Effective December 13, 2008 Fannie Mae will have a new set of mortgage lending guidelines, all in response to the sub prime challenges currently facing the marketplace.  The bottom line is that Cincinnati home owners will need to have more equity in their home, or to put it another way they will need to maintain more of thier own money in thier home vs. the bank’s money. Each of the following changes is a 5% increase over the previous set of guidelines.

• Primary residence, “cash out” refinances are limited to 85% loan-to-value
• Second home, cash out refinances are limited to 75% loan-to-value
• Investment properties cannot be refinanced without a 25% equity position

The changes are designed to lower the exposure to lenders, and to make sure home owners have more of stake in their own homes. We are advising our clients who will be looking for homes to make thier move before the changes take effect. 

The Federal Hosing Bill that is working through the Senate and House right now are expected to have sizable impacts on local economies and real estate markets like Cincinnati. The Housing Bill provides financial incentives like mortgage negotiation perks, $7,500 interest free short term loans, and Jumbo loan borrowers.

For those currently in debt and in trouble with their mortgage here are the incentives the government has set out for you to renegotiate with lenders:
1. Your loan must be at least 31 percent of your monthly household income.
2. Lenders, however, are not required to give you a better deal under the new law.
3. If you manage to get a new loan, you cannot take out a home equity loan for at least five years. 4. 4. You will also have to pay a 1.5 percent fee each year on the remaining balance.
5. Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain.

Now about those $7,500 interest free loans being handed out. Well they are for first time home buyers and come in the form of a tax credit. How ever if your income is over $75,000 ($150,000 married) the credit begins to phase out. You will pay the loan back in 15 equal payments over the next 15 years to the Internal Revenue Service. The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. Ask your accountant about this benefit in your 2008 return.

The Bill will also allow Fannie Mae and Freddie Mac to purchase and securitize loans up to $625,000 where in previous years the cap was $400,000. This increase comes in line with the increase of home prices over the decades.

With all of the talk about Fannie this and Freddie that average folks are asking the question, “well what does it mean to me?” If you have a home mortgage, and are not planning on refinancing then it means almost nothing. If you are in the market for a home loan or are looking to refinance then it means something.

Dan Green, or good friend over at The Mortgage Reports translates this complex information into an easy to read piece.  The reality is this - Fannie and Freddie are likely to increase their fees, and that cost is going to trickle down to the borrower. In addition since they are willing to insure your loan, they are potentially going to ask your loan officer to ask you to document your income and assets before you get your loan and rates.

In the Cincinnati real estate market those of you with not so good credit are going to find getting a loan a bit more difficult. Borrowers are going to be asked to prove income as well as be qualified only for what they can genuinely afford.  Our suggestion is to work with a good broker, like Dan, who can match you with the correct kind of loan.

Credit is an important factor in having the ability to obtain a mortgage or other loan for a big ticket item. To most people how a “credit score” is determined is a mystery. Most people do not know what their score is unless they apply for a loan or run a report through one of the credit unions.

What is the purpose of a credit score? Having a scoring method has advantages because it weighs many factors and can provide an objective picture for the financial institutions seeking information about you. These advantages are being able to obtain a loan fast, fairer credit decisions, poor credit decisions from your past will not haunt you forever, more credit is available making credit rates lower overall.

According to FICO the 5 categories that DO affect credit score are: 1) Payment history; 2) Amounts owed; 3) Length of credit history; 4) New credit; and 5) Types of credit used. Please click here for more specific information on these categories.

According to FICO, the following information does NOT affect your credit score: race, age, color, religion, national origin, sex and marital status, salary, occupation, title, employer, date employed or employment history, where you live, any interest rate being charged on a particular credit card or other account, any items reported as child/family support obligations or rental agreements, certain types of inquiries (requests for your credit report from employers, promotional inquiries, or administrative inquiries from lenders, any information that is not proven to be predictive of future credit performance, whether or not you are participating in a credit counseling of any kind.

What is recommended to optimize your credit score: 1) Pay your bills on time; 2) If you have missed payments, get current and stay current; 3) Be aware that paying off a collection account will not remove it from your credit report.; 4) If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor; 5) Keep balances low on credit cards and other “revolving credit”; 6) Pay off debt rather than moving it around; 7) Don’t close unused credit cards as a short-term strategy to raise your score; 8) Don’t open a number of new credit cards that you don’t need, just to increase your available credit; 9) If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly.

When establishing new credit here are some tips: 1) Apply for and open new credit accounts only as needed; 2) Have credit cards - but manage them responsibly; 3) Note that closing an account doesn’t make it go away.

CNN reports in their money watch how some of the credit regulations are changing and could positively affect your credit score.

Everyone agrees that people loosing their homes to Foreclosure is bad for individuals, banks, and neighborhoods. In fact so many people are aware of it even Congress is stepping in to help people in better proceed with Debt Forgiveness. In normal circumstances when you have a debt forgiven, or reduced, that amount is counted as taxable Income, according to the IRS. If you bank forgives you for the last $10,000 of your loan, why would the IRS think you have the cash to pay taxes on it? Silly.

The Federal Government is stepping in and offering up H.R. 3648, a bill that would eliminate Federal tax on debt forgiveness. The House has passed the bill and it is on the way to the Senate. So how would that impact us? Well in short it could lead to more Cincinnati residents staying in their homes. The US Census Bureau says that home ownership in the Cincinnati metro area has slipped a bit from 68.4% in 2005 to 65.5 in 2006. It is so important for us as a community to do the most we can to maintain our home ownership rates up because people who care about their homes also care about their communities. You can continue reading about this topic at Open Congress.