Tuesday, March 4, 2008

Just When You Think it's Safe...

Right after I explained all of the zero-down financing options available to would-be homebuyers last week, I was greeted Monday morning by several memos from mortgage insurance companies effectively stating that conventional 100% loans are probably going the way of the dinosaur soon.

To back up, all conventional loan applicants who do not have a 20% down payment are required to have mortgage insurance. When you apply for the loan, the lender approves the loan subject to the mortgage insurance company approving your loan as well, thereby mitigating the lender’s risk.

For a while now, several markets have been listed by mortgage insurance companies as “declining.” Currently all of California, Nevada and Arizona are on that list. For a while Bend and Medford, Oregon have been on these lists too. But the latest list also includes the Portland metropolitan area (meaning Clark County, Washington as well). Seattle is still hanging tough (though Tacoma is on some lists).

But just to keep things confusing, every mortgage insurance company puts out its own list, and Portland isn’t on all of them. Neither is Bend or Medford. (Sorry to those it affects, but NV, CA and AZ are on all of them.)

The purpose for these lists is that mortgage insurance companies will no longer insure properties in declining markets to 100%. So as of today, we may be able to find a no-down conventional loan for someone (most lenders are still doing them, but as I said, subject to being able to insure them), but for how long depends on when the remaining mortgage insurance companies decide we’re in a declining market. Soon it might be that people will need at least a 3% down payment for conventional financing.

The good news is, HUD has thus far been unable to ban down-payment-assistance programs on FHA loans. Even better, FHA loan limits are expected to increase by as much as 30%. So I have a feeling we’re going to be doing a lot of government loans in the coming months.

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