Thursday, April 26, 2012

"Private money coming back into the housing finance market"

by Bill McBride on 4/26/2012 09:17:00 PM

Mortgage broker Soylent Green is People sent me an example today of private money coming back into the mortgage market:

Second mortgage purchase mortgage lending above 80% loan to value has begun to creep back into the market. Prudent Underwriting standards and deep risk analysis have convinced some private money to come back into the housing finance market of late. We’ve added an 80 / 10 / 10 product recently that has no Private Mortgage Insurance.

700 FICO minimum.

SFD, and Condos - providing that the project has 75% Owner Occupancy ratios

90% CLTV to $750,000

Interest Only minimum payment HELOC, Prime + 1.99%. No prepayment penalty.

Qualifying at index, margin, plus .125, fully amortized.

45% Absolute debt to income ratio maximum.

Let’s take a $333,400 priced home. Most FHA buyers will put less down, but for comparison purposes assume a 10 percent down payment. An FHA 30 fixed borrower pays 1.75% for the FHA Up Front Mortgage Insurance Premium PLUS 1.20% per year in Mortgage Insurance. Assuming a 3.75% rate and a $300,000 balance, the payment plus MI runs $1,690. A similarly structured Conventional Conforming loan at 3.875% runs $1,532 An 80/10/10 combined payment comes in at $1,437, principal and interest.

That’s quite a payment spread for the typical home buyer to choose from. As more of these risk tolerant companies enter the market, the share of FHA loans will finally diminish.
CR note: As I mentioned yesterday, when house prices stop falling, private lenders will become more confident and reenter the market. This is just the beginning.

Some expanded prudent private lending makes sense, but we never want to see Alt-A and stated income loans again!

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