Mortgages Cheap, But Hard to Get

With fixed mortgage-interest rates at an all-time low, it might seem as if real estate offices should have house hunters lining up, ready to sign on the dotted line. Last week, Freddie Mac announced that the average 30-year rate had fallen to 4.27 percent.

At that rate, a $200,000 mortgage — not including hazard insurance and taxes — would cost $986.22 a month. Add to that the decline in home prices, and it seems like a combination that's hard to resist.

But banks are extra-careful these days about whom they lend money, with the result that many looking to buy houses aren't able to qualify for the lowest interest rates — or for mortgages, period.

Real estate agents and mortgage brokers say they are trying to work with individual buyers to clear obstacles to borrowing created by cautious lenders, who are mindful of a several-year-long track record that, in August alone, produced 245,000 new foreclosures, 3.2 million loans that were more than 60 days delinquent, and 101,000 sales of repossessed houses nationally.

In some cases, the agents and brokers say, such efforts might include providing lenders more income documentation and clearing up borrowers' credit issues.

The situation is complicating a tough sales environment already battered by persistent high unemployment and prospective buyers' expectations that prices will go down even more. Moreover, many would-be sellers, especially those who bought during the 2005-2007 boom years, are dropping their prices only reluctantly. Some simply refuse, agents and brokers say.

To help buyers obtain mortgages, said Philadelphia agent Jeff Block, of Prudential Fox & Roach, he has "had to work closely with lenders ... but almost exclusively because of issues on the lender's end, and not with the buyer's financials."

"Needless to say, this is much more common with Internet and non-local lenders, but I can almost always find a way through it," Block said.

Weichert Financial Service president Steve Madonna said two prospective buyers in 10 cannot qualify for mortgages. "I am seeing people who qualify easily and people who don't qualify at all," he said.

Lenders look for four "tradelines," such as a car loan or credit card, that are at least 12 months old.

"I am finding many young people who are not using any credit cards at all," Madonna said. "They use their debit card 45 times a month, but it is the same as paying cash."

Philadelphia mortgage and real estate broker Fred Glick said that tighter requirements have cut the number qualifying for home loans about 50 percent from a few years ago.

"If they have equity, good credit, full income documentation, and the underwriter isn't taking acid that day, it's not bad," Glick said. Mortgages insured by the FHA and VA are available if buyers don't have sufficient down payments, "but you will have the mortgage-insurance payment or funding fee" that will add to the cost.

Marshal Granor, principal in Granor Price Homes in Horsham, Pa., said a lack of cash for closing costs also means some mortgage applicants won't make the cut.

And Jerome Scarpello, of Leo Mortgage in Ambler, Pa., said even qualified borrowers can be stymied by today's tighter lending rules — increased credit-score requirements, for example.

"If your score is under 700, some private mortgage insurers won't insure you," Scarpello said. "Under 620, you cannot get a competitive-rate loan."

The pendulum has swung so far to the other side, he said, that "good, quality, make-sense people are being told, 'No.' "

Broker Peter Buchsbaum, of Abington Mortgage in Horsham, said 95 percent of the people who contact him can qualify for the lowest interest rate and "the other 5 percent are capable of getting the rate, but maybe not for as much a loan as they are requesting."

He added, however, that the mortgage market is constricting each day, with some underwriting rules making sense and some not.

"My frustration is that the feds keep pushing interest rates as the answer to the real estate puzzle," Buchsbaum said. "Until prices stabilize and the public doesn't waste time trying to get loans from large banks, we'll stay in this rut."

To Narberth, Pa., Realtor John Duffy, it's looking like a return to the days when buyers needed stable employment, decent credit, and equity for a down payment.

"In the long run, that will help everyone," he said.

(c) 2010, The Philadelphia Inquirer.

What Caused the Foreclosure Crisis?

