What's the deal with the mortgage industry?
Mortgage News from Quicken Loans
You've undoubtedly seen the headlines about current issues in the mortgage industry. "Mortgage industry in crisis" or something similar is an all too common headline in today's financial media reporting. It seems like daily another mortgage institution is going bankrupt. What does it all mean? Why is it happening now? And does it affect you personally?
The problems many mortgage companies are facing are, among a few other things, the result of a secondary market that is avoiding all but the most vanilla of loans. What's a secondary market, you ask? The secondary market is where mortgage lenders sell your loan once you close. Those loans are traded on Wall Street after they are originated by the mortgage lenders and then bundled together as stocks and bonds.
The secondary market is avoiding all non-traditional loans, and most mortgage companies have stopped offering mortgage products that are deemed "non-conforming" by Fannie Mae guidelines. Fannie Mae, along with Freddie Mac, are two enormous government-sponsored entities that purchase a significant amount of mortgages on the secondary market.
Unfortunately, according to Fannie Mae and Freddie Mac, "non-conforming" includes mortgages over $417,000, the maximum amount a mortgage can be without being considered a "jumbo" loan. The problem is that several areas of the country, such as Florida and California, have numerous homes well over $417,000. In fact, there are several parts of the country where that amount gets you nothing more than a "fixer-upper" home.
Despite the obvious consumer need for jumbo loans, anyone needing a loan over $417,000 is pretty much limited to very few options today. Some economists predict the financial markets will soon calm down, allowing the situation to reverse itself, making jumbo loans available to consumers who qualify for them.
In the meantime, anyone who needs a large mortgage should contact a mortgage professional and discuss all available options. In the worst scenario, which is where no loan is available, a consumer can get set up for immediate notification the moment the market returns to normal and loans such as jumbo loans are again available.
This article is reprinted by permission from Quicken Loans © 2007 Quicken Loans Inc. All rights reserved.
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