Mortgage rates shot through the roof this morning in response to a very strong jobs report!

    This is exactly what I predicted would happen in my blog yesterday, as the official BLS jobs reports always come out stronger than expected – particularly in January – before getting revised downward in later months.

    BUT… here are some of the things skeptics are saying: (1) Today’s rosy report showed 353,000 job creations – but that is only after “seasonal adjustments” (removing job losses that normally take place during this time of year) are made, meaning that the BLS is simply estimating much of their numbers; (2) Actual job losses without seasonal adjustments were close to 2.6 million; (3) Average hours worked per week dropped again; year-over-year the drop is huge and equal to job losses of 2.4 million; (4) the total labor force shrank, as 175,000 people dropped out, making unemployment numbers much lower than they’d otherwise be; (5) average weekly earnings are down; (6) full-time jobs were down again, per the “household survey;” and (7) the new job creations are part-time, or in the government, healthcare, and education sectors – and this is not indicative of a healthy economy overall.

    In any case, the market overall believes the rosy numbers so far and rates continue to climb.

    Mortgages after Bankruptcies – Don’t Fret

    Personal and business bankruptcies (BKs) surged in 2023, as many individuals and small businesses apparently did not get the memo that the economy is thriving (someone really should tell them).

    BUT – this is my reminder that bankruptcies do not prevent borrowers from getting mortgage financing!

    FHA and VA are the most flexible when it comes to competitive (low rate) financing after bankruptcies.

    But, if borrowers are willing to make much larger down payments (20% to 30%) or endure much higher rates and fees, “Non-QM” financing is even more flexible.

    FHA and VA

    FHA and VA only require two years of seasoning after a bankruptcy is discharged. BUT, FHA and VA will finance someone who is actually IN a chapter 13 bankruptcy – if the borrower has been making payments to the BK trustee on time for a full year or more.

    As a reminder, a Chapter 7 BK is a complete liquidation of debts, while a Chapter 13 BK is a “reorganization” whereby debtors agree to repay their debts over time under court supervision.

    Fannie Mae, Freddie Mac, and Jumbo

    Fannie Mae and Freddie Mac require four years of seasoning after a bankruptcy discharge in most cases – but will allow for only two years of seasoning after a Chapter 13 that has been successfully followed and discharged, as per a court-ordered plan.

    Jumbo lenders will not touch a borrower until a bankruptcy has seasoned at least 4 years in most cases, but many require even more seasoning.

    NON-QM Financing

    Non-QM financing is the new version of what used to be called “subprime” loans, but with much stronger underwriting guidelines.

    Non-QM lenders require no seasoning at all, meaning borrowers can get a mortgage the day after a bankruptcy is discharged.

    BUT – Non-QM borrowers will need a minimum down payment of 20% to 30%, depending on circumstances – and the rates and fees will be substantially higher than those associated with FHA and VA loans.

    Re-Establish Credit after Bankruptcy!

    The most important piece of advice to borrowers in bankruptcy is to re-establish credit immediately after a bankruptcy with secured cards, small consumer loans or any other type of credit they can get. Lenders offering competitive financing require re-established credit during the seasoning period.

    Biggest Take-Away for Agents – Don’t turn clients away if they’ve had a bankruptcy.

    There are probably more financing options than borrowers realize, particularly if they have re-established credit, a good income and job history, and/or a large down payment.

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