What credit crunch?

PERSONAL FINANCE

Plenty of mortgage money is available

August 19, 2007|By EILEEN AMBROSE

From the headlines, you might think that lenders will never offer another mortgage.

If you're in the market now for a loan, take a deep breath. It's not that bad.

Yes, the days when consumers with iffy credit and no proof of income could buy a house with no money down are gone. With rising defaults in the subprime market, lenders are returning to underwriting standards of five years ago - before the hot real estate market gave rise to interest-only and other exotic mortgages. And the landscape is changing quickly; mortgages and loan terms being offered just a few weeks ago are no longer available.

"It's a little scary, but you kind of have to take it with a grain of salt," says Neil Sweren, president of AllyMac Mortgage Services in Owings Mills. "There is plenty of money out there, even for those people with less than perfect credit."

If you're in the market for a house now, what can you expect?

If you're not a subprime borrower or looking for a jumbo mortgage exceeding $417,000, you should have no problem securing a loan, says Paul Havemann, vice president with HSH Associates, a provider of mortgage information.

Havemann says a mortgage is like a three-legged stool supported by a credit score, assets and income. If all of those are sturdy, you should have "no worries."

Those in the best position are borrowers with credit scores of 660 and up and who can afford to make a down payment of at least 5 percent, Havemann says.

"You have to have skin in this game," Havemann says.

Homebuyers not long ago avoided making a down payment by taking out two mortgages simultaneously. The first would be for 80 percent of the home's value and the second would cover the rest. Those second mortgages are becoming scarce, Havemann says.

Options remain

Even if you have less money to put down and your credit history is spotty, you still have options under several loan programs that are gaining interest among borrowers.

FHA loans, for instance, are made by private lenders but are insured by the Federal Housing Administration. Stellar credit histories aren't needed. In fact, borrowers with a bankruptcy in their past can qualify under certain circumstances.

The most popular FHA loan is a fixed-rate loan that requires the borrower to make a 3 percent down payment.

Borrowing limits range from $200,160 to $362,790, depending on the region. In metropolitan Baltimore, homebuyers can borrow the top limit for a single-family home. Market rates apply, with a 30- year-fixed-rate mortgage last week going for about 6.5 percent.

Freddie, Fannie

Freddie Mac and Fannie Mae also offer loan programs for low- to moderate-income homebuyers.

No down payment is needed. You don't have to have a perfect credit record. Each also offers flexible terms for teachers, firefighters, police officers and health care workers. Interest rates depend on the market. You can get the loans through local lenders approved by each group.

"The number [of loans] has skyrocketed over the last few months as things started to fade in the subprime markets," says Brad German, a spokesman for Freddie Mac.

Freddie Mac's Home Possible Mortgage allows you to borrow up to 105 percent of the value of the home. You can get a fixed-rate for up to 40-year term, or a variety of adjustable-rate mortgages (ARMs).

To be eligible, your income can't exceed the median income in your area. For instance, the median income is $75,800 in Baltimore, Baltimore County and Howard County and $94,500 in Prince George's and Montgomery counties. But if you're buying a home in an area traditionally under-served by mortgage lenders, there is no income limit, German says.

Check out www.FreddieMac.com/homepossible for more information.

Fannie Mae's program, MyCommunityMortgage, allows consumers to borrow up to the full value of the house.

Borrowers' income can't exceed the median income of their area, although the program makes exceptions in certain high-cost states such as California and New York, says spokesman Alfred King.

For more information call 800-732-6643 or go to www.fanniemae.com.

Refinancing market

Those in the market to refinance also will find a mixed reception from lenders.

Charles DiPino, vice president of Universal Trust Mortgage Corp. in Columbia, says his office is getting flooded by callers eager to switch from an adjustable to a fixed-rate mortgage.

Subprime borrowers are having difficulties, he says. If their credit records haven't improved since taking out the original mortgage, they may find that their monthly mortgage payments will be higher under the new loan or they may not be able to refinance at all, DiPino says.

On the other hand, DiPino says, borrowers with decent credit records and seeking to refinance loans under $417,000 are having no problems. (Loans over that amount can't be purchased by government-sponsored Freddie Mac and Fannie Mae, which buy mortgages and package them as securities for investors.)

Countrywide Financial

Some readers have expressed concern about the fate of mortgage giant Countrywide Financial Corp., mired in speculation that it might have to file for bankruptcy.

Carolyn Hicks of Joppa has had her loan with Countrywide since 1994 and would hate to see her mortgage serviced by another lender, if the company's troubles mount. "Our service has been excellent," she says.

Max Buffington, though, is looking for the silver lining. The Ellicott City resident wondered if there was some benefit for borrowers if Countrywide or other mortgage lenders teetered into bankruptcy.

"If so, do you think that it might be possible for an individual to buy his own mortgage back at a discount?" Buffington asked in an e-mail.

Alas, no. Even if a mortgage lender goes belly up, borrowers won't be able to escape paying their loans in full. A debt is a debt.

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com

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