Boomerang buyers

Certain home buyers who have gone through a foreclosure, bankruptcy or other financial crisis and have repaired their credit may be eligible to receive a new mortgage.

Under a recent rule change, buyers with this profile may qualify for a new mortgage backed by the Federal Housing Administration after waiting as little as 12 months. Previously, they would have had to wait at least three years for a new government-backed mortgage.

For a home buyer with those issues in their credit history to be eligible for the new FHA loan, they must show that their bankruptcy was due to a job loss or reduction in income that was beyond their control.

Also, these buyers have to show that their incomes have been completely restored and they received housing counseling prior to receiving the mortgage. These buyers have been labeled the “boomerang” buyers by real estate companies in states that were hit the hardest in the economic down turn.

The question remains whether banks will provide loans with these new terms while dealing with lawsuits and investigations on other government-backed loans. The Mortgage Bankers Association contends that it may be hard for lenders to consider providing loans to those of higher risk in today’s environment.

Some economists are concerned that the restrictive lending policies are preventing some creditworthy buyers and adversely affecting economic growth.

The new rules expire in three years and also apply to previous homeowners who were involved in a short sale.

One of the main advantages of owning a home is it enables the building of equity. Approximately, one million borrowers who went through foreclosure during the economic downturn have already waited the required three years to qualify for a FHA-backed loan, according to Moody’s Analytics.

Another development regarding mortgages involves the interest rates of jumbo mortgages. Jumbo mortgages are too large to qualify for government backing and have higher interest rates than conforming loans backed by Fannie Mae, Freddie Mac or government agencies. However, during the past few weeks the interest rates of jumbo and conforming loans have flipped.

The reasons are due to interest rate volatility, government policy and banks having a lot of cash. Banks are benefiting from lower funding costs, which makes jumbo mortgages a good investment.

Conforming mortgages are now more costly because federal officials in a bid to minimize the coverage by Fannie and Freddie have increased fees those companies charge lenders, resulting in higher mortgage interest rates.

The average interest rate for a 30-year fixed-rate conforming mortgage was about 0.02% more than a jumbo loan, according to the Mortgage Bankers Association. This difference or spread in interest rates defies tradition.

Jumbo mortgages are defined as loans exceeding the $417,000 cap for loans backed by Fannie Mae and Freddie Mac.

Note this limit is $625,500 in higher cost-of-living markets like New York, Washington and Los Angeles.

With respect to adjustable-rate mortgages, the difference between conforming and jumbo loans is more significant.

Rates on some hybrid adjustable-rate jumbo mortgages having a fixed rate for five or seven years are 0.75% below conforming loans.

Banks have always preferred jumbo borrowers as they, typically, have more assets and they can sell the other products and services.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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