FHA Alternatives Harder To Find

by Peter G. Miller
June 26th, 2007

An interesting new study from Campbell Communications in Washington, DC confirms what market watchers have suspected: It’s getting tougher and tougher to get financing with little down.

“The availability of high loan-to-value mortgages — even in the prime market — seems to be rapidly drying up in 2007,” says Campbell. “And it could take its toll on mortgage volume in the months ahead as borrower demand for certain mortgage products appears to be outstripping the supply offered by lenders and investors.”

The report, “A Look at the Prime Market after the Subprime Meltdown,” is based on the third in a series of annual surveys tracking mortgage brokers on prime lending issues. Among other things, the research analyzes how the nation’s top lenders are responding to rising loan problems and flattening or declining home prices.

“To reduce risk, lenders can tighten guidelines, drop programs, or drop brokers from approved status,” noted Tom Popik, principal of Geosegment Systems, based in Nashua, NH, and designer of the survey. “Our survey results show that most major prime lenders are opting to first tighten guidelines—but this causes more work underwriting each loan, which in turn causes increases in underwriting turn times. Broker frustration with slow underwriting is building, even with prime products.”

Brokers, says the study, reported that the two prime loan products where supply has dried up the most are 80/20 combo or piggyback mortgages and high LTV loans with private mortgage insurance. These products have been extremely popular with borrowers over the past several years and rapidly rising home prices helped fuel their availability.

“When lenders drop programs to manage risk, they tend to drop high LTV programs,” Popik said. “However, that doesn’t mean that consumer demand for these products has decreased. Brokers have a good feel for their market and they report that the supply of high LTV products has fallen much faster than demand. Another alternative for investors – instead of dropping programs outright – would be to increase rates.”

Of course, while non-government lenders cut back on loans with little down, the FHA program with just 3 percent down remains in place and available.

Some 2,800 mortgage brokers responded to the survey, which included more than 100 separate questions related to this year’s mortgage lending environment and the broker-lender relationship. The study was sponsored by Inside Mortgage finance, a leading industry newsletter.

For information on how to obtain the full survey results, contact John Campbell at Campbell Communications: john@campbellsurveys.com.

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