Although consumers are salivating over rates hovering at the 3.49% mark, bargain basement mortgage rates may not produce a win-win scenario for all borrowers.
Freddie Mac reports that the 30 year US mortgage rate dropped to a new low of 3.49%--a decline below what was considered to be record smashing at 4.55%.
Following the rate drop, Frank Nothaft, chief economist at Freddie Mac issued a statement warning that record low rates could signal a weakening economy.
"Market concerns over the strength of the economic recovery brought long-term Treasury yields to new lows this week, allowing fixed mortgage rates to reach record levels." Nothaft refers to how mortgage rates flow with Treasury yields--a drop in value may mean trouble for the economy.
Additionally, some bankers view falling rates as a negative because a lower rate could mean a possible reduction in revenue. Real estate appraiser and housing market commentator Johnathan Miller said in a recent “International Business Times” article that low interest rates could prompt banks to tighten lending standards to avoid a default in minor profits.
In May, US Federal Reserve Chairman, Ben Bernanke addressed an audience in Chicago and said that obtaining a mortgage continues to be a hurdle for borrowers. “To be sure, a return to pre-crisis lending standards wouldn't be appropriate," Bernanke said. "However, current standards may be limiting or preventing lending to many creditworthy borrowers."
Credit Unions Continue to Meet Standards and Approve Mortgages
Concerns over mortgage approvals continue to plague the industry, however credit union officials report that mortgage approvals are still possible for many members.
Amy Moser, VP/ Mortgage Services at Mountain America Credit Union ($3 billion West Jordan, UT) explains that proper due diligence is still applied, which may slow down the process but not hinder an approval.
“While the essence of lending has not changed, the lens through which we view mortgage loans has been refocused: each loan file undergoes a thorough inspection of credit reports, income and asset documents, appraisals, title reports … even the forms that are generated by the lender are closely inspected for compliance,” she says. “While these documents have always been reviewed to issue a loan approval, there is a much more ‘microscopic’ review of loan files than there has been before. The increased rigor that is applied to issuing an approval requires that more time be allocated to each file, which, in turn, can cause delays, especially in the low-rate environment we find ourselves in today. Ultimately, it poses challenges to providing the excellent member service, which we strive to deliver.”
However, she adds that nearly half of all mortgage applications end up in a mortgage and there are a variety of reasons why this number isn’t higher. “For example, some people apply for a mortgage and never find a home so the application is withdrawn. There are others who have credit issues or have trouble verifying the needed income or assets to qualify for the loan they seek. Many borrowers make application and would like to extract cash from their home (cash-out refinance) but simply do not have the equity to do so. And then there are property issues that relate to quality of the home (seen often in foreclosed homes when deferred maintenance or outright destruction is an issue) or the value that can be documented on an appraisal.”
Anie Akpe-Lewis, VP/ Mortgage Operations at Municipal Credit Union ($1.7 billion, New York City, NY) reports that approximately 80% of applicants are approved for a mortgage, and half of all approved applications result in a mortgage.
“In general, the quality of applicants in the past few years has been good; however, we do see some applicants with poor credit scores. For those members that don’t have good credit, MCU offers an ongoing credit education class to help them improve their credit and learn how to qualify in the future. The combination of our trained staff and our partnership with other non-profit agencies that offer credit counseling has helped improve our overall quality of applicants.”
Education On Approvals Continues to Pose Challenges
“Consumers should know that prior to applying for a mortgage, it is advisable to payoff any past due bills, collection, judgments, and tax liens,” Akpe-Lewis advises. “Paying down any high balance loans and credit cards will increase your chances of securing a mortgage.”
Moser says that with increased knowledge among consumers about credit and credit scoring, it seems that the chasm between good credit and mediocre credit is increasing; people who are conscientious about their credit are seeing that their scores are much higher. “MACU has an excellent program that we can refer our members to in order to help get credit back on track (Balance),” she adds.
“One of the most difficult areas to reconcile with our members is how and why their taxes are reviewed to consider loan approval,” Moser continues. “Many borrowers may write off a significant amount of unreimbursed employee expenses or have side businesses that incur losses. In the past, taxes were not heavily relied on, particularly for the W2 borrower; this is a huge change for those borrowers who have not done any mortgage lending for the last five plus years.”
Moser advises that members should be prepared to provide full documentation to the loan officer at application. “Full document review up-front can eliminate problems throughout the process,” she says. “Ask questions if there is anything that is unclear or needs to be restated or explained. Understand the difference between ‘affordability’ and ‘qualification’ – we may be able to qualify a borrower for a certain amount on a mortgage, but only they know what they truly can afford in their monthly budget. Pushing these limits can lead to frustration!”
What Does it Take To Get a Mortgage?
While loan approval varies from credit union to credit union, Akpe-Lewis and Moser explain what a member needs to do if they seek loan approval from their financial institutions.
“Good credit history coupled with a good credit score; income that makes sense in relation to the other consumer debts that they currently have and the mortgage they want to obtain; required assets for the home they want to buy as well as to show stability and limit risk; a home that is acceptable collateral for the loan, etc.,” Moser lists. “However we are also interested in making homeownership a reality for our members! We have a 100% First Time Homebuyer Program that will allow for little out of pocket costs to buy a home. We also offer construction financing as well a unique program to help underwater borrowers who cannot qualify for HARP or streamline refinances.”
At Municipal Credit Union Akpe-Lewis says that a member should meet the following requirements in order to be considered (in addition to being a credit union member): A minimum 620 credit score, a minimum of two years of stable employment, income and residency, adequate assets for closing and down payment and a minimum of two to three months of reserves.
Currently MACU is offering a $250 closing credit for purchase loans that close by August 31. “We are also offering a construction promotion that includes a Golden Getaways Vacation with their new construction loan,” Moser adds.