Abode Well
Making sense of the mortgage mayhem
Once upon a time, the princes and princesses of metro D.C. lived in a fairytale land of easy money and easy profits, flipping a Logan condo here for a Columbia Heights row house there, all the while buying upward and leaving a trail of granite countertops and new bamboo flooring in their wake. That is, until that witch — the one who flew around in a bubble? — brought it all crashing down. Did she wave a wand of recession? Can she blame the price of oil, questionable adjustable loans or the Iraqi money suck? The crystal ball is not that clear. All that’s certain is, Dorothy, we’re not in the land of easy money anymore.
”On the lending side, it’s become more and more difficult for purchasers to actually qualify for a home loan,” says Art Garza, a mortgage loan officer with Bank of America Mortgage, who began his career in 1984 as a juniorunderwriter. ”A year ago there was 100 percent financing, the restrictions were easier. That has all changed.”
Francki DiFrancesco, vice president of residential lending at Nationwide Home Mortgage, sees the same from where she’s sitting.
”The banks have very little money and the money they do lend is tightening,” she says. ”They’ve learned that loose guidelines and easy qualifying — low credit scores, no money down — have caused the banks to be so upside downthat investors don’t want to invest in real estate or lend money. It’s just like you lending money to someone who won’t pay.”
While there are home buyers who would point a finger squarely at their lenders and claim unscrupulous lending practices, that doesn’t change the basics of foreclosure: Money was lent. Terms were set. And somewhere along the line, loan default means not only will the lenders’ money not be returning with interest, but it might not be coming back at all. The lenders’ collective reaction to that big disappointment can seem very daunting for anyone trying to buy a home today.
”I don’t know when it will change,” says Garza. ”People will continue to buy homes, but [lending is] just becoming more and more restrictive.”
Add to that the kinetic flavor of these new restrictions, and a potential buyer may prefer to invest in a bunker in which to ride out the storm. For example, a buyer may be approved for a certain mortgage loan amount, but buying a home is not generally an overnight process. In today’s mortgage market, the terms may have changed by the time that buyer is ready to close. Last week’s minimum credit score just might not be good enough today.
”It can change overnight,” agrees Garza, pointing to extreme cases, while explaining that most loan officers have a fair amount of warning about what changes may be coming down the pipeline. But though he and his peers may have some warning of a new, tighter, lending rule, it’s still coming.
”If you’re looking to purchase, you have to move quickly.”
Adds DiFrancesco: ”The banks are saying, ‘We lent all those people money and we got burned. We’re going to tighten up these guidelines.’ I think we’re pretty much done with the tightening, but there might be more.”
On the positive side, both DiFrancesco and Garza say that for the potential home buyer who has saved enough money for a 10-20 percent down payment, who has a great credit score, who has a steady work history, etc., metro D.C. is still that fairyland of yesteryear, with ample inventory, relatively low home prices and great mortgage rates. For the rest, however, they warn it may be tough going for a while.
But whether you look like a lender’s perfect candidate or something a bit below that bar, there are some simple rules to follow. Foremost, the relationship with the loan officer is now as important as the relationship with the Realtor. And it’s got to be a team effort.
”It is key that it’s a team relationship,” DiFrancesco says. ”Have a rapport. Work with a local person. I think it’s risky to buy a loan online. It’s a great source of information, but not for having a relationship with abroker. It’s the same in any business: You’re looking for someone’s who’s accountable.”
And now, more than ever, says Garza, check that credit score. While you may think your magic number is just fine, he warns that he’s seen clients who had good scores, but that the scores could have been better. You might likeyour 680, for example, but an errant $100 collection from years ago could be keeping you from a more accurate 720.
”Look at your credit report,” Garza implores, saying that a few points on a credit report may change a buyer’s interest rate by an eighth – the smallest unit used for mortgage rates. ”Many clients don’t know what’s on there. Every eighth helps. That can matter.”
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