer, in many cases, will be FHA. There are no more subprime loans and Fannie/Freddie is making it harder on the marginal borrowers to obtain a "good" rate.

Bottom line: you need a credit score of 740 or higher for a good interest rate loan. If you have a few "dings" in your credit, contact me at http://www.audreybutlerhomes.com/ and I can connect you to someone who can provide guidance to help you.

home prices will continue to remain low

At the Mortgage Bankers Association convention going on in Boston this week, the experts told attendees that the national home prices are going to decline in 2008. Thomas Lund, the executive vice-president at Fannie Mae says that prices will flatten in 2009, before gradually rising in 2010.

Any questions? e-mail me through my website at: www.audreybutlerhomes.com

Continuing weekly update from Mickey

As Mickey promised, here is the update on the mortgage rates this week:

Earlier this week, I promised an update on mortgage rates after the news of the Fed's half point short-term rate reduction had time to work its way into the financial markets. As feared, anyone expecting immediately lower long-term interest rates has to be disappointed. Long-term credit markets have worsened somewhat and are worsening further as this message is being typed. Today's early rate sheets indicated 30 yr fixed rate conforming loans in a range of 6.375% to 7.00% without discount points. As always, specific borrowers would be treated in accordance with loan size and their individual credit worthiness. At the moment, we are seeing a series of inter day repricing from our investors. It appears that the lower end of the above-stated range will move to 6.5%.

There is a growing likelihood that Fannie Mae and Freddie Mac will soon increase the current "conforming loan limit" to some yet-to-be-determined amount above the present $417,000. Best bet is for something in the neighborhood of a 10% increase (as reported in today's Wall Street Journal). This would put the new limit around $460K. This would allow some relief to "jumbo" borrowers.