Post by jeffolie on Aug 5, 2007 11:52:03 GMT -6
No Money Down Disappearing as Mortgage Option
By Dina ElBoghdady
Washington Post Staff Writer
Sunday, August 5, 2007; A01
Home buyers again need their own money to close a deal.
Lenders faced with growing piles of bad loans, even to borrowers once considered good credit risks, have clamped down on the no-money-down mortgage. The abrupt shift threatens to dash the hopes of millions of potential buyers, especially those shopping for their first homes.
Four out of 10 first-time buyers used no-down-payment mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. But some lenders are now scrapping such loans completely. Others are pickier about who gets them. All figure that the more cash borrowers put down, the less likely they are to default.
"No-down-payment loans are just about near impossible to get right now," said Jennifer Bridges, a real estate agent in Woodbridge at ERA Blue Diamond Realty. "We'll have someone all lined up and then without warning, the lender will say: 'It's gone.' It's terribly depressing."
Like many cash-strapped borrowers, Johnson applied for a "piggyback" mortgage, meaning he took out two loans. The first covered 80 percent of the cost of the home, and the second was a home-equity line of credit that covered the remaining 20 percent, at higher interest.
The arrangement enabled him to avoid paying the mortgage insurance required by lenders if a loan exceeds 80 percent of a home's value. But the second, smaller mortgage is risky for lenders. If Johnson loses his house, proceeds from its sale would go toward paying off the first mortgage. Typically, there would be little or no money left to cover the second.
Piggyback loans were one of the main reasons that Countrywide Financial, the nation's largest mortgage lender, took a big hit to its second-quarter profit. That announcement helped trigger the stock market's tumble last week.
Countrywide said that even people with good credit were defaulting on home-equity lines, largely because of unforeseen events such as illness, divorce or job loss.
The California-based lender plans to eliminate home-equity lines for subprime borrowers. Executives also said they would curtail 100 percent financing for more creditworthy prime borrowers and impose more restrictions on first-time home buyers.
Without the piggyback option, many first-time buyers who want 100 percent financing may find themselves priced out of the market because they would have to pay mortgage insurance, said Eric D. Gates, a mortgage broker at Apex Home Loans in Bethesda. "That will make the monthly payments much higher," he said.
www.washingtonpost.com/wp-dyn/content/article/2007/08/04/AR2007080401418_pf.html
Good riddance. Nothing down eliminates the incentive to make payments.
By Dina ElBoghdady
Washington Post Staff Writer
Sunday, August 5, 2007; A01
Home buyers again need their own money to close a deal.
Lenders faced with growing piles of bad loans, even to borrowers once considered good credit risks, have clamped down on the no-money-down mortgage. The abrupt shift threatens to dash the hopes of millions of potential buyers, especially those shopping for their first homes.
Four out of 10 first-time buyers used no-down-payment mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. But some lenders are now scrapping such loans completely. Others are pickier about who gets them. All figure that the more cash borrowers put down, the less likely they are to default.
"No-down-payment loans are just about near impossible to get right now," said Jennifer Bridges, a real estate agent in Woodbridge at ERA Blue Diamond Realty. "We'll have someone all lined up and then without warning, the lender will say: 'It's gone.' It's terribly depressing."
Like many cash-strapped borrowers, Johnson applied for a "piggyback" mortgage, meaning he took out two loans. The first covered 80 percent of the cost of the home, and the second was a home-equity line of credit that covered the remaining 20 percent, at higher interest.
The arrangement enabled him to avoid paying the mortgage insurance required by lenders if a loan exceeds 80 percent of a home's value. But the second, smaller mortgage is risky for lenders. If Johnson loses his house, proceeds from its sale would go toward paying off the first mortgage. Typically, there would be little or no money left to cover the second.
Piggyback loans were one of the main reasons that Countrywide Financial, the nation's largest mortgage lender, took a big hit to its second-quarter profit. That announcement helped trigger the stock market's tumble last week.
Countrywide said that even people with good credit were defaulting on home-equity lines, largely because of unforeseen events such as illness, divorce or job loss.
The California-based lender plans to eliminate home-equity lines for subