Borrowers

Not too long ago, ads for "zero-down" and "low introductory rate" mortgages were as common as credit-card offers. Now, with more loans going into default, lending standards are tightening. Loans with low down payments and adjustable interest rates still can be had. But the borrowers who need those loans, including many first-time buyers, will have to make a stronger case. Here's how to proceed: Improve your credit score. Most of the lending pullback has occurred in what is called the subprime market, or loans made to borrowers with a higher risk of default.

NEW YORK -- A federal judge in Wisconsin ordered Chevy Chase Bank to rescind loans made to some borrowers who took out so-called option adjustable-rate mortgages, The Wall Street Journal reported yesterday. The ruling was in a case against the Maryland-based bank brought by Susan and Bryan Andrews, who took out an option ARM in the belief that a 1.95 percent introductory rate was fixed for five years. Two months later, they received a statement showing the rate had risen to 4.375 percent, the newspaper said.

Foreclosures on subprime home loans made to borrowers toward the end of the housing bubble will erase billions of dollars in value from neighboring properties, according to a report released yesterday by a nonprofit group. The Center for Responsible Lending used its findings to call for Congress to enact stronger protections for borrowers facing foreclosure - such as giving bankruptcy courts the authority to allow borrowers to continue making payments - and to take steps to prevent predatory lending practices.

This is not your parents' mortgage market. A generation ago, banks took on deposits and lent that money to homebuyers who took out 30-year, fixed-rate mortgages. That changed when Wall Street got involved in recent decades. Investment banks provided capital to mortgage companies so they could make the loans, and then bought the loans and bundled them into securities that are sold to investors. Through the magic of "securitization," the broker, lender and investment bank essentially become fee-collecting middlemen between the borrower and investor.

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.

CALL THEM reverse-rate mortgages for the credit-impaired.Call them good-behavior loans. Or heal-thyself home financing.Whatever name you give them, they're the hottest concept this fall in the American home mortgage market. And they are transforming the traditional, punitive approach lenders have taken when dealing with homebuyers and refinancers whose credit records aren't up to snuff.Now lenders are bending over backward to give applicants a second chance, plus a rate break. In fact, if you have less-than-perfect credit and your mortgage doesn't carry an automatic rate-reduction feature when you pay on time, you're missing out.The biggest players in the heal-thyself movement are some of the giants of the mortgage industry: Fannie Mae, the largest source of home financing money, now offers a "timely payments rewards" loan nationwide.

Sub-prime lenders give credit where credit is overdueThe Sun's article "Curran to widen housing inquiry" (Oct. 22) reported the Association of Community Organizations for Reform Now's (ACORN) "accusation" that sub-prime lenders lend more in minority and low-income communities than prime lenders.That's not a charge my industry disputes -- in fact, we're proud of it.Sub-prime lenders have brought reasonably priced credit to millions -- people of all races, nationalities and economic backgrounds who in the past have been locked out of mainstream credit markets.

AMERICA'S fastest-growing form of home mortgage financing during the last four years -- loans that exceed the value of borrowers' houses by 25 percent to 50 percent -- has nearly gone bust in the chill winds of early 1999.Pitched on once-ubiquitous television commercials by sports celebrities, so-called "high-LTV" (loan-to-value) mortgages were the rage from 1995 through late 1998 -- jumping from near zero volume to an estimated $12 billion a year.The loans offered borrowers huge temptations to hock their houses to the hilt: Rather than being limited by traditional requirements that the property value exceed the loan amount, high-LTV mortgages encouraged borrowers to push their total debt to 125 percent to 150 percent of the home's value.

MORE THAN half of all American home mortgage applicants are likely to be affected by a new federal policy statement designed to clarify when certain loan fees routinely charged borrowers are legal, and when they are not.The policy statement is expected to be released shortly by the Department of Housing and Urban Development (HUD). It tackles one of the most controversial consumer protection issues in home lending -- the collection of fees by mortgage brokers that can add thousands of dollars to the cost of a mortgage.

Several readers have been asking when they can cancel their private mortgage insurance.When a homebuyer's down payment is less than 20 percent of the purchase price, the lender often requires the homebuyer to purchase private mortgage insurance, or PMI. PMI protects the lender against a deficiency in case the borrower defaults and the home does not bring enough money at a foreclosure sale to pay the lender in full.PMI is expensive -- $25 to $65 a month on a $100,000 loan. The cost of PMI is added into the homebuyer's monthly mortgage payment.

