Guest Author - Rosemary Rugnetta

Things are beginning to happen very quickly with regards to the mortgage industry. The days of no money down, piggyback loans and exotic financing are quickly disappearing. In reality, the industry is going back to the way it used to be years ago.

The most recent change that occurred in August, 2007 was extending FHA mortgages to people who are having a difficult time paying their current adjustable rate mortgage. It is called FHA Secure and is available to those who meet certain criteria such as being a good credit risk and have a good payment history up to the time of the rate re-adjustment. Usually, an FHA mortgage is recommended for those who have a low credit score and do not have a minimum 5% down payment. Since FHA mortgages do include FHA insurance (basically coverage for the lack of down payment), many people took on exotic 100% loans to avoid paying those fees. To make matters worse, they were qualified and approved based on an adjustable rate. As the rates readjusted higher, many of these people are having a hard time making their payment. The FHA Secure is a good refinance option for these people.

Due to the fact the biggest mortgage investors, Fannie Mae and Freddie Mac, only secure loans up to $417,000, anything over that amount is considered a jumbo loan. These loans were held as portfolio loans by the bank or sold to outside investors. But a lot of these loans are in trouble. In addition. the banks are not really in a position to refinance them. They are looking to reduce their risk. Most recently, the government is proposing to allow these agencies (Fannie and Freddie) to take loans for up to $729,750 in high cost markets. Right now the proposal will allow them to do this for one year. Also in that proposal, is to allow FHA to increase their limit from $362,790 to $729,750 in order to attract subprime borrowers into refinancing.

What does this all mean? For right now, it means to watch what is going on in the news over the next few weeks very carefully. Since the Federal Reserve lowered the prime rate, many people are going to feel comfortable with their adjustable rates. Don’t be fooled by the comfort. There was never and will never be a promise that the prime rate and adjustable rate will remain low. As fixed rates have come down in recent weeks and may continue to come down, it will be time to refinance. If the government proposals are approved, it will be the time for those with good credit and high principals to refinance through Fannie Mae or Freddie Max and for those with high subprime mortgages to refinance through FHA. The safest way to go will always be taking on a fixed rate. Although the escrows might change the payment, the mortgage interest rate will always be the same.