For years, I have watched the list of lenders that go out of business grow at http://ml-implode.com/. This list has been tallied since late 2006 and today the list is up to 383. Four years from the beginning of this list, we are still feeling the effects. The pain that this crisis has caused is not yet a healed wound type pain, it is still an “open wound”, but in my opinion, it is healing.
Some of the most recent changes in mortgage that have a relation to the mortgage crisis are the changes to come this Summer in allowable seller contribution that FHA will allow. Seller contribution is the amount of money that the guidelines within a loan will allow the seller to payof the buyers closing costs. For ever, the amount was 6% and now it is dropping to 3%. If the sale amount is $100,000, and the seller contribution maximum is 3%, then the FHA loan guidelines will allow the seller to pay $3,000 of the buyer’s closing costs. This change is not effective yet, but anticipate it for this summer sometime. Ultimately, it will require FHA applicants to have more cash in the transaction before they can qualify.
To see this aforementioned list, you can go to the official Implode-O-Meter.
Another one of the major changes that have affected the lending business lately is the increased premium rate that FHA has made on Up Front Mortgage Insurance. Since the beginning, an FHA borrower would have to pay 1.75% of the loan amount up front, either pay it in cash or roll it into the loan, when they got an FHA loan. If your loan amount was $200,000, then you paid $3,500 that went into a fund or pool of money that helps support the lending establishments for when their borrowers default. Today that amount is now 2.25%. In that same $200,000 example, the premium would now be $4,500…$1,000 higher.
It really feels like society is no longer on high alert with the housing fall and mortgage crisis, but major changes are still evident in our very recent past and more to come. As long as we continue to see major changes like this and the shadow inventory rising, we should expect to live within a tough housing market and a progressively stricter lending environment for a few more years to come.