It seems that America’s foreclosure crisis has everyone pointing fingers. A quick scan of weekly news headlines reveals some of the most common culprits that are taking the blame for the rising tide of foreclosures nationwide: subprime loans, adjustable rate mortgages, securitization of mortgages, and ultrarelaxed underwriting standards. While all of these most certainly played a role in creating the foreclosure monster, new evidence from the Wall Street Journal suggests that one commonly overlooked factor is the cause of most foreclosures today - negative equity. In fact, data from the Mortgage Bankers Association shows that 51% of foreclosed homes had prime loans, not subprime. This means that proposed and existing government policies, which focus mainly on loan modifications and other assistance initiatives to remedy high foreclosure rates in the housing market are misdirected...

Click here to read more.

Lack of Credit Threatens Commercial Sector

"Most lenders have withdrawn from the market and there is no secondary market for commercial mortgages," says NAR President Charles McMillan. Read more >

Housing Stimulus Can't Wait

When Senate Banking Committee Chair Christopher Dodd (D-Conn.) conducted a hearing last week on the credit crisis, he took aim at banks' intention to use funds from the massive $700 billion federal rescue to shore up their financial position rather than tackle the liquidity problem in the mortgage market that was so core to the government's goal in passing its bill... click here for more.

US working on plan to help homeowners refinance

AP - The federal government is working on a loan-guarantee plan that could help many homeowners escape foreclosure, a banking regulator told Congress Thursday. At the same time former Federal Reserve Chairman Alan Greenspan said the financial crisis will get worse before it gets better... click for more.

Commercial Real Estate: Ready to Tank

Commercial real estate has been strangely impervious to the housing crash, but its luck is about to run out. Economists and industry analysts say the recession and credit crunch pretty much ensure a bad year for commercial real estate in 2009, and at best a tepid recovery in 2010... click here for more.

Credit markets see more gradual improvements

(AP) NEW YORK - The government's efforts to crank open the credit markets have led to some mild improvements in lending rates and Treasury bill yields. But it will probably take months, and perhaps a few years, before lending returns to healthier levels... click here for more.

Calls for 90-day moratorium on foreclosures

TOLEDO, Ohio - Democratic Barack Obama on Monday called for more immediate steps to heal the nation's ailing economy, proposing a 90-day moratorium on home foreclosures at some banks and a two-year tax break for businesses that create new jobs... click here for more.

Fed, central banks cut rates to aid world economy

The Fed's action will reduce borrowing costs almost immediately for U.S. bank customers whose home equity and other floating-rate loans are tied to the prime interest rate. Bank of America, Wells Fargo and other banks cut their prime rate by half a point to 4.5 percent after the Fed announcement... click here for more.

IRS Provides Homeownership Credit Guidance

Click IRS guidance to take advantage of the $7,500 homeownership tax credit. The IRS material, IR-2008-106, explains how individuals who use the credit will reflect it on their tax returns and receive the benefit from any refund. NAR has also created a summary of how the credit works.

Existing-home Sales Slide on Tight Mortgages

Existing-home sales were down in August following a healthy gain in July as tight mortgage credit curtailed activity, click here. Sales rose in the Midwest and South but fell in the Northeast and West. Nationally, existing-home sales, including single-family, townhome, and condo, declined 2.2 percent to a seasonally adjusted annual rate of 4.91 million units from an upwardly revised pace of 5.02 million in July. "Sales reflect higher interest rates before the government takeover of Freddie Mac and Fannie Mae," says NAR Chief Economist Lawrence Yun.

Financial crisis: What you should know

The financial crisis has sparked confusion over whether Americans' investments and bank accounts are safe. Here's what you should know about how the crisis might affect you... click here.

