0 Does your FICO make the cut?

Credit Score requirements on New Mortgages are on the Rise in 2009 thanks to tighter underwriting standards and a big jump in refinance activity, the average credit scores associated with getting a new mortgage are rising this year. According to numbers compiled by Inside Mortgage Finance, the average FICO score found on a new mortgage in early 2009 was above 700 – one of the highest levels ever recorded. For new Fannie Mae and Freddie Mac loans, which accounted for roughly 60 percent of all mortgages made in the first quarter of this year, the average FICO score was a whopping 760. This was up from an average FICO of 748 in 4Q08.

Even FHA, which is know for accommodating A minus type credit and has no minimum credit score requirement, reported an average FICO of 694 in February. This is well above the 660-670 level found in the latter part of 2008. The average FICO on a jumbo loan was 738 in the first quarter. This is up from 710 in the fourth quarter of 2008. Current minimum FICO levels are generally 680 or 700 depending on program and other factors. This is up substantially from six months ago when 650 was allowed.

To keep these numbers in context, a person can go from a 780 to a mid to high 600 level with one late payment on a credit card or if they have their credit limits reduced. This is common as the credit card companies have projected they will eliminate 2-3 trillion dollars of available credit on cards over the next year.

Detail: Does your FICO make the cut?

0 How High-Income Clients Can Prepare For Lending's Next Big Wave

Four times annually, the Federal Reserve surveys 84 banks around the country regarding their general lending standards.

One of the survey questions asks about current mortgage lending standards and whether it's getting harder, or easier, to get approved for a home loan.

In the most recent survey, 75 percent of the banks said they're making it harder for "prime" borrowers to get a home loan.

That means you, Mr. Lawyer. And, Dr.Doctor.

A six-figure income with A-plus credit won't get you carte blanche with the bank anymore. Lenders stopped fighting over the right to collect your interest payments months ago.

Today, they're more worried about you defaulting. Something about 250k bank and finance jobs toasted in the last year and the deep recession makes investors a little worried. No ONE is immune from the big waves sweeping over the credit markets.

The first wave of lender tightening eased into the books earlier this year. Most changes were focused on the borrower's individual credit characteristics including income, assets, and credit score.

The second wave of tightened, however, has been completely out of the mortgage applicant's hands. It's collateral -- the fancy bank term for "what your home is worth". Banks are very concerned about collateral.

Mortgage lenders read the papers, too, and they know that home values are falling or are flat in most neighborhoods. There's a recovery underway, but it's not going to be immediate.

Therefore, many banks assume that the 80 percent home loan made today will be a 85 percent home loan sometime in 2009 and having less than 20% equity in a home is not where the banks want you to be -- especially with joblessness on the rise and a loads of unanswered questions about the economy.

For homeowners with jumbo or super-jumbo mortgages, this loan-to-value change will resonate deeply. Just this morning, for example, one of the country's largest niche lenders dramatically lowered its maximum LTV ratios for prime borrowers.

Look at how it changes the borrowing landscape for a condo buyer in Chicago with strong income and excellent credit:

• Yesterday: 20% downpayment required, second mortgage permissable for 5%


• Today : 25-30% downpayment required, no second mortgage permissable
• Sure we have investors willing to gamble a little and do 10-15% down but who really wants a 8% mortgage!? BTW, these are the same guys you see playing 50k a hand blackjack at the Venitian.

In other markets, where home values are more dubious, like California, downpayment requirements can be even higher.

Now, this isn't to say that prime borrowers won't get approved for home loans -- it's just meant to tell the street-level story of what's going on. There are a lot of people in cities like Chicago or Cincinnati that were first-time home buyers between 2002-2006. For those homeowners, the only mortgage approval system of which they know is one that's based on them -- their FICO, income and ability to fog a mirror.

Today, it's The Triangle + Rock Solid Appraised Value.

This is why prime borrowers are finding it harder to get a mortgage -- it doesn't matter what you look like on paper, it's what you and your home look like on paper.

The market will likely to tighten further in the near-term so the best way to prepare for is to ask good questions in advance of your actual needs. A proactive plan always works better than a reactive one.

If buying a home or refinancing one is in your plans for December 2008, or January-March 2009, reach out to your loan officer to find out how changing guidelines for prime borrowers can impact you. Especially if you're a jumbo or super-jumbo borrower. Also, we are very excited to have added a niche portfolio lender that can do a 30Y Fixed Jumbo throughout the country in the low 6% range for the solid "money good" credit client. Contact our office to check out our jumbo mortgage rates for your home purchase or refinance. As always, no pressue and no obligation beyond a short chat.

Detail: How High-Income Clients Can Prepare For Lending's Next Big Wave