Mortgage insurers target Brevard
Mar 21, 2008
Groups focus on Brevard, making it harder to get loans
FROM STAFF AND WIRE REPORTS
Florida Today--Mar. 21, 2008
The mortgage industry just made it harder for some prospective homebuyers in Brevard County to borrow money.
Mortgage insurers, whose backing is required for borrowers who can’t afford the traditional 20 percent down payment on a home, already have flagged nearly a quarter of the nation’s ZIP codes where they refuse to insure some home loans. All of Brevard County’s 48 ZIP codes are among nearly 10,000 ZIP codes — nearly a quarter of the nation’s total — blackmarked by insurers Radian Group Inc. or AIG United Guaranty.
For new home buyers and those seeking to refinance, it can mean higher down payments and a higher bar for credit scores, among other requirements. The toughest restrictions are in markets where home prices are falling, though regions where property values are rising are not immune.
The news comes at a time when consumers and the U.S. economy need banks to lend more freely. It also comes despite a flurry of government initiatives, including steady interest rate cuts by the Federal Reserve, intended to make it easier for would-be borrowers and those facing interest-rate resets on their mortgages.
Predictably, realtors in Brevard were dismayed.
"Anything that loosened up the lending would be of help to the housing market," said Dale Young, president of the Melbourne Area Association of Realtors. "Brevard is probably in a declining market, but it is not as bad as some other areas in the country. Painting everything with a broad brush is not going to help anyone."
The blackmark means restrictions could apply to those trying to borrow money for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making very small down payments.
The entire states of Arizona, California, Florida, Michigan, Nevada and Ohio — which have seen the highest foreclosure rates and the worst price declines –are blackballed on some mortgage insurers’ lists.
Space Coast Association of Realtors President Cindy Kelly said lenders must find a way to get more creative.
"People were buying houses before mortgage insurance existed," Kelly said. "But this will affect the 90 percent loan and the 100 percent loan" — referring to loans that have a 10 percent or zero down payment.
Banks that have lost billions because of bad bets during the housing boom are reverting to strict lending standards not seen in nearly 20 years, according to industry data and interviews with lenders.
"We’re in the midst of an epic, broad, sweeping change in the mortgage industry," said Chris Sipe, a loan officer with America East Mortgage in Frederick, Md.
Lenders’ growing wariness threatens to dampen sellers’ already soggy prospects for the spring home-buying season — and that means more pain for the already battered housing sector and the broader economy.
With banks and mortgage insurers pulling back, state and federal programs for first-time buyers and people with poor credit are attempting to fill the void.
The stinginess of banks also is showing up in home loan statistics: The value of all new mortgages plummeted to $450 billion in the fourth quarter of 2007, down 38 percent from a year earlier, according to trade publication Inside Mortgage Finance.
Subprime loans, made to borrowers with poor credit, virtually disappeared from the market, plummeting 90 percent to $13.5 billion in the October-December quarter.
There is a silver lining: The Federal Reserve has repeatedly cut interest rates, helping borrowers whose mortgages were just about to reset to higher rates and people with student loans. Reflecting the Fed’s efforts, rates on 30-year mortgages dropped below 6 percent this week for the first time in more than a month.
Amid the turmoil, the mortgage industry is playing hardball with borrowers.
Wells Fargo & Co. requires a 25 percent down payment in the most distressed markets, according to a document sent to mortgage brokers last month. A company spokesman said in an e-mail message that Wells Fargo is "focused, as we’ve always been, on fair and responsible lending and sound credit risk management."
Some borrowers who took out home-equity loans or second mortgages are being blocked from refinancing. The problem is most common among consumers using two different lenders.
And while this week’s interest rate cut by the Federal Reserve could tempt banks to lend more, experts say they are likely to remain skittish for months to come.
Walter Ferrero, regional vice president of Union America Mortgage on Merritt Island, said this would be another setback for the market.
"This is more likely to affect the first-time home buyer," Ferrero said. "But in turn, it will slow down the whole market."