As a mortgage broker I see the current credit crunch tightening every day.  Lenders (banks, mortgage companies) are making immediate and severe changes to their programs and guidelines, sometimes twice a day. Every lender is touched by this. This is a temporary situation, but we don’t know how long it will last.

 

Many previously qualified buyers have already experienced problems getting a mortgage at an affordable rate, if they can get one at all. One exception: buyers seeking conforming loans (loans that conform to the more prudent guidelines of Fannie Mae and Freddie Mac and whose mortgage is $417,000 or below) are less affected in their ability to secure reasonable terms; in fact, last week we saw a drop in the average 30 year fixed conforming rate. 

 

However, the non-conforming market is in dire straits. A non-conforming loan can be any loan that does not conform to Fannie Mae’s or Freddie Mac’s guidelines. You have heard quite a bit about the sub-prime meltdown. We’ve heard more recently about the Alt-A problems; a Top 10 lender has been effectively shut down because of the lack of liquidity.  Think “No Doc” and “No Income” loans.  

 

The market for jumbo mortgages is severely impacted by this, as well as second mortgages. Jumbo mortgages are among the best performing (low delinquencies, low foreclosure rates) mortgages, but they are lumped in with other higher risk non-conforming loans. Major jumbo lenders have raised their rates up to 8%.  Purchase markets that depend heavily on jumbo mortgages have been shut down.

 

Many lenders have either cut out or restricted the use of second mortgages and home equity lines. The popular “80/20” programs are becoming harder and harder to find.

 

The problem is liquidity – Wall Street, temporarily, has few buyers for anything but conforming mortgages, and those buyers have become understandably conservative. How can you price something that no one wants to buy? How do you sell something without a price? Until the market figures out the true risk and cost, we will continue to have disruption. We will also be left with tighter credit standards and more limited programs.  

 

That knowledge alone doesn’t help the average buyer, seller, and real estate agent. Even if your buyer isn’t seeking a non-conforming loan, what about the buyer of his home or the seller of the house he wants to buy? This is why the credit crunch affects everyone.

 

What should you do?  Make sure the pre-approvals you have are solid, fight hard for the best customers, and work on improving your buyer’s credit profile. Here are 5 suggestions: