NJ Mortgages Harder To Get

There was an interesting article in The Record about the every-changing rules in New Jersey for obtaining a mortgage. The article is called Forget about easy mortgages. The article discussing how much tighter the lending standards are - and are expected to get ever tighter in the future. Down payments of at least 3% are require. Piggy-back loans have disappeared. The minimum credit score is now 580 up from 530. And anyone putting down less than 10% requires full documentation.

A first-time home buyer, [Steve] Sost, a partner at a public relations firm, visited a lender he was familiar with to see if he qualified for a mortgage. After submitting voluminous paperwork including his bank statements and credit reports, he found that he qualified.

That sounds like a traditional full document loan. I guess it is better when the bank just checks your FICO score and takes the homebuyers word for everything elese. Oh, those wonderful liar loans.

... According to some lending experts, national lawmakers who were initially too lax, giving out loans to practically everyone, are now having a knee-jerk reaction, tightening the rules to bring the market back up to par.

"I can't disagree with the new rules, but it just makes it more complicated for people," said Glenn Durr, president of NJ Lenders Corp., a privately owned licensed residential mortgage banker in Little Falls. "Now someone with a credit score of 620 has to pay more than someone else with a credit score of 800."

According to Durr, a mortgage lender, the number of clients who were unable to pre-qualify has greatly increased at his business in the past year due to the elimination of many mortgage products, particularly those with less than full income verification and lower down payments.

Because of increasingly poor performance, particularly by subprime borrowers, there has been a tightening of credit standards in all segments of the mortgage industry in an effort to make mortgage-backed securities more appealing to investors, he said.

"Guidelines change every day," Durr added. "We've seen more changes in these past six months than we saw in 16 years at this business."

Now the lawmakers are approving loans? While they may have loosened some of the standards banks did not have to give to readily give out liar loans. We know from the Chase Memo called Zippy Cheats and Tricks with steps to avoid any triggers that would prevent loans. I guess that was also the lawmakers fault. The lenders are made because the tighter restriction makes the potential lending pool significantly smaller. Also many of the high rate loans have been removed so the loan "incentives" are drying up.

... According to Peter Calautti, regional sales director at Residential Home Mortgage in Clinton, prior to walking into a bank, would-be home buyers should be prepared to document their income, unless they have a majority of their income derived from non-salary sources coupled with a large down payment or equity.

... "When delinquencies start to return to normal levels and home prices start to stabilize, lending standards will loosen," said Calautti, "but probably not to the level seen in previous years."

Hopefully lending standards never return to the Great Housing Bubble standards. Giving a loan with 110% loan-to-value on a liar loan because someone has a good FICO score never made sense. Giving 100% funding for a property with someone with a low FICO score also did not make sense. Everyone who was getting a cut of the profit was looking the other way during the Bubble and now we are paying the price.