If you've been following the news, you know that home loans have become harder to get. The subprime market, made of people with poor credit, has been in particular trouble. As interest rates on adjustable mortgages moved upwards, many people found they can't afford to pay their mortgages. When housing prices were quickly rising, anyone could refinance. People took out home equity loans to pay for college, home improvements, travel, and paying down other debts. But now homes have stabilized in price (and dropped in some areas), many people now owe more than their homes are worth. If they can't make their payments, they risk foreclosure.
The much higher level of foreclosures has caused major lenders to have huge losses or even go out of business. Most loans are sold on the secondary market, packaged into mortgage backed securities. But investors are worried that these investments are no longer safe, so lenders can't sell their mortgages, and they run out of money to fund new ones.
Lenders were remiss in lending to almost anyone, but now the pendulum is swinging in the other direction. Even prime loans have become harder to get. Bankers want verification of income and credit (instead of stated income), always a good idea, and are using far tougher standards to decide who to offer it to. Most lenders are requiring down payments, instead of offering 100% financing, because borrowers are less likely to just walk away if they have money invested.
Jumbo mortgages, the ones that are too big to sell to government agencies like Fannie Mae, have gone up in price. Congress has now allowed FHA to loan up to $729,750 for home loans, up from $417,000, and has also enabled Fannie Mae and Ginny Mae to buy mortgages up to those limits. This means that loans up to the new limits can be guaranteed by the FHA and sold into the secondary market, opening up financing to more buyers. At this point, those limits are set to expire at the end of 2008, though I'm hoping the new limits are made permanent.
