Mortgage Lenders Lower Their Risk

<span class=”Apple-style-span” style=”font-family: verdana; font-size: 11px; line-height: 12px; “><p class=”byline” style=”font-size: 10px; color: rgb(102, 102, 102); margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; “>By Alan J. Heavens</p><p class=”byline lastline” style=”font-size: 10px; color: rgb(102, 102, 102); padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; margin-top: 0px; margin-right: 0px; margin-bottom: 12px; margin-left: 0px; “>Inquirer Real Estate Writer</p><div class=”body-content” style=”font-size: 12px; “>Eighteen months ago, the very act of remembering to exhale might have qualified you for unlimited credit.<p>The rules have changed, however, since the subprime crisis broke in August 2007, as foreclosures have skyrocketed and banks cracked under the weight of bad loans.</p><p>Have they changed that much? Do you really need 20 percent down and a 700 or better credit score for a loan?</p><p>”Clearly, credit is tighter today,” said Global Insight Inc. housing economist Patrick Newport, citing a July Fed survey showing 75 percent of prime lenders would be raising the bar by 2009 at the latest.</p><p>Subprime rules? Tighter.</p><p>Although the rules change daily, you can get a 30-year fixed rate of 6.09 percent. Those ever-changing rules usually affect the number of points (a point is a percentage of the total loan) lenders charge for their money based on credit score, down payment and income-to-debt ratio.</p><p>Basically, lenders, wary in the wake of the world falling apart around them, are passing more financial risk onto borrowers up front.</p><p>Still, “my borrowers have not experienced that much difficulty,” said Peter Buchsbaum of Arlington Capital Mortgage Corp. in Abington.</p><p>Buchsbaum does a lot of FHA mortgages, so his buyers are typically borrowing 97 percent of the purchase price, and getting interest rates as low as 5.5 percent for a 30-year, fixed-rate loan.</p><p>Buchsbaum said lenders often had to make “moment-to-moment” adjustments because of all the guideline changes, but “borrowers remain insulated from the turmoil.”</p><p>It could be, as Joel L. Naroff of Naroff Economic Advisors suggests, the result of “a self-selection process.”</p><p>”People with questionable credit or minimal down payment capacity simply may not be applying,” Naroff said.</p><p>Naroff said he believed we might be returning to the “good old days of good credit, real jobs and 20 percent down.”</p><p>Carole Eiben and her husband, Paul, are relocating to Huntingdon Valley from Bowie, Md.</p><p>”We hadn’t bought a house in 17 years, when mortgage rates were more than 7 percent, so we didn’t know what to expect,” she said. They had to lower the price of their Bowie house twice, but still put 20 percent down in Huntingdon Valley.</p><p>Fortunately, they happened into the short-lived rate drop a week ago, and the 5.75 percent they locked into “offset our dropping the original price twice,” she said.</p><p>Their Bowie buyers, however, were not as lucky.</p><p>”They had to switch to an FHA loan because they couldn’t qualify for a mortgage otherwise,” Eiben said.</p><p>”The rules change so fast,” said Mayfair Realtor Christopher J. Artur. “I had a deal in the summer for prequalified buyers that was delayed by the seller. The credit-score rules changed, and the buyers didn’t qualify any more.”</p><p>”The marginal buyers are hurt the most,” Artur said.</p><p><span class=”Apple-style-span” style=”font-weight: bold;”>Philadelphia mortgage broker Fred Glick said lending was now “all about credit, down payment and income, and the property has to appraise.”</span></p><p><span class=”Apple-style-span” style=”font-weight: bold;”>A year ago, with a 520 credit score and low down payment, you could easily get a mortgage, he said.</span></p><p><span class=”Apple-style-span” style=”font-weight: bold;”>You can still get an FHA mortgage with nothing down and a 580 credit score, but there are no longer products such as negative-amortization mortgages, which Glick described as akin to “death.”</span></p><p>There are still a few interest-only products and hardly anyone is looking at adjustables.</p><p>The need for a borrower to afford a mortgage has pushed the debt-to-income ratio to the 45 percent limit, he said.</p><p>Location can affect credit availability.</p><p>In June 2008, Fannie Mae began requiring at least a 3 percent down payment “that allows us to originate loans regardless of the market and at the maximum loan-to-value ratios allowed,” said Brett Warren of Buyers Home Mortgage in Abington.</p><p>”There is a catch. Most, if not all, private mortgage insurance companies have restrictions on declining markets and won’t insure loans over 90 percent loan-to-value,” he said.</p><p>The eight-county Philadelphia region is not considered declining by most banks or by mortgage insurers.</p><p>For example, MGIC Investment Corp., one of the largest insurers, does not include any of the eight counties on its list of “restricted” markets where it will not do business.</p><p>Lenders and private mortgage insurers have, however, abandoned large swaths of the rest of country or are making the rules tighter.</p><p>”Take Florida – please,” said Bankrate.com’s Holden Lewis, who is based in the state. “The mortgage insurance companies won’t underwrite a policy on a condominium in Florida. They just won’t do it.”</p><p>”If you buy a condo in Florida, you have to put at least 20 percent down,” Lewis said. “Otherwise, you can’t get mortgage insurance, so you can’t get a loan.”</p><p>Fannie Mae and Freddie Mac have pushed the lenders into mortgage insurance, Buchsbaum said, just as the losses these insurers have taken have made coverage more expensive.</p><p>A lot of the changes being made by the sources of credit have little real effect on borrowers, mortgage lenders and brokers say.</p><p>What’s really happened?</p><p>Borrowers are being asked for more proof they can afford the house. Credit is tighter, but money for jumbo mortgages – above $417,000 in this area – remains available.</p><p>Lewis said the best source for jumbos are mortgage brokers, not banks, because brokers have access to multiple sources of money.</p><p>Just as the jumbo market was contracting, Buchsbaum placed a borrower in a $908,000 first mortgage and a $113,000 second mortgage for a property being purchased for $1,135,000, he said.</p><p>It left the lender with 10 percent equity in the purchase, even though the buyer’s current home in Georgia remains unsold, Buchsbaum said.</p></div></span>

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