Credit crunch? Mortgages still available
|By Holden Lewis Bankrate.com
Mortgages are still available, despite talk of a credit crunch.
Qualified borrowers can find conforming and FHA-insured mortgages easily. Jumbo mortgages are more scarce, but
available. Rates went up in the last week, which is another way of saying that credit is tighter. But the mortgage marketplace
isn't frozen, at least in part because of federal intervention.
"There's almost no difference in the availability of money compared to a year ago, with the exception of jumbos,"
says Jim Sahnger, mortgage consultant with Palm Beach Financial Network in Stuart, Fla. "The main difference is that you have to
provide documentation, such as W-2s, tax returns and bank statements. Welcome to the full-doc world."
Credit standards have been getting tighter all year, reducing the number of people who qualify for loans. It's hard
to quantify how many people have been disqualified merely because of
more strict lending standards.
As Sahnger mentioned, one prominent change has to do with documentation of income. A year or two ago, a borrower
with an excellent credit history and no change in employment might have been able to refinance a mortgage without having to provide
proof of income -- even on a full-documentation loan. Those days are gone, mortgage lenders say. Bring in W-2 forms or income tax
statements, or get turned down for a loan.
Borrowers need better qualifications
The income-documentation requirement is part of a yearlong trend in which mortgage insurers and Fannie Mae and Freddie Mac have added
fees and restrictions, little by little. Each change knocked a few more people from the ranks of qualifying borrowers.
Take the mortgage insurers, who protect lenders from the costs of borrower default when borrowers make down payments
of less than 20 percent. Last year, the mortgage insurance companies began publishing lists of "restricted markets," where home prices
are declining. Borrowers have to make bigger down payments and have higher credit scores to get mortgage insurance in restricted markets.
The mortgage insurers have tightened the screws slowly, adding cities and states to the lists of restricted markets
and increasing requirements. In the latest example, Mortgage Guaranty Insurance Corp. recently boosted the minimum credit score needed
to buy a house in a restricted market. In August, the minimum score was 680. Beginning in October, the minimum score will be 700.
At the same time, MGIC tinkered with down payments on second homes. In August, you could buy a second home in a restricted
market with a 5 percent down payment. Starting in October, that same home requires a 10 percent down payment.
Fannie, Freddie and fees
Mortgage financing giants Fannie Mae and Freddie Mac have been adding restrictions, too. Before they were taken over by the federal
government in early September, Fannie and Freddie had been on a months-long campaign of
adding fees that were then passed along to borrowers
either directly or through higher mortgage rates. The Fannie terminology for these fees was "loan level price adjustment."