Getting Mortgages Is More Difficult
MICHELE NORRIS, host:
The U.S. housing market has been hit with a series of shockwaves: troubles in mortgage giants Fannie Mae and Freddie Mac, the rise in foreclosures that's expected to continue into next year, the federal takeover of IndyMac bank, the California bank and mortgage lender.
With all these problems, we were wondering if it's tough, or at least much tougher, to obtain a home mortgage these days. To find out we called on Ken Wade. He's the CEO of NeighborWorks America. That's an organization that advocates for affordable housing and tries to match consumers with suitable lending products. He said it is tougher to obtain a mortgage.
Mr. KEN WADE (NeighborWorks America): No question, it's a tougher market out there, and obviously all the turmoil that you see in there with the financial services sector is the reason.
NORRIS: Qualifying standards, have they changed, and income requirements?
Mr. Wade: Sure. Qualifying standards have tightened up. Banks have made it more challenging to meet the - not only income but the credit standards in order to get a mortgage today, and I think all of them are, you know, dealing with increased foreclosures that they have on their own books already, and so obviously they're trying to be much more conservative with the lending they do going forward.
NORRIS: So they're looking for higher credit scores.
Mr. WADE: Absolutely.
NORRIS: What about down payments?
Mr. WADE: Typically higher down payments as well. You know, in the old days, so to speak, you could even get 100-percent financing. That's pretty much gone by the wayside today.
NORRIS: Are there cases where they're asking for at least 20 percent or perhaps even more?
Mr. WADE: There are definitely circumstances where that's the case, and again, a lot of that is driven by your credit score. So obviously the worse off that is, the more you would be expected to put down.
NORRIS: Now, you talk about changing these zero-down loans. Not long ago there were all kinds of unconventional mortgages - no income, no asset verification, zero down payment, very low down payment. Are those still out there for people who do meet these higher standards?
Mr. WADE: Those products are pretty much non-existent right now.
NORRIS: Oh, rest in peace. They're gone.
Mr. WADE: Yeah, and that's as a result of two things. One is obviously the challenges you see in the market, the increased foreclosures, and in addition to that the regulators of the banking sector have issued guidance that all lenders have to follow now that essentially make it pretty difficult to do some of those products that used to exist.
NORRIS: So they couldn't even do it if they wanted to because of these new guidelines?
Mr. WADE: Right, absolutely.
NORRIS: Now, do these things, these changes, apply to just standard mortgages, or have the rules and the guidelines changed for refinancing as well?
Mr. WADE: It's actually hit all across the market, whether it be refinancing or new purchases. The standards across the board have increased for both.
NORRIS: What about the mortgages that offer those very low introductory rates and then increased after two, three, four or five years?
Mr. WADE: Sure, sure, well those products have not been outlawed, so to speak. What the regulators have done is they've required the lenders to qualify people based on the fully indexed rate, meaning not just the introductory rate but whatever that rate will reset to for the full life of the loan.
NORRIS: To make sure that once it resets, the balloon payments do, they'll be able to make that payment.
Mr. WADE: That people will be able to afford to pay it, absolutely.
NORRIS: If someone does need to obtain a mortgage, what are the three things they need to do before they sit down with that lender?
Mr. WADE: Sure. First and foremost, they need to look at their credit situation. They need to go access their credit report on their own, take a look at it, and today, you know, there are any number of services where you can go, get your credit report, and know exactly where you are.
In addition, it seems to me that most consumers would benefit from getting advice from a professional counselor mortgage advisor. There are many nonprofits out there, HUD-certified groups that offer this service. People can contact their local city government or county government, and most of them have a list, and then obviously you've got to put your financial house in order because purchasing a home is a long-term commitment and you've got to be ready to assume that responsibility if you're going to be successful.
NORRIS: Ken Wade is the CEO of NeighborWorks America. That's an organization that advocates for affordable housing. Thanks so much for coming in to talk to us.
Mr. WADE: Thank you for having us.