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
Logan, the lending standards should be even more strict. 3.5% down to buy an asset that is worth several hundred thousand dollars? Let’s get real, if housing prices decline further then all of those people who only put 3.5% down will have an option up their sleeve; it’s called walking away.
Nimesh
As you can see with this article, I agree.
I would raise FHA to 7.5% down payment and require at least 660 fico score. The chances of this happening is 0.
However, if the government is serious about getting the government out of the lending business they have to make government loans less favorable than the private sector would.
Logan, great info, thanks a lot…now you have to tell us the one about the horrid lending process…please?
Matt, I can write for a very long time on that topic. It just gives me a headache.
However, let me give you an example. I had a Dr. Client that was just doing a rate and term refinance. He had about a 72% LTV, so tons of equity, income good, credit good. The Loan went into the QC “quality control” Department. My borrower last name was Farson and there was a neighbor who lived a about 10 homes north with the last name Pearson. Mind that these are million dollar homes by beach. The Lender held up my loan for days because they wanted to make sure that Farson and Pearson wasn’t the same person. Imagine I had to tell my client this reason.
The lender said they wanted to make sure My client didn’t buy two homes in the same neighborhood. Even though their names were different, the syllable made the Lender suspicious. So after 3 rate extension $$$$$ they finally did enough investigation that they came to the conclusion that they weren’t the same person.