Thursday, July 26, 2007

Lots of changes in mortgage approval process

Due to the upswing in delinquent mortgage payments in the subprime area and also, to some extent, in conventional loans, mortgage program offerings and underwriting standards are in a state of flux.

Many lenders have dropped out of the subprime market, and those that are left have tightened standards. They are dropping the two and three year ARMS which turned into nightmares for many unqualified borrowers. For the most part, only five year ARMs and 30 or 40 year fixed rate mortgages are available to subprime borrowers. Requirements for down payments are more stringent, as are rules for stated income loans. The least credit-worthy borrowers will have a tough time finding a lender, and they will not be able to find financing without a substantial down payment.

In the conventional market, there are still many loan programs available, but lenders are starting to qualify interest-only loans on the fully amortized payment amount, and are raising their standards for loans to borrowers with middling FICO scores. 100% financing is available, but at a higher price, and more lenders are requiring impound or escrow accounts (wherein borrowers pay their property tax and homeowners insurance along with the monthly mortgage payment). Many lenders are showing their preference for fully documented income and asset information by no longer allowing W-2 wage earners to be approved for stated income loans.

New underwriting rules are being announced almost daily from one lender or another, so if much time elapses between prequalification and actually submitting a loan package to a lender, the terms or pricing may change.

Wednesday, July 11, 2007


Commercial property in Silicon Valley has rebounded after a prolonged downturn which began in 2001. Vacancies in all classes of commercial real estate are down sharply, and rents are up. Business owners and investors can look at a vastly improved (and more realistic) economy in Santa Clara County, California, and see strong indications for purchasing.

There are now many lenders interested in making small ($100,000 - 2,000,000) commercial loans. More lenders means more competition for borrowers, so it really makes sense to have someone shop for you. Loan programs are available for fully documented borrowers, stated income and even "no docs". Many lenders have relaxed the traditionally higher down payment requirement for commercial property, and are willing to loan with borrowers only putting down 10% or even as low as 3%.

Commercial loans are underwritten differently than residential mortgages, and interest rates depend on a lot of variables. To obtain the lowest rate and most appropriate financing, it's best to have a licensed mortgage professional research the gamut of lenders for you and help you through the process.