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."