The Real Estate Geeks On: 1 In 8 Banks Tightened Prime Mortgage Standards Last Quarter

The Federal Reserve says that financial markets "remain supportive of economic growth". Residential mortgage guidelines, however, continue to tighten.

If you've applied for a home loan recently, you probably felt it; extra scrutiny on income, assets and credit scores, among other things.  The hard proof of the changes, however, can be found in the Federal Reserve's quarterly survey of its member banks.

Every 3 months, the Federal Reserve asks senior bank loan officers around the country whether their respective banks' "prime" residential mortgage guidelines tightened since the last survey.

For the period January-March 2010, 1 in 8 banks surveyed toughened their qualification standards. 

Only 4% loosened them.

When we account for the Fed's survey in conjunction with new underwriting standards from Fannie Mae and FHA, it's clear that getting approved for a mortgage in 2010 is more difficult than at any time in recent memory.

Today's homeowners and home buyers have taller hurdles to leap:

• Minimum FICO scores are higher
• Downpayment/equity requirements are larger
• Debt-to-Income thresholds are smaller

In other words, mortgage rates may stay low throughout 2010, but that won't matter to homeowners failing to meet the new, minimum eligibility standards as set forth by the lenders.

If you're among the many people wondering if now is the right time to buy or refinance a home, remember that -- along with a probable increase in mortgage rates -- mortgage approvals are getting more scarce.

The best home price or mortgage rate in the world won't matter if you're ineligible for financing.

For all buyers: One thing to keep in mind once you are pre-approved for a loan keep in constant contact with your lender. This will give you the upper hand in knowing if a change will or will not effect you and your ability to purchase. Also keep them 100% updated with new paycheck stubs and bank statements so they are ready to go when you get an offer accepted. One last note on this whatever you do DO NOT spend any money on anything you absolutely can not live without before speaking to your lender.

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March Pending Home Sales Point To Stronger Spring Market

The Pending Home Sales Index moved higher in March as home sales were spurred by low mortgage rates and an expiring tax credit.

A "pending home" is a property that is under contract to sell, but not yet closed.

March marks the second straight month in which the Pending Home Sales Index improved after a series of weak showings this past winter.

March showed a 5 percent increase over the month, but the Pending Home Sales Index is still off its October 2009's peak.  October 2009 is a comparable period to March 2010 in that it marked the 1-month deadline before the home buyer tax credit's initial expiration date. The credit was later extended to April 2010, of course.

That said, March's surge in sales is being felt on the street.

Home buyers no doubt noticed the change in activity. Around the country, anecdotally, multiple offer situations were more common last month and "right-priced" homes tended to go under contract quickly.

The increase in March's Pending Home Sales is diminishing the nation's home supply which, in turn, should cause prices to rise in most markets.

Today's buyers should consider making an offer sooner rather than later.  Looking at the data, it appears the best time to have found a "deal" on a home may have been in February.

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Fannie Mae Tightens Guidelines On ARMs And Interest Only Products

For the first time this year, Fannie Mae announced significant updates to its mortgage underwriting guidelines.

The changes include newer, harsher ARM qualification standards, the elimination of a once-popular loan product, and tighter rules for interest only mortgages. 

Fannie Mae made its official announcement April 30, 2010.  The changes will roll out to home buyers and homeowners over the next 12 weeks.

The first guideline change is tied to ARMs of 5 years or less. 

Mortgage applicants must now qualify based on a mortgage rate 2% higher than their note rate.  For example, if your mortgage rate is 5 percent, for qualification purposes, your rate would be 7 percent.

The elevated qualification payment will disqualify borrowers whose debt-to-income levels are borderline.

The second change is Fannie Mae's elimination of the standard 7-year balloon mortgage.  Balloon mortgages were popular early last decade.  Lately, few borrowers have chosen them, though.  Mostly because rates have been relative high as compared to a comparable 7-year ARM.

And, lastly, Fannie Mae is changing its interest only mortgages guidelines.

Effective June 19, 2010, Fannie Mae interest only mortgages must meet the following criteria:

1. The home must be a 1-unit property
2. The home must be a primary residence, or vacation home
3. The borrower's FICO must be 720 or higher
4. The mortgage must be a purchase, or rate-and-term refinance. No "cash out" allowed.

Furthermore, borrowers using interest only mortgages must show two full years of mortgage payments "in the bank" at the time of closing.

Earlier this year, Fannie Mae-sister Freddie Mac announced that as of September 2010, it will stop offering interest only loans altogether.

Between Fannie Mae, Freddie Mac, the FHA, and other government-supported entities, the U.S. government now backs 96.5% of the U.S. mortgage market.  So long as mortgage default rates are high, expect approvals for all borrower types to continue to toughen.

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