Purchasing Your Naples Florida Residence
This evening’s article was submitted by John Campbell of TIB Bank in Naples. John discusses various aspects of the Alt-A mortgages which have been used and currently used to purchase residences in the Naples FL real estate market.
First the bad news: There is a severe liquidity crisis in the residential mortgage lending markets. Several major wholesalers have stopped lending the so called "Alt-A" loan. 50% of the residences purchased used to get Alt-A loans without any trouble. Now Alt A loans are hard to find — at any price.
Alt-A loans include: Borrowers with good credit histories, job histories and liquid assets; loans over $417,000; no-income-verification loans —— at any loan amount; adjustable rate loans such as 5/1 ARMs and 7/1 ARMs ——-at any loan amount; 80/20 loans and other "high loan-to-value" loans; super jumbo loans over $1,000,000; and finally interest only loans.
"Alt-A" is not "sub-prime" - sub Prime Loans are like Alt-A but the borrowers tend to have poor credit histories, unstable job histories and limited liquid assets (or at least are not asked to disclose these things under a "No Doc" Loan).
The market for sub-prime loans has dried up significantly also.
"Alt-A" is a $500,000 loan on a $620,000 condo as a 5/1 ARM with interest only payments to a second home buyer who owns a business and does a stated income loan (or even a full doc loan). It is currently a very common loan scenario in the Naples area, as well as Bonita Springs and Estero.
A third category of loan, conforming loans is not as affected by the liquidity crisis. Conforming loans are under $417,000, fixed rates, full documentation and have a standard set of qualifying guidelines. Most lenders have always had superior turn around time and the best rates in the market on this product. And, now that conforming loans are one of the last available type of loans, borrowers will be requesting more of them.
The market for mortgage loans has changed dramatically in the past two weeks. If a borrower needs or wants a limited documentation loan, they should be prepared to pay a higher rate or especially be prepared to pay "points." The limited documentation loan will require proof of cash reserves and a good credit score. There will be more explanations about adverse credit and a focus on the appraisal. In the past 10 years we have experienced the wild west of lending with seemingly unlimited resources and easy access to relatively cheap money. Now the large global players who bought all of those mortgage backed securities have decided that the risk versus reward factor was too low and they are not buying the Alt-A and sub-prime loans at any price. It is as if we have settled all the easily accessible and arable land and only the rocky and dry land is left. And, it happened overnight.
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