The Credit Risk At The Mortgage Guarantor Market

In recent days, stakeholders have come nearer to agreed on particular aspects of housing finance laws reform. However, many differences still exist. Lots of home bill bills are currently pending in both houses of Congress and there is still deadlock on the tax provision for home mortgage aid. Although, it's expected that at some point, the enacted home bills will be voted out of committee and to the last house of Congress. There is a need therefore for the home sector to be well prepared for the changes that are to come.

The House and Senate recently passed a Joint Resolution (JSR) suggesting a number of changes in the FHA Home Loan Program that will ultimately influence the housing industry. 잠실op The House has passed the joint resolution with a vote of 401-5; the Senate has not passed the same resolution. The Joint Resolution is focused on changing the FHA's Home Affordable Program (HAP) by increasing certain housing features, reducing or eliminating unnecessary fees, and loan restructuring applications. The upgraded home characteristics will, if passed, affect the housing fund activities of FHA insured borrowers.

The most publicized quality of the Joint Resolution is the supply which will enable FHA insured homeowners who use a manufactured home or a Yurt to be treated as other residential properties. Many housing experts believe that this change, if it is passed, will cause the loss of many manufactured homes and manufactured home owners into the FHA. Although, this issue has not been addressed yet. For now, homeowners who use a Yurt or a manufactured home which is subject to this MMCAD program may keep on using their houses as they are in those programs.

The second proposed change is to increase the maximum loan amount for first time home buyers and reduce the rate for adjustable rate mortgages or ARMs. Currently, there's no limit on the amount that can be borrowed and there's absolutely no limit on the rate of interest. Manufactured housing investors have a difficulty when rates rise because this directly reduces the liquidity of the investment. ARM's were designed to be an easy, low cost way for families to have residential property. When housing prices fall, so does the value of ARM's; hence, they aren't a fantastic investment.

The third proposed change is to permit FHA Guaranteed Loans to include unconventional residential loans such as those from credit unions, co-ops and small lending institutions. Currently, FHA does not make any agreements with these lenders and does not accept Guaranteed Loans. There are about thirteen different co-ops and credit unions with Guaranteed Loan programs. These companies offer a variety of different housing finance options for homeowners.

The fourth change would be to remove the current revenue verification procedure and replace it with an automated income verification system that's readily available for FHA guaranteed borrowers. Presently, the income confirmation is utilized to ensure that the application is consistent with the specific consumer criteria of the Housing Finance System. This is also used to determine whether or not a borrower can qualify for the mortgage according to their current earnings and employment.

The last step in this investigation is to analyze the credit risk of each guarantor. The current guidelines allow FHA guaranteed borrowers to borrow cash from all mortgage guarantors, such as commercial real estate lenders, unless otherwise stated. According to the current guidelines, the three most credit risk groups will be the higher risk, medium risk, and also the low risk. The criteria for each credit risk class are based on the present financial and creditworthiness of each guarantor's business and credit history.

As we've observed, the present guidelines are insufficient in regulating the activities of mortgage guarantors. To successfully navigate the current mortgage guarantor marketplace, it is very important to mortgage agents and brokers to understand the several differences in the credit risk classes and how these differences relate to the various programs offered by the different guarantors. Mortgage brokers and agents need to have an understanding of how to assess the creditworthiness of mortgage guarantors and then build an application package that best fits the requirements of the debtor and the current real estate market. With an understanding of the current mortgage guarantor guidelines can help mortgage brokers and brokers make sound lending decisions during the current weak economic times.