U.S. Ripple Effect

As the U.S. begins moving out from under the housing crunch, other world markets are just beginning to feel the "overseas aftershock" of the global financial system, according to the Sept. 4 Business Week online magazine. What do bad home loans in Alpharetta, Ga. have to do with office buildings in London or Tokyo? "Plenty," says Business Week. Global lenders, wary of further credit problems are denying credit to many builders and/or instituting tougher terms on commercial property loans. This, in turn, impacts employment markets, which impact rents and causes developers to rethink plans. The whole global commercial property market has slowed with the value of commercial real estate transactions worldwide at only $306 billion for the first six months of 2008--about half the amount for the same period in 2007, according to Real Capital Analytics. But it's not just the U.S. subprime mortgage situation at play. An overall softer economy and weak consumer confidence has hurt smaller developers--particularly those is markets that heated up quickly, including those servicing U.S. outsourcing (think IT); a U.S. sector that is slowing along the overall economy. In spite of all this, Business Week notes that opportunities exist, especially for those with cash. Sovereign wealth funds (SWF), which are state-owned entities that manage savings for investment purposes, are key players in commercial real estate and are flush with cash. According to an article in the April Real Estate Forum, SWF have grown from about $500 billion to more than $3 trillion since the 1990s, with projections of tripling that amount by 2012. Go to pg. 10 to read the full article.
NAR International Operations

Federal Reserve finds deepening credit crisis

WASHINGTON (AP) - More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy.

The Federal Reserve said Monday the percentage of banks reporting tighter lending standards rose across various loan types in its July survey. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near historic highs.

The new survey, conducted in early July, found that about 75 percent of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60 percent of banks who said they were tightening lending standards for prime mortgages in the previous survey.

The Fed's July survey covered 50 banks which hold about 80 percent of the residential mortgages on the books of all commercial banks.

Out of this group of 50 banks, 32 said they were still originating so-called nontraditional home mortgages. Among these 32 banks, about 85 percent said they had tightened their lending standards, up from 75 percent who said they were tightening lending standards for nontraditional mortgages in the April survey.

The Fed defines nontraditional mortgages as adjustable-rate mortgages with multiple payment options, interest-only loans and "Alt-A" mortgages that require limited verification of income.

The Fed survey found that only seven of the 50 banks said they were still participating in subprime mortgages, loans made to borrowers with weak credit histories. Of those seven, six said they had tightened lending standards on subprime loans with only one saying it had left standards basically unchanged for subprime loans.

The survey found that most banks were reporting tighter lending standards across a broad swath of consumer and business loans over the past three months.

For home equity lines of credit, 80 percent of the banks surveyed said they had tightened their lending standards in this area.

For credit cards, the percentage of domestic banks reporting tighter lending standards was about 65 percent, more than double the 30 percent who reported they were tightening lending standards for credit cards three months ago.

Analysts said that the big jump in higher standards for credit card debt could represent a serious threat to the already weak economy, given that consumer spending accounts for two-thirds of total economic activity.

Harm Bandholz, an economist with UniCredit Markets, said that the tightening in bank standards for credit cards and other types of consumer loans would be "another nail in the coffin of the U.S. consumer, who is already suffering from the weak labor market, high inflation and falling house prices."

David Wyss, chief economist for Standard & Poor's in New York, said the tighter lending standards reflect the huge loan losses that banks have already suffered. Those losses have depleted the capital they need as reserves against future losses and made it more difficult for the banks to sell their mortgages and other loans as asset-backed securities, a process that provides them with money to make new loans.

Wyss said he did not believe bank lending will start to pick up until next spring when he is forecasting that the economy will begin to rebound.

"The country is probably going through the most severe credit crunch since 1991-92," Wyss said, referring to a time when banks and savings and loans came under severe pressure while the economy was in a recession. "I think bank credit is going to remain tight for a while."
The current credit crisis hit with force a year ago with rising defaults in the market for subprime mortgage loans. The credit problems have since spread from subprime loans, mortgages provided to borrowers with weak credit histories, to other types of mortgages and other kinds of loans.

The country's major financial institutions have reported billions of dollars in losses and financial markets remain unsettled with investors concerned about potential losses that have yet to be disclosed.
By MARTIN CRUTSINGER