Ask the Expert with Rick Cirelli


Why Housing Isn’t Getting Better?

By Rick Cirelli, president, Certified Mortgage Planning Specialist

I’m frustrated! Interests rates are back to their near all-time lows yet housing sales are way down too. Why is that?

There are a few big reasons why and I’ll state the obvious here. But, then I’ll go a little deeper. The main reasons:

  • A lot of negative press about home values declining.
  • The jobs/employment market is not improving.
  • Underwriting guidelines are too tight.
  • The Government is doing nothing to help the homeowner/homebuyer despite the control that they could exert.

Having been in the mortgage business for 35 years, I’ll focus on what’s wrong with the tight underwriting guidelines and what the government could/should do, at least in my opinion.

  • Short Sales:

The majority of home sales are short sales and foreclosures. But, so many of these transactions fall out and the reason is that the lender that services the current owner’s mortgage takes much too long to respond to an offer. While the buyer waits and waits they become nervous, new listings appear that may be more attractive, additional offers appear on the same property and the buyer loses interest for any or all of these reasons. Shouldn’t there be a time limit in which the lender must respond or be penalized?

  • Lack of Government Enforcement:

Despite all the complaining about tighter underwriting, Fannie Mae & Freddie Mae – the two government-owned enterprises responsible for making the lending guidelines for all lenders – has actually created a few programs that can help homeowners and buyers. But, they allow lenders to create their own guidelines that are often stricter than the Fannie/Freddie guidelines. In the industry we call these tighter restrictions “overlays.”


As an example, one of the best programs that benefits many homeowners is the one that allows homeowners that are underwater to refinance up to 125% of the present value of their home if Fannie Mae or Freddie Mac already owns their mortgage. But, they allow individual lenders to modify the program and most lenders have chosen to restrict the maximum loan amount to only 105% of the present value of the home. Couldn’t the government require lenders to refinance to 125% in order to help millions of homeowners? Fannie and Freddie will buy the loans, thereby leaving the lenders with less risk than they currently have due to the lower/more affordable payments that the homeowner now has. What does the servicing lender have to lose?


There are numerous other overlays that lenders are free to impose that are too numerous to mention here. The most common ones require higher FICO scores and lower Debt-to-Income limits than Fannie Mae or Freddie Mac require.


While I think everyone agrees that underwriting guidelines are too tight, the government is spending their time right now trying to define QRM – the “Qualified Residential Mortgage” – that may require even tighter guidelines. The QRM proposal may require 20% down payments; maximum Debt-to-Income ratios of 36% (currently 50%) and more. Loans that don’t meet the definition of QRM will require lenders to set aside 5% of every loan that doesn’t meet the QRM definition. If a lender can’t sell a loan to Fannie or Freddie and has to deposit 5% of the loan balance in a reserve account, you know that lenders will be forced to raise the cost of all non-QRM loans to offset their expense. Once again, the homebuyer/homeowner bears the cost.

Can someone explain to me how this is going to help our economy?

We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. And, if programs exist to help solve the housing and economic problems of our country, why not require lenders to offer these programs. Otherwise, the big banks will only do what’s best for themselves, not the millions of homeowners that are suffering.

As a mortgage broker with multiple resources, I know which lenders to use for each loan, thereby avoiding the unnecessary overlays that so many lenders impose for their own benefit. The big banks can’t do this and they are the ones who are the guiltiest of manipulating the programs that were designed to help the people.

The Positive:

I must mention that there have been some very positive improvements too:

• Jumbo Loans are back! Offered by many lenders with loan amounts to $2 million and more at very competitive rates. A year ago there was virtually no jumbo product available.

• Expanded Loan Limits to $729,750 for Fannie Mae, Freddie Mac & FHA loans (may be reduced Oct. 1, 2011.)

• FHA program was expanded with only 3.5% down and loan amounts increased to $729,750 in some markets.

• 95% PMI up to $417,000. Private Mortgage Insurance is available again for Fannie/Freddie loans with down payments less than 20%.

Rick Cirelli is a 35-year veteran of the mortgage industry. He is the owner of RTC Mortgage Corporation, a full-service mortgage company based in Laguna Beach. He is a Certified Mortgage Planning Specialist. RTC Mortgage offers all types of residential and commercial real estate financing. Contact Rick for expert mortgage advice and outstanding customer service. Call him at 949.494.4701, email him at and visit