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The Journey of Proctor 940

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The Credit Risk In The Mortgage Guarantor Market

Lately, stakeholders have come closer to agreed on certain facets of housing finance laws reform. But, many differences still exist. Lots of home bill bills are currently pending in both houses of Congress and there's still deadlock on the taxation provision for house mortgage aid. Although, it's anticipated that at some stage, the enacted home invoices will be voted out of committee and into the final home of Congress. There is a need therefore for the housing industry to be well prepared for the changes which are to come.

The House and Senate recently passed a Joint Resolution (JSR) suggesting a number of changes from the FHA Home Loan Program that will ultimately affect the housing industry. The House has passed the joint resolution with a vote of 401-5; the Senate hasn't passed the exact same resolution. The Joint Resolution relies on changing the FHA's Home Affordable Program (HAP) by raising certain home characteristics, eliminating or reducing unnecessary fees, and loan restructuring programs. The updated housing features will, if passed on, affect the housing fund actions of FHA guaranteed borrowers.

The most publicized quality of the Joint Resolution is the provision that will enable FHA insured homeowners using a manufactured home or a Yurt to be treated like other residential properties. Many housing experts believe this shift, if it is passed, will cause the loss of many manufactured homes and manufactured home owners into the FHA. Although, this concern hasn't been addressed yet. For now, homeowners that use either a Yurt or a manufactured home that is subject to this MMCAD app can continue using their houses as they are in these applications.

The second proposed change is to increase the maximum loan amount for first time buyers and decrease the rate for adjustable rate mortgages or ARMs. At this time, there is absolutely no limit on the amount which can be borrowed and there is no limit on the rate of interest. Manufactured housing investors have a problem when rates rise because this immediately reduces the liquidity of their investment. ARM's were designed to be an easy, low cost way for families to own residential property. When housing prices drop, so does the value of ARM's; hence, they aren't a fantastic investment.

The third proposed change would be to allow FHA Guaranteed Loans to add unconventional residential loans such as those from credit unions, co-ops and small lending institutions. Currently, FHA does not make any agreements with those lenders and does not accept Guaranteed Loans. There are currently about thirteen distinct co-ops and credit unions with Secured Loan programs. These businesses offer a variety of different housing finance options for homeowners.

The fourth shift would be to remove the current income verification procedure and replace it with an automated revenue verification system that's available for FHA insured borrowers. Currently, the income confirmation is utilized to make certain that the program is in agreement with the specific consumer standards of the Housing Finance System. This is also used to determine whether or not a borrower is able to qualify for the mortgage based on their existing employment and earnings.

The final step in this analysis is to examine the credit risk of each guarantor. The present guidelines allow FHA insured borrowers to borrow cash from all mortgage guarantors, such as commercial property creditors, unless otherwise stated. According to the recent guidelines, the three most credit risk groups will be the high risk, moderate risk, and the minimal risk. The criteria for each credit risk category are based on the present financial and creditworthiness of each guarantor's credit and business history.

As we've seen, the present guidelines are inadequate in regulating the activities of mortgage guarantors. To successfully navigate the present mortgage guarantor marketplace, it is important for mortgage agents and brokers to comprehend the various differences in the credit risk categories and how these differences relate to the various programs offered by the different guarantors. Mortgage brokers and agents need to get an understanding of how to rate the creditworthiness of mortgage guarantors then build an application package which best matches the needs of the borrower and the current real estate industry. Having an comprehension of the present mortgage guarantor guidelines will help mortgage brokers and brokers make sound lending decisions throughout the current weak economic times.

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