Credit eases for buyers of more-affordable homes

August 24, 2008
By: Catherine Reagor, Arizona Republic

The subprime implosion, record level of foreclosures and losses by lenders have created one of the toughest credit markets in recent history.

The number of banks tightening their standards for mortgage borrowers is the highest it has been since the recession of 1991, according to the Federal Reserve's Senior Loan Officer Survey and Freddie Mac.

Last week, Anthony Sanders, professor of finance and real estate at Arizona State University, spoke to a group trying to make some sense out of changes in the mortgage market and make some money off of it as well: the Arizona Mortgage Lenders Association.

The one somewhat-bright spot in the mortgage market is that people buying more-affordable homes will find it a little easier to get a home loan now.

"The housing bill has steadied the nerves of lenders in the conforming-loan market," Sanders said. He said that is helping to make more mortgage money available in the $400,000-and-under home-loan market.

"Funding for jumbo mortgages is still shaky but will start to ease as the general housing market stabilizes," said Sanders, who presented a report on current economic challenges and opportunities to the lending group Thursday.

The federal housing and foreclosure-prevention bill that passed at the end of July ups the conforming-loan limits for FHA, Fannie Mae and Freddie Mac, which means these agencies can back higher-priced mortgages than before. But these housing groups can't back loans for more than $625,000.

Anything above that number is considered a jumbo loan instead of a conforming loan in Arizona.

The difference in the availability of loans is apparent in the interest rates. At the end of July, the average interest rate on a jumbo 30-year mortgage was 7.82 percent. The average rate on a 30-year "conforming" fixed-rate mortgage was 6.74 percent.

The housing bill also has a very unpopular feature with the real-estate market. It did away with some very popular down-payment-assistance programs. The loss of those programs is bound to make it tougher for many first-time buyers.

But Sanders said in a slowing housing market, like the current one, down-payment-assistance programs don't make sense.

"In today's market, putting a home buyer with none of their own equity in property is inherently dangerous, since small increases in housing prices cause the loan to be upside-down, or underwater, almost immediately," he said.

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For additional information, please contact Shelley Mitchell, smitchell@nehemiahcorp.org, 916-231-1999.

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