Lanning Financial continues to offer mortgage services for our clients. Really for the first time, I’m starting to wonder for how long. We’re bracing for another round of mortgage industry compliance aimed at “protecting the consumer” and “protecting lenders.” As best as I can tell, it just translates to higher costs for the consumer, more headaches for small business owners, less money available for lending, and even fewer people in the industry who genuinely want to serve consumers.
Getting scarce loans will now be scarier
Kathleen Pender, in the San Francisco Chronicle, wrote last Sunday that “tougher rules mean loans could become more scare (sic), more expensive or both.” I just had to love the typo. Scary, scarce, and costly – just what the consumer wants in a mortgage, just what the consumer needs to have confidence in the lending industry. Uh, I don’t think so.
Here’s what’s happening:
- • FHA mortgage insurance premiums are going up to bolster FHA’s capital reserves. This could mean an extra $63/month on a $300K loan.
- • Loan limits for FHA and Fannie and Freddie loans will drop to $625,500 on October 1.
- • Fannie/Freddie fees to lenders will increase, a fee that will be passed along to consumers. On a $300K loan, this would amount to $750 to $1500.
- • Starting April 1, either the lender can pay a set fee to the broker for brokering the loan or consumers can pay the broker directly, but not both. If consumers couldn’t understand compensation or comparing lenders and loans before, they aren’t going to have it any easier. And anyone with a loan amount of $300K or less will likely be less well-served going forward. They often need the most help.
- • Lenders who securitize loans will have to retain a 5% interest in the portfolio they securitize. That means less money to lend.
- • As always, the wealthy don’t have to participate: There are lenders out there now who will lend money to a borrower who is willing to put money into an account with this lender equal to the loan amount, and not require the borrower to make a mortgage payment. For 10 years. So, if you’re wealthy and your income is lousy due to the economy, but you have the assets, the rules don’t apply to you. This is the epitome of the saying, “lenders only lend to those who don’t need the money.” We’ve come full circle.
Until the secondary mortgage market improves for lenders willing to do loans that are not sold to Fannie and Freddie, the number of loans available and the ease of finding them is going to get worse. If you want a good loan, you might think about getting it now.