March 30, 2012 2:09 PM
You’re a housing reporter, Ma’am. You know how it is. People listen to you. Lots of people listen.
Don’t reporters report facts, Ma’am? Just the facts? So, you won’t mind if I ask you a few questions?
I won’t take much of your time.
Twice this week, you made the statement on CNBC that Mortgage lending standards are too strict. We’ve heard that opinion before. We’re familiar with that claim. I’m just here to investigate a bit further. You won’t mind, I hope, Ma’am? Like I said, I won’t need much of your time. I’ll be brief.
Right now in the United States, what a person needs as core requirements to buy a home is:
- 620 FICO Score
- 3.5% Down Payment
- Income verified, which shows a financial capacity to own a home
These are the simple facts. They are not strict guidelines. They make common sense. And, interest rates on mortgages have been at historic lows for over two years. But still, we don’t have enough qualified homebuyers meeting these guidelines to absorb the true current inventory.
What do you make of that? I will tell you what I make of it. We are still trying to work through the trouble of too many exotic loans that lax standards brought.
Here’s another thing. If it was up to me, I would raise the FHA down payment requirement to 7.5% and the FICO requirement to 660 to inject discipline into the housing market. FHA was not designed to be the primary loan for Americans to purchase homes. FHA capital reserve ratio is horrid. Do you know what that means, Ma’am? I’ll tell you what it means. It means if we have another recession in the next five years, you can kiss the 3.5% down payment goodbye because FHA will be in big financial trouble.
So, back to the reason I’m here, Ma’am. I have just a few questions if you don’t mind. Won’t take long to answer them. I’m sure there are other folks, folks like me, who’d like to know.
- Which guidelines, which you say are too strict, do you want to see changed for home purchases?
- Do you want to bring back stated income loans?
- Do you want to abolish appraisals for home purchases?
- Do you believe there should be a no down payment option for home purchases?
As you can imagine, I believe the Lending standards are just fine the way they are. Yes, the lending process is horrid as I deal with crazy conditions from lenders every day. However, to change the core requirements just to get more home buyers into the market is very distributing in my view.
Logan Mohtashami is a senior loan officer at his family owned mortgage company AMC Lending Group, which has been providing mortgage services for California since 1988. Logan is also a financial columnist for Benzinga.com and contributor for BusinessInsider.com