- The Washington Times - Thursday, April 28, 2011

Since it has been a couple of years since the peak of the mortgage meltdown, I thought I’d use today’s column to update readers on available mortgage products. In short, most mortgage products are widely available, as long as it’s not an “easy-money” mortgage loan. Much, but not all of this is good news. Let’s recap a few old terms.

Stated-income loan - Also known as the “liar’s loan,” the borrower simply stated his income on the application without providing verification. Needless to say, this feature is long gone.

No-income loan - Back in the day, lenders would make loans to folks who chose not to disclose their income at all. The income section of the application was left blank. This program also is long gone.

While I always have been a supporter of prudent lending, a no-income loan was actually a very good product for some folks. It was just misused and abused.

Consider the situation where a particular person, such as a retiree with little or no income, cannot obtain a mortgage loan, even though he has perfect credit and can provide evidence he has $2 million in the bank. Because he has no income stream, lenders won’t grant him a loan, even though he has perhaps 10 years of income, already earned, sitting in the bank. This is just plain wrong.

Subprime mortgage - These were programs with high rates, high fees and hefty prepayment penalties often offered to folks with poor credit. The subprime frenzy largely was responsible for the mess we’re in now. These programs, thankfully, no longer exist.

FHA loan - Guaranteed by the Federal Housing Administration, an FHA loan is one of the last remaining programs that allow a down payment as low as 3.50 percent. Because it’s a self-funding program, folks seeking an FHA loan should expect that a high mortgage insurance premium will be tacked onto their balance.

VA loans - Offered to eligible veterans, 100 percent financing is available on these loans.

Conventional mortgage - Loans typically purchased by mortgage giants Fannie Mae and Freddie Mac are conventional, conforming loans. For qualified borrowers, the types of conventional loans vary, and include:

  • 30-year fixed - This is the standard loan taken out by most creditworthy borrowers. While the rates have popped up since last year’s all-time lows, they still remain incredibly low. Expect a rate under 5 percent with low fees.
  • 15- and 20-year fixed - Similar to a 30-year-fixed loan, these programs carry lower rates and shorter terms, but higher monthly payments. A 15- or 20-year might be good for some folks, not so good for others.
  • 3/1, 5/1, 7/1 and 10/1 ARMs - These adjustable-rate loans carry a 30-year amortization with an initial fixed-rate period of 3, 5, 7 or 10 years and an annual rate adjustment thereafter. Again, these programs are good for some folks, such as those planning to move in a few years. Current rates for these products are remarkably low. With little or no fees, expect rates between 3.50 percent and 4.50 percent, depending on the type of ARM.

So, the good news is that qualified borrowers have an array of products with low interest rates from which to choose. The bad news is that some folks who should be granted a loan cannot get one, due to unreasonable underwriting standards.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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