More Banks Lower FICO Score Requirements

Daily Real Estate News | Tuesday, March 25, 2014

More banks are lowering minimum FICO score requirements in an attempt to shore up lending for underserved borrowers.

Carrington Mortgage Services is the latest company to announce that it has lowered its minimum FICO score to 550. It also has expanded guidelines on several FHA, VA, and USDA loan programs to aid those with FICO scores below 640.

Wells Fargo, the nation’s largest mortgage lender, said in February that it was lowering its minimum FICO score requirements on FHA-backed mortgages from 640 to 600. The move, bank officials said, was aimed at “opening up our credit box more.”

One in three consumers have a FICO score below 650, according to Carrington. The lender is refocusing its business on targeting the underserved segment and eliminating conventional and jumbo loans. It is limiting its acceptance of wholesale submissions with FICO scores above 680 starting April 1, except for VA loans, HousingWire reports.

“Effectively meeting the needs of clients in the underserved market requires the ability to both originate quality loans and appropriately service them after the fact,” says Ray Brousseau, executive vice president of Carrington's mortgage lending division. “Both Carrington’s lending platform and specialty servicing business were created to serve this particular market segment. That uniquely positions us as the lender of choice for this population of borrowers and the mortgage brokers and real estate agents who work with them. Our message is clear: You can count on Carrington to serve the underserved and get the tough loans done right.”

Source: “Carrington Ups Ante on Wells Fargo by Lowering FICO Standard,” HousingWire (March 24, 2014)

Retirees Reaching For Reverse Mortgages Again

Daily Real Estate News | Wednesday, March 19, 2014

Baby boomers are fueling a resurgence in reverse mortgages as boomers are in search for extra retirement income, and small lenders are stepping up as they view reverse mortgages as a way of growing their business, Reuters reports.

In 2013, $15.3 billion of reverse loans were issued, a 20 percent increase from the year prior, according to trade publication Inside Mortgage Finance. Still, that’s only about half the number seen during a record year in 2009, in which $30.21 billion of reverse mortgages were issued.

A reverse mortgage allows home owners to borrow against their home. They don’t have to make payments on the loan until they move or die.

Many lenders remain leery of reverse mortgages. In 2011, Wells Fargo & Co. and Bank of America backed out of the reverse mortgage business, citing reasons like unpredictable home values and the high level of delinquencies at the time.

As such, smaller lenders are stepping in, seeing reverse mortgages as an opportunity to grow their business.

"The market is huge. It's underpenetrated," Denmar Dixon, chief investment officer at independent mortgage company Walter Investment Management Co., said at a recent conference. Lenders often charge high fees for issuing these loans since they do carry more risk.

More lenders may view it as a growth opportunity too, particularly as traditional mortgage lending is expected to decrease 37 percent in 2014 due to higher mortgage rates dampening refinance activity.
"There are lots of mortgage lenders who see declining volumes and may view [reverse mortgages] as an opportunity to increase revenues," says David Stevens, president of the Mortgage Bankers Association.

The U.S. Federal Housing Administration posted big losses from reverse mortgages in the past, but has made changes to its reverse mortgage program last year in trying to protect the agency from steep losses from reverse mortgages again. In April 2013, the FHA limited the amount a home owner can borrow as a lump sum to 60 percent in the first year, up to a maximum of $625,500, Reuters reports. Previously, the limit was 100 percent. The FHA also now requires lenders to ensure borrowers can pay for taxes, insurance, and upkeep on their home when issuing these loans.

Source: “U.S. Retirees Return to Reverse Mortgages, Big Banks Stay Away,” Reuters (March 17, 2014)

Credit Unions Offer Up Unique Home Loan Products

Daily Real Estate News | Friday, March 07, 2014

Credit unions are offering borrowers some creative home loan products compared to the more standard options at big banks, The New York Times reports. These member-owned nonprofit institutions don’t usually tolerate high-risk with their products, but they’re seeking unique products that may better cater to borrowers’ needs.

For example, Pentagon Federal Credit Union in Alexandria, Va., is offering its 1.2 million members a new 15/15 adjustable rate mortgage. It boasts a lower interest rate than 30-year fixed-rate loan, and the rate won’t change for the first 15 years. After that, it will adjust once, thereby setting the new rate for the final 15 years of the loan.

“This is an excellent opportunity for anybody who doesn’t think they’re going to be in the same house for 15 years,” says Craig Olson, Pentagon’s senior vice president of mortgage operations.

Another credit union, Redwood Credit Union based in the Bay Area of Calif., is offering a 5/5 ARM that adjusts only once after the five years. The rate remains fixed for another five years then. The rates also tend to be better than the 10/1, says Cynthia Negri, the chief lending officer.

One of the nation’s largest credit unions, Navy Federal, is offering its more than 4.5 million members interest-only loans, which include a set term where the borrower only pays interest on the principal balance. Navy also is offering the Homebuyer’s Choice Program, which is a program that offers 100 percent purchase financing.

“We have a lot of young, first-time buyers, and this is great for someone who’s not eligible for a Veterans Administration loan,” says Katie Miller, the vice president of mortgage lending.

Source: “Credit Unions Offer Creative Home Loans,” The New York Times (Feb. 27, 2014)