No Cost Refinance

Buying a home is harder these days.

Home Refinancing

The Des Moine Register reports about the new harsh reality:

Lenders are making more requirements of borrowers. They want higher credit scores and more money down and more proof of income.

Mortgage defaults have forced banks to write down about $250 billion in the past six months in American mortgage losses.

The credit crisis started with subprime loans.

Risky mortgage options are faulted for the continually rising foreclosures and the resulting write- downs banks have had to make. Contributing to the problem were:

Refinance Home Mortgage

– The now notorious 2-28 loans. This mortgage carried a low initial interest rate that typically adjusted upward after its first two years, lifting a buyer’s monthly payment by 50 percent or more.

– Zero-down loans, where the buyer had to put nothing into the deal to get into a house.

– 80-20 loans, which carried a traditional mortgage for the first 80 percent of the value of the home, and a second, more costly loan to finance the remaining 20 percent.

– Stated-income loans – nicknamed liar loans – where the buyer did not have to prove how much money he or she made.

Those kinds of loans are gone, or at least in hiding, said Des Moines mortgage banker Randy Stevens.

“The 2-28s are history,” said Stevens, a director of the Iowa Association of Mortgage Brokers. As for traditional adjustable-rate mortgages, or ARMs, he said they remain but are little-used because their rate is little better than what a buyer can secure on a fixed-interest mortgage.

Refinance Mortgage Rates

Market correcting

At Neighborhood Finance Corp., which mostly provides fixed-rate loans in Des Moines, Executive Director Holly Olson said she has heard less and less these days about non-standard loans.

That’s largely a result of market forces at work, she said. As home foreclosures have risen over the past six months, institutional investors that buy blocks of these types of loans have halted their purchases.

Also contributing to the decline: Many suppliers of mortgages have been shuttered, including First Federal Financial Corp. and Shearson Financial Network Inc.

Others encountered financial difficulties and have quit making certain types of loans. Wells Fargo, Iowa’s largest bank and the nation’s largest retail home lender, for example, quit making 2-28 loans last year.

At Citizens for Community Improvement, organizer Danny Wagener worries the pendulum of correction may have swung too far toward tightening credit.

“We’re concerned about it,” he said. “We’re trying to fight two battles at once.”

The Des Moines citizen- action group is fighting against foreclosures caused by easy credit and the corrective changes by lenders that dampen home buying.

Joe Rogers, an executive vice president with West Des Moines-based Wells Fargo Home Mortgage, said opinion is divided on whether lenders have gone overboard in tightening credit. Borrowers may think that’s the case, he said. But investors – hedge funds, for instance – that hold billions of dollars’ worth of defaulted mortgages may yearn for still more protection.

Putting down cash

While Des Moines has been a relatively stable market compared with southern Florida or Las Vegas, corrective measures apply across the country.

As lenders and mortgage insurers back away from 100 percent loans, down payments are now much more important, Rogers said.

Lenders want buyers to commit some amount of cash to what will probably be the largest purchase they’ll ever make.

Nontraditional financing is still available in Des Moines, though qualifying standards have been raised.

At the Village of Walnut Grove in Urbandale, for instance, builder Triton Homes is advertising new town homes with “no money down.”

Lee Ann Sloan, a real estate agent handling the property, said that Triton has agreed to cover 3 percent of the purchase price. That leaves the buyer responsible for 97 percent, which Stevens said is generally the maximum amount of financing any lender will agree to nowadays.

Sloan said she hasn’t encountered buyers who are nervous about tightened credit standards. But those people probably have already decided to sit on the sidelines for a while.

Better scores

When buyers do get ready, they’ll find lenders will expect more of them than in the recent past, particularly in the way of credit scores.

Cade Lindaman, mortgage manager at Community State Bank, said a loan that would have been granted last year based upon a credit score of 680 or higher will now require a credit score of 700.

That same loan, made with a loan-to-value ratio – the percentage of the value of the home that is loaned – of 80 percent, may now need a 70 percent, she said.

“It’s a little tougher to qualify in general,” said Lindaman.

Many of the loans that were around last year are still available in some form this year; they’re just harder to get.

Lenders also will take a sterner look at what remain the three biggest factors behind whether a loan will be granted – credit scores, loan-to-value ratios and debt-to-income ratios.

There’s no single magic number that will qualify someone for a loan.

Each lender sets his or her own rules on underwriting, and other influences come into play.

Still, as SaBreena Boyd has realized, the higher the credit score, the better.

Originally posted 2008-04-19 10:46:38.

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