The mortgage industry’s tailspin from lofty heights has left potential Valley homebuyers scrambling to pick up the pieces of shattered deals, as lending standards tighten on a near-daily basis.
During the housing boom, it was easy to get a loan, said Elaine Paddy, senior vice president at Alliance Home Mortgage in Mesa.
“If you lived and breathed, the underwriting guidelines would pretty much allow for you to get a loan,” she said.
Today, it’s harder than ever for borrowers to qualify for financing.
The days are gone when anybody could get 100 percent financing or use loans that didn’t require proof of income. That’s forced some borrowers who were already preapproved to start the process again from scratch.
Buyers now need higher credit scores and often a down payment of at least 5 percent.
Subprime and Alt-A borrowers are taking the biggest hits because they are at greatest risk for default, said Jeff Underwood, a loan officer with Mesa-based AmeriFirst Financial.
Subprime loans cater to borrowers with less than perfect credit, while Alt-A are geared toward people with decent credit scores but who can’t or won’t document their income or assets.
Many Alt-A borrowers are self-employed and have depended on these loans, Underwood said. That includes local investors, a number of them real estate agents, who hope to refinance loans on multiple properties in the coming months, he said.
“I really feel like we’re going to see a lot of Realtors, who are going to be in trouble this year,” he said.
LUXURY BUYERS TAKE HIT, TOO
While stricter guidelines have pinched struggling first-time buyers, luxury homebuyers are also feeling the heat.
Earlier this month, interest rates spiked on jumbo loans, which are larger than the traditional loan limit of $417,000. Jumbo rates jumped from 6.75 percent to 8.25 percent practically overnight, Underwood said.
The federal government is considering raising conforming loan limits, but for now, some luxury buyers are sitting on the sidelines.
Borrowers have also watched deals evaporate as mortgage companies have shut their doors.
Lenders throughout the country have lost hundreds of millions of dollars, as surging default and foreclosure rates scared away Wall Street investors from buying up mortgages on the secondary market. More than 38,000 workers at mortgage firms have lost their jobs so far this year.
Tucson-based First Magnus Financial Corp., which filed for bankruptcy protection last week, and Scottsdale’s 1st National Bank Holding Co., which laid off 351 mortgage-related workers, are just two of the latest casualties of the fallout.
LIFE IN UPHEAVAL
East Valley resident Jamie Andersen was a week away from closing a deal on a new home when her lender abruptly closed down, causing instant worry.
Now, instead of moving into their new Queen Creek home, Andersen, her husband and two daughters are living at her mother’s house in Gilbert, where they’ve been staying since selling their home in Utah in June.
“At this point, you can imagine I’m a little stressed,” she said. “We’re definitely anxious to get our own home again.”
Andersen now has a friend who is a loan officer at Ameri-First working to push the deal through as soon as possible. Meanwhile, she is trucking her daughter to daycare in Queen Creek during the week.
“Our whole life is just kind of in upheaval until we can get this figured out,” she said.
While lenders across the nation struggle to remain financially viable, industry experts worry that the mortgage crisis could have a drag on the larger housing market and economy.
The stricter guidelines could effectively shut out as many as 30 percent of potential homebuyers from the market, AmeriFirst’s Underwood said.
Local real estate agents are watching deals fall through as buyers’ loan options shrink, said Yalda Alawi, an agent with West USA Realty Revelation in Chandler.
“Any buyers you have right now, don’t tell them to be waiting, sitting on the fence,” Alawi said. “Otherwise, it’s going to continue to get tighter, tighter and tighter.”
New homebuilders are facing the same challenges.
At Arizona-based Meritage Homes, some buyers have lost their loan approvals in the middle of the building process, said Ron Morgan, the company’s senior vice president of sales and marketing.
Meritage, which has its own mortgage company, has been laboring to fit borrowers into different loans and counseling them on how to repair their credit, Morgan said.
“Everything in the world is dependent on these FICO (credit) scores,” he said.
Still, local experts say there are plenty of loan products that remain available and some tried-and-true options are making comebacks.
The 30-year-fixed-rate loan is one of them. With rates as good as they are, it doesn’t make sense to get an adjustable-rate mortgage, said Jeff Brock, a loan officer with The Mortgage Advantage in Tempe.
The gap between fixed and adjustable rates has steadily closed in recent months.
It’s also still possible to do a zero-down loan if a borrower has good credit, Brock said.
“You have to stay on top of all the new guidelines and changes,” he said. “There’s still good ways to get all the stuff done that you need to get done.”
Paddy at Alliance Home Mortgage said she’s also seen a large increase in the use of 30-year fixed-rate products over the past six to nine months.
Today’s market is beginning to look similar to the days when Paddy first got into the business a decade ago.
There were no interest-only loans or other “crazy types of financing,” she said.
Loan officers are having to work harder to close deals and are forced to be at the top of their game, Paddy said.
“Consumers are leaning toward the foundation — what built the mortgage industry in the first place,” she said.
Paddy said she’s also seen a slight increase in the use of Federal Housing Administration, or FHA, loans, which require 3 percent down but don’t have specific credit score criteria.
To qualify for other loans, a borrower has an uphill battle if he can’t put down at least 5 percent, Meritage’s Morgan said. “For a buyer who has 10 percent or more down and has a good credit score, there is no crisis,” Morgan said.
People planning to buy a house need to save some money and work on improving their credit, he added.
It takes four to six months to build a starter home, and a lot can be accomplished in that time, Morgan said.
“You really have to have the self-discipline and commitment,” he said. “Lenders just don’t reward bad behavior with low rates.”