In the mortgage trade there is a term called “payment shock”. If a family for example has a current housing expense of $1,000.00 and are trying to buy a home where the new housing expense is going to be $1,800.00 and there is zero savings plan of at least $800/month then “payment shock” will ensue. It the debt to income ratio is close to the higher limit, where will the extra money come from to make this higher payment? Mortgage underwriters are faced with this dilemma every day. If the underwriter approves it, the borrower could be getting set up to fail. Some interactive underwriters will turn the borrowers down with a caveat that the borrowers would have a better shot at a loan if there were substantially more savings. This could be bolstered with a strong family budget that has strong emphasis on savings. This will give the borrowers the cushion needed to weather any financial situation the family might face in the future.

In conclusion, in the near term, subprime loans will be tightening up. Subprime lenders are dropping like flies. Others may be “dead men walking” with time running out. The shake out in the subprime marketing segment is underway. Those subprime lenders remaining will be the ones who adhered to strong lending principals and didn’t drink the flavor of the month cool aid that has led to many bad loans. Fannie Mae and Freddie Mac will be under closer scrutiny with accounting practices and controls as Congress will be looking over their respective shoulders to keep them veering too far off course. Again, it is apparent, that more is expected from Fannie Mae and Freddie Mac programs for first time homebuyers and such. The “My Community Program” will get a bigger push to assist borrowers. For homebuyers, more emphasis will be placed on getting their personal credit histories in shape where collections and write offs will be required to be paid in full or settled for less than agreed, but none the less PAID. Family budgeting and planning will be a prerequisite to getting an underwriter approval.

As an aside, budgeting is good for everyone. The trade off is this: Borrowers will get low down payments and low rate loans IF they will go through special counseling, budgeting, and home maintenance and housing problem solving. Seems like a fair trade. Lower foreclosures will lead to more solid and stable mortgage markets. For now, things will tighten till inventories are narrowed and the foreclosure rates slow. It’s still a great time to buy. Prices are lower. Rates are fantastic and there is plenty of homebuyer help. It is now a buyer’s market in many areas.

About the Author:

Dale Rogers provides valuable contributions to the Broken Credit Blog. He's a thirty-year mortgage expert. The Broken Credit Blog teaches you the secrets of free credit repair, enabling you to qualify for the lowest mortgage rates. http://www.BrokenCredit.com