In an attempt to dispel some of the (justified) negativity surrounding the Charlottesville real estate market, I thought I’d ask some of the lenders with whom I regularly work for their insight. Part of my job is knowing stuff, another is knowing whom to ask. With that preface, I asked Matt Hodges with Compass Home Loans, Carl Heimlich with C & F Mortgage and a third person who was not permitted to comment on the record. (that’s what you get for asking permission). *
From the anonymous lender:
Just for your information, we are still doing all of these things and rates are very good. I have been surprised at the people who do think they cannot obtain financing, so I think it is great that you are trying to alleviate the concern. To much negative press. I am all for stressing the positive.
Can people qualify for loans right now?
Yes, but Fannie Mae and Freddie Mac have released more stringent underwriting requirements. Fannie released their most recent version on Sunday. Further, mortgage insurance companies are not guaranteeing loans with greater than 55% debt ratio. Finally, lenders are overlaying the Fannie or Freddie automated underwriting results with more restrictive debt ratios. For example, for loans that do not require mortgage insurance, one of my lenders has a 55% debt ratio max; another has a 65% max. For the conservative buyers out there, this may seem like outrageous numbers and I agree. There are many who try to buy and borrow more than they should.
There are still plenty of clients qualifying for financing. If you can document your income, assets, employment and have moderate to high credit you should be fine.
Is there money available?
Citizens and Farmers Bank who owns C&F Mortgage is still funding loans. We have had no interruption of funds.
Matt: As a broker, I have many sources of mortgage money. None have delayed or failed to fund a loan on time. One of my lenders “priced themselves out of the market” for about 7 business days. This simply means they knew that their offered rate was not competitive and I suspect they were having liquidity problems, but no loans in process to close were affected.
Are you writing loans?
Matt: During third Quarter 2008, we were lower than 2007 in July and August, but much higher in September – some of which were refinances. Overall, purchase loans are off significantly.
Despite all the doom and gloom you see in the media, I am actually up from last year. We are writing loans once again the biggest difference is all loans are full documentation all the way up to 100% with no mortgage insurance.
What is happening with interest rates?
We are on a roller coaster. The Federal Reserve, the Treasury Department, FDIC, Congress and the President are all desperately trying to stave off a collapse of the financial markets. Banks are not necessarily afraid of home buyers, they are afraid of each other. They are afraid of bank runs and the ability to repay those overnight loans. The overnight rate to lend bank to bank is higher than 30 year fixed rates. Where rates will ultimately go is unclear. I have heard mid 5% range; I have heard in the 7% range. No one knows. How risky is a mortgage backed security versus an investment in an American insurance company or an emerging growth fund in India or in oil futures? Loans will be priced according to risk and reward. That said, current rates much better than when I bought my first house in May of 1997, when my rate was 8.25%. Rates in the low 6’s and high 5’s are attractive and will allow many homebuyers on the sidelines to afford their new home.
This is probably our biggest dilemma at the moment. Due to the volatility of the mortgage bond market and the stock market rates can adjust up or down several times a day by as much as .50% however if you are in the market for a conventional 30 year or a FHA loan rates hare about the same as they have been for the past two years. My recommendation is that if you find a house lock in immediately. If rates go down typically you can relock at the lower rate at no additional charge.
* Note that I requested these answers on Thursday. Did any more banks fail this weekend?
Update 15 October 2008: Great minds think alike. Real Cville Bubble Blog has a good post on mortgage availability in the Charlottesville area.