Buy A Foreclosure Home

Buying a home has been tougher due to the mortgage crisis and the resulting credit crunch. This article describes some of the consequences of the crisis including the discontinuance and temporary appearance of some loans.

The acute losses suffered by Wall Street firms, Government Sponsored Enterprises (GSE’s), and other investors across America led to credit tightening and the vanishing of the loan products that caused these losses. The principal culprits were the high-risk, 100% CLTV (combined loan to value) second mortgages on investment properties, most of which were transacted with Stated Income and Stated Income Stated Asset (SISA) documentation. This type of loan began disappearing two to two and a half years ago with credit tightening or discontinuance occurring quickly. Other high-risk loan categories that wrecked havoc were the Owner Occupied SISA and No Doc loans. These loans are no longer available from most lenders.

The struggle to mitigate high losses led to maximum loan-to-value (LTV) percentages being reduced for conforming full-documentation loans for homes in declining markets (areas where home values have gone down). The reduction was done with the hope that default rates would decrease, and is being lifted this summer under certain circumstances.

FHA-insured mortgages and conventional/conforming loans (non-governmental loans equal to or less than $417,000) and have been popular thus far in 2008. Both types of loans can be obtained by borrowers with low credit scores, but FHA mortgages may not be available if the borrower has a credit score below 580. However, a slightly lower down payment (higher LTV) is possible with FHA mortgages.

Here are three new (and temporary) mortgage programs:

FHASecure – this is an FHA-insured refinance loan that is available for homeowners that currently have a non-FHA adjustable rate mortgage (ARM). It was originally intended for people who defaulted, or would likely default, on their ARM when the rate reset; it was later made available to a wider demographic.

FHA High Balance – HUD (the U.S. Department of Housing and Urban Development) has established limits for its FHA-insured loans that vary by county. It has temporarily increased the allowable size of the loans that it insures. These higher balance loans may actually have better rates than smaller FHA loans.

Agency Jumbos – (also known as Conforming Jumbos). Jumbo loans are usually those that are greater than $417,000. Loans equal to or smaller than this amount are considered “Conforming” loans and have guidelines different than Jumbo loans that must be met in order to qualify. Through the rest of 2008, loans up to $729,750 qualify under the regular Fannie Mae and Freddie Mac conforming loan guidelines with the addition of some underwriting restrictions. The actual maximum loan amount depends on the county limits established by HUD and is valid only for 1-unit purchases (i.e., the maximum does not apply to duplexes).

You can view HUD’s county limits at: https://entp.hud.gov/idapp/html/hicostlook.cfm