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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127680  
Subject: Re: Here's what to expect... Date: 10/14/2012 8:14 AM
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Hey, AJ, believe the anecdotal evidence coming from the trenches or don't believe it, as you wish.

My personal anecdotal information from the trenches (1 recent refi of my current loan, 1 traditional purchase in progress for me, and 1 traditional purchase in progress for my BF, all at least 20% equity/down payment) tells me that for those who are well-qualified, getting a loan can still be pretty quick and easy. In fact, my BF asked to have his closing a week before originally specified in the contract, and the lender was easily able to accomodate that request. Heck, I don't even have to have my current house on the market or under contract, much less sold, in order to qualify for my new, significantly larger mortgage, because even with both mortgage payments (and no other debt), I'm still below 25% DTI (gotta love the low interest rates). And that's even with the processor only counting my easily documented monthly salary income, not the income from bonuses at my job, or my investment income, because she said it would be easier if we didn't count that and it wasn't needed for me to qualify.

And we haven't had to supply any more information than I've previously had to supply for prior full doc loans, although it is more documentation than I had to supply for loans received during the bubble. In fact, in some ways I've had to supply less documentation - I don't have to supply evidence of my 401(k) or IRA assets, for instance, and I've had to supply that for some full doc loans in the past.

As 30-year rates hit historic lows, some borrowers are hoping that lenders will be loosening their underwriting standards and that it will be easier to qualify for a mortgage. They're hoping in vain: industry data shows that controls have gotten even tighter. I don't remember where I saw the stat, but the average credit score on new loans closed in August 2012 was 750, nine points higher than a year prior. Fannie and Freddie borrowers' scores averaged 763 for that same period, and considering that fewer than 22% of Americans have credit scores over 749, there are a lot of people out there who are highly unlikely to qualify for a loan. Lenders also appear to be requiring larger down payments, with the average Fannie and Freddie borrower putting down 21% (to put that in context, the median down payment in 2005 was 2%.) Originators hope that eventually lenders probably will relax about upcoming regulation, be less fearful about costly buyback demands from the GSEs, and strip away some of their extra credit-risk fees. The key word here, though, is "eventually."

Well, this information is much more relevant to the discussion of "What to expect when applying for a loan" than the discussion of the length of time a short sale is taking. Which was my point, when saying that the short sale example wasn't relevant.

I do agree that lending standards have tightened significantly, and in some cases, the pendulum seems to have swung too far toward the 'tight' side. But that's what always happens when credit markets suffer shocks. Happens in the credit card market, the auto finance market, the auto leasing market, the small business lending market and the student loan market. And because the swing in the mortgage market during the bubble was so far to the 'loose' side and stayed there so long, I'm not surprised that there has been a very significant swing to the 'tight' side, and that it's staying there for a long time. In order to revert to the mean, there has to be some offset of the bubble.

There has been some evidence in other credit markets that lenders are starting to loosen up http://blogs.wsj.com/deals/2012/06/28/lenders-loosen-up-on-c... http://www.bizjournals.com/phoenix/print-edition/2012/09/14/... and http://articles.marketwatch.com/2012-06-27/finance/32426285_... I would expect that the mortgage lending standards will also loosen up again, but that it will take a while because many lenders/investors in that space are still dealing with the consequences of the bubble, so they aren't willing to take more risk on yet.

AJ
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