In their latest Housing Market Insight & Outlook report, Freddie Mac revealed that recent low down payment initiatives have raised concerns that we may be returning to the same lax mortgage qualifications that caused the housing crisis from which we are just now recovering.The report went on to explain that today’s underwriting guidelines are nothing like those that existed just prior to the housing meltdown.“Pre-crisis underwriting allowed layered risk, that is, the combination of multiple features that amplified credit risk. Low down payments often were combined with variable-payment loan structures, property-based underwriting, and questionable appraisals. These risk factors, along with the ‘irrational exuberance’ of some borrowers, led to large losses during the crisis.”What is layered risk?In the pre-crisis environment, many mortgage loans incorporated several additional features besides low down payments that multiplied the total risk of the loans such as: variable payment options, underwriting based on the property not the borrower, questionable appraisal processes. Borrower expectations were also overly optimistic at that time.
Author:Ann Marie Cancro Phone: 717-468-1301 Dated: August 15th 2015 Views: 291 About Ann Marie: LICENSED: Licensed Real Estate Professional since October 1990.
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