One in eight Maryland borrowers were behind on their mortgages this spring, a new report shows, a record caused by job losses and foreclosures feeding on each other in a vicious cycle. That adds up to about 132,000 homeowners who were at least 30 days late, according to a survey released Thursday by the Mortgage Bankers Association. That's up nearly 60 percent from a year ago and includes people whose lenders were trying to foreclose as of June. The country fell into recession after homeowners with risky "subprime" loans began defaulting in large numbers two years ago, sending financial institutions into a tailspin.

Having heard what he called a "test run" of Baltimore's discriminatory lending claim against Wells Fargo on Monday, a federal judge said he will rule within days on whether the civil case can proceed to discovery - a process that could reveal the inner workings of one of the region's largest mortgage lenders. Baltimore's lawsuit against Wells Fargo, filed in January last year, alleges that the company violated the federal Fair Housing Act by disproportionately pushing black borrowers into oppressive subprime loans that were "destined to fail."

The number of Maryland borrowers who face foreclosure or have missed mortgage payments topped 100,000 for the first time at the end of last year - a record 11.1 percent of loans in the state, the Mortgage Bankers Association said yesterday. Rising joblessness is adding to a worsening housing crisis that has sent foreclosures and delinquencies to record levels, economists said yesterday. Problems for borrowers with subprime loans are now spreading into more conventional loans. Nationally, 12 percent of borrowers were behind on their mortgage payments at the end of December.

Here's some good news for homeowners facing tough financial times: You no longer have to miss two to three months of payments before your mortgage company can modify your unaffordable loan terms. Starting immediately, Fannie Mae - the mortgage giant with an estimated 18 million home loans in its portfolio or in mortgage bond pools it guarantees - will allow borrowers who face imminent financial difficulties to request "early workout" loan alterations, even if they've never been late. The policy change could help thousands of people who are losing jobs or facing layoffs as the recession crunches onward.

Home loan borrowers with good credit could be in for some of the best mortgage rates in months, analysts said yesterday, a day after the Federal Reserve announced intervention designed to make financing less costly and more readily available. But it will likely take some time to turn around a sluggish housing market amid a deepening economic crisis, where lenders have tightened standards and many sellers are still unwilling to budge on home prices, mortgage experts and brokers said. Tuesday's action by the Federal Reserve sent mortgage rates down to the lowest levels since February.

During the presidential campaign, the housing debate sometimes had more to do with how many homes a candidate owned than about solutions to the nation's housing crisis. At other times, specious claims were made that the current foreclosure crisis was caused by Fannie Mae, or by policies started in the 1990s to get banks to expand homeownership lending to low- and moderate-income families. We heard very little, unfortunately, about what has succeeded at enabling hardworking families with average or below-average incomes to afford a home or rent a decent apartment.

Amid the widening housing crisis, Gov. Martin O'Malley plans to announce today an agreement with some of the nation's largest loan servicers to help homeowners who have fallen behind in their mortgage payments to avoid foreclosure. Under the accord, GMAC, Ocwen Financial Corp., Litton Loan Servicing and other companies have agreed to follow certain practices when working with borrowers seeking to modify terms of mostly subprime or adjustable-rate loans they can no longer afford. Significantly, the servicers have agreed to a "cooling-off" period to ensure that borrowers don't lose their homes before they can get help.

Fannie Mae, Freddie Mac, Merrill Lynch and Lehman Bros. may be dominating the financial headlines, but a little-noticed $28 million settlement this month between the Federal Trade Commission and what's left of Bear Stearns symbolizes the housing-boom era products - and practices - that started a lot of the trouble. Once the fifth-largest investment bank on Wall Street, Bear Stearns was a major funding source for subprime and exotic mortgages: payment-option plans that allowed borrowers to buy expensive houses and run up their debts while making minimal monthly payments.

The share of Maryland homeowners behind on their prime mortgages shot past 4 percent for the first time this spring, a sign that loan troubles are spreading beyond borrowers with shaky credit. More than 36,000 prime loans in Maryland were delinquent or in the foreclosure process in the three-month period that ended in June, up from 19,000 a year earlier, according to a Mortgage Bankers Association survey released yesterday. About 4.3 percent of all prime borrowers were behind this spring, including people at imminent risk of losing their homes.

The two biggest sources of mortgages for American homebuyers plan to raise their base fees to counter what they see as continuing "adverse conditions" in the real estate marketplace. At the same time, however, Fannie Mae and Freddie Mac - who currently fund more than three-quarters of all new home loans - also plan to selectively reduce fees for certain applicants whose likelihood of default and foreclosure appear to be lower than the companies' previous estimates. The changes are being driven by what's known as risk-based pricing.