| With the collapse of the Subprime mortgage | | | | Does this mean that first time home buyers will |
| market, the mortgage industry has changed | | | | no longer qualify for a home loan? No. There are |
| dramatically in recent months. Many of the more | | | | other alternatives besides the subprime mortgage |
| liberal mortgage programs have been discontinued. | | | | loan. |
| How will this effect the market for first time | | | | There are several solutions. Fannie Mae's |
| home buyer loans? | | | | American Dream Commitment offers the most |
| From approximately the year 2000 until the year | | | | exciting, affordable first time home buyer loan |
| 2004 interest rates fell steadily, reaching | | | | solution that we have seen. To quote Fannie Mae, |
| multi-decade historic lows by late 2004. This | | | | "Many Americans still are being overlooked, |
| historic drop in interest rates fueled a multi-year | | | | underserved, and overcharged in their search for |
| boom in the real estate industry. Real estate | | | | affordable homeownership." In defining their |
| prices were escalating rapidly with each passing | | | | goals, Fannie Mae strives to "expand access |
| month, and everyone it seemed wanted to be | | | | to homeownership for first time home buyers |
| involved in real estate. | | | | and help raise the minority homeownership rates |
| That included lenders, who were eager to gain | | | | with the ultimate goal of closing the |
| new customers. In the frantic race to make as | | | | homeownership gap entirely." |
| much profit from real estate as possible, lenders | | | | This commitment translates into flexible, |
| lowered their standards and created new lending | | | | accommodative, and low cost home financing |
| requirements that were so lenient it seemed that | | | | available to first time home buyers with less than |
| anyone with a pulse would qualify! | | | | perfect credit and restrictive budgets. But that's |
| Loose lending standards, historically low interest | | | | not all. Reading into the guidelines carefully one will |
| rates, and rapidly rising real estate prices was the | | | | discover some amazing and thoughtful criteria. |
| perfect formula to attract millions upon millions of | | | | Amongst these guidelines are included a surprising |
| people. | | | | and liberal allowance for "undocumented |
| And that is exactly what happened. | | | | income", expanded seller contribution |
| However, after all of these people made real | | | | tolerance, and a complete absence of saving and |
| estate purchases, who would be left to make | | | | asset reserve requirements. All of these flexible |
| more purchases? Answer: not many people. | | | | rules make possible the lowest cost, no money |
| And thus, the real estate market began to cool. | | | | down mortgage program available anywhere. |
| At first, it started with the rate of appreciation | | | | Credit score requirements are now the easiest of |
| slowing. Prices were still rising, but not nearly as | | | | all of the first time home buyer loan programs |
| fast. | | | | available in the home loan market. The guidelines |
| And with price rises slowing, less people were | | | | allow for a score of 620, but with moderate |
| interested in real estate. And that meant even | | | | compensating factors lenders may approve loans |
| further slowing of the housing price appreciation. | | | | with scores as low as 600. |
| And then disaster struck. | | | | Maybe the most surprising aspect of this program |
| The End of an Era | | | | is the allowance of undocumented income. Fannie |
| In October of 2006, the subprime home loan | | | | Mae allows up to one thousand dollars per month |
| industry begin to break down. Wall Street | | | | of income from a reasonable source to be used. |
| investors, monitoring the default rates of | | | | Neither the source of the income nor the income |
| mortgage portfolios and concerned about the | | | | itself needs to be documented. You simply need |
| continuing drop in real estate prices nationwide | | | | to state it on your application. This rule gives a |
| decided to stop purchasing subprime loans. By | | | | nod to the working person that holds a side, |
| March of 2007 the entire subprime industry as we | | | | weekend, or evening job, often to make end |
| knew it was gone. | | | | meets. Examples of acceptable income include |
| First time home buyers, as well as seasoned | | | | someone working in finance that helps people |
| investors, had taken advantage of the easy | | | | prepare tax returns on the side, a carpenter that |
| guidelines offered by these lenders and had | | | | moonlights as a handyman, or a laborer that |
| flocked to the real estate market in droves. And | | | | mows lawns on the weekends. |
| suddenly, the subprime market came to a | | | | In addition to this program, nearly every state |
| screeching hault. | | | | offers some form of loan help for first time |
| With the demise of the subprime industry millions | | | | home buyers. In closing, it cannot be emphasized |
| of potential home buyers are now searching for | | | | enough that in spite of the subprime mortgage |
| alternative mortgage products that will | | | | crisis, there remains ample funding and programs |
| accommodate their financial and credit profiles. | | | | for first time home buyer loans. |