As down-payment requirements are reduced, the opportunity for lending becomes more available and will allow the market to prosper. Some states have lowered their standards of how much of the property amount may be borrowed. Now, consumers can make a down-payment of only 5% and borrow the remaining amount of the property. The reduction in down-payments is due to the gradually stabilizing housing market.
This is a good sign of relief and trust set back into our banking systems, at least for 11 markets. The vice president of investor relations at mortgage insurer MGIC Insurance Corp stated that those borrowers who are going to finance more than 80% of their properties value have to purchase mortgage insurance.
New Orleans, part of the 11 markets who lessened restrictions on down-payments, allows for borrowers with a credit score of 680 or higher to finance up to 95% of their property value. Consumer would need a credit score of 700 or more to finance 95% of their property when the banks had higher standards set for the down-payment.
Kevin Schneider, president of Genworth, stated that if home prices continue to decline, there will be a need for higher credit scores and full documentation when making a purchase. He believes that this will lessen the amount of future foreclosures and short sales. For example, Florida is one of the states with this type of restriction because of their declining house prices. Some mortgage companies believe that the housing market drastic price decrease has ended. Prices will more likely become steady and if there is a decrease it will not be as much.
With strict guidelines to follow mortgage companies will not be able to survive. Borrowers who were asked to provide 20% for a down-payment were turning to the FHA which was lending to consumer for as low as a 3.5% down payment. If they want to stay in the market they will have to come down to reasonable standards in order to qualify more buyers. Wells Fargo & Co. has decided to lower their high standards on lending. Wells Fargo and many other banks will follow this step to make our economy stronger and market back up and running again.