Saturday, February 9, 2008


Who is MGIC, and why do you care what they do?

MGIC is the "Mortgage Guaranty Insurance Corporation", and that name alone should indicate trouble given the state of the U.S. housing market.

As you know, there are dynamic changes taking place throughout the mortgage lending business. Most notably, scores of notable lenders disappeared from the landscape in 2007, saddled with heavy losses and massive numbers of bad loans.

MGIC insured a lot of those loans that went bad. In fact, the company just announced it expects to pay out over $2 billion (that's "BILLION", with a "B") in claims during 2008. Time to tighten up those underwriting guidelines, again.

Yesterday, MGIC announced it would be raising down payment requirements for certain loans it insures in markets throughout the country. The effect - depending on your situation, it may be just a little bit tougher to finance that new home or sell that listing on the market because, for some buyers, the bar for home ownership was just moved higher.

Things are changing quickly here… and I want to caution you to follow these changes closely. I do not believe anything will have a greater impact on both our local and national housing markets in 2008 than the changes taking place in the lending business.

Let me give you a few examples of why you should make an appointment to talk with a qualified mortgage lender now.

• PROGRAM GUIDELINES ARE CHANGING – I cannot emphasize this enough… what’s “here today” is often “gone tomorrow”. Not only did many of the nation’s largest lenders disappear in 2007, so too did the loan programs they were offering. Stated income products, reduced documentation products, and many subprime loan programs have simply been erased from the books… only to reappear for a few weeks… and then they disappear again. If you do not have a CURRENT, TO THE MOMENT PREAPPROVAL from a qualified lender, you simply are not prequalified or preapproved.

• GUIDELINES ARE CHANGING (PART 2) – Following MGIC's lead, one of the ways lenders are dealing with national volatility is by tightening up their lending guidelines. For example, some loans that required no down payment in 2007 now require a minimum of 5% down. Five percent down loans can require 10%, and so on.

• GUIDELINES ARE CHANGING (PART 3) – FHA GUIDELINES ARE EXPANDING. In short, FHA loans have more lenient qualifying guidelines than conventional loans. By increasing the availability of FHA loans (by raising loan limits), more buyers can qualify to purchase. That increases demand, which helps the market.

• INTEREST RATES HAVE FALLEN TO FOUR YEAR LOWS – There’s a lot of debate about where interest rates will go this year – if the Fed starts pouring money into the economy (and it is), one has to wonder if long term rates won’t rise as investors demand a greater return on their long-term investments. The fact is… these rates right now are CRAZY LOW… how can you go wrong taking a fixed rate mortgage in the 5s or low 6s?

• FIRST TIME BUYER PROGRAMS ARE AVAILABLE… BUT YOU HAVE TO KNOW WHERE AND WHEN TO FIND THEM – For example, the Denver “Metro Mayors” program makes first-time buyer assistance available by issuing lump sums of money to first-time buyers in over 20 Denver area cities. But funds are limited and only available during designated grant periods. Do you know when these funds will be available?

Hopefully, I’ve made the point here that talking to a lender is an absolutely necessary first step if you plan to buy a home in 2008. If you would like to speak to a highly qualified mortgage professional, please contact me and I’ll put you in touch with someone who will make your needs their highest priority.