I won’t attempt to deceive you. The non-conforming mortgage lending segment of our industry (commonly referred to as sub-prime, stated income and/or no documentation programs) has had some significant setbacks of late. As an industry, both conforming and non-conforming, we will continue to have difficult issues to confront as we move forward. Rest assured, however, we will resolve, in time, the problems in the non-conforming market highlighted by the press. At the same time, we will continue to insure that all new deserving mortgage applicants be matched with mortgage products they can successfully use to remain in their homes.

The crux of the matter is in the determination as to just who might be a ‘deserving’ mortgage applicant. How is that determination made? Who makes the rules? As discussed here before, those who have the gold make the rules. The owner of the “gold” for conforming loans is Fannie Mae (Federal National Mortgage Association), Freddie Mac (Federal Home Loan Mortgage Corporation), together known as the conventional market and Ginnie Mae (Government National Mortgage Association), VA (Veterans Administration) and FHA (Federal Housing Administration), collectively known as the government market. These entities are also commonly referred to as government sponsored enterprises or GSE’s. They have the appearance to investors of having the backing of the full faith and credit of the United States government. Their rules have NOT changed.

The owner of the gold for non-conforming loans is Wall Street. Investors in non-conforming mortgage products therefore make the rules. Lately investors of non-conforming loans have been spending a lot of time changing their thinking. What they were comfortable with last year, they are no longer comfortable with. We have experienced a rapid and wholesale contraction of non-conforming guidelines. Entire categories of non-conforming mortgage product have just ceased to exist. Other guidelines have been significantly strengthened or tightened by way of minimum credit scores and down payment requirements.

I have noticed a good bit of confusion in the media recently over the distinction between conforming loans and non-conforming loans. This is somewhat understandable as some conforming loans may have non-conforming characteristics, such as limited documentation options. However, some ill-informed writers and talking heads have attempted to paint the conforming mortgage market with the same brush used for the non-conforming market. I have seen in print ridiculous statements such as, if you don’t have at least 10% down and a 700 credit score, you won’t be approved for a mortgage. Hogwash.

Every professional mortgage loan officer in the country has conventional conforming 100% loan to value programs up to a maximum mortgage amount of $417,000 available via Fannie Mae and Freddie Mac. You don’t have to have perfect credit to qualify, but you can’t be a deadbeat either. Deadbeats really shouldn’t be homeowners. The Fannie Mae programs are known as Flex 100 or My Community and the Freddie Mac version is Home Possible. The My Community and Home Possible programs have income limits, but reduced mortgage insurance requirements and expanded guidelines. The Flex 100 has no income limit. My Community and Home Possible also have flavors (Community Solutions and Neighborhood Solution, respectively) to further assist educators, healthcare workers, firefighters, law enforcement and military personnel in the purchase of a home.

The program income limits for persons on the application are the HUD Area Median Incomes (AMI) and are determined based upon the location of the property. The AMI for Houston County is $59,800. Bibb, Jones, Monroe, Crawford and Twiggs County’s AMI is $50,700. Peach County’s AMI is $47,200. Other county’s AMI is available at efanniemae.com.

In addition to the above conventional conforming 100% programs, 100% conforming government loans are provided by the VA to qualified veterans, military or reservist personnel. At the current time, FHA loans have a maximum loan to value of 97%, hence the need for congressional reform discussed in last week’s column.

In closing, the issues which have arisen in the non-conforming mortgage market have considerable and wide reaching effects. But, for the average Joe and Jane Homebuyer, with average or better credit, even though they may have very limited funds, my recommendation would be call a member of the Mortgage Bankers Association (mbag.org) for prequalification and then go visit some open houses. (8/23/07)

David Griffin has been financing homes in Macon, Warner Robins and all of Middle Georgia since 1983. He is a two-time past president of the Mortgage Bankers Association of Middle Georgia. For an archive of past articles visit www.davidjgriffin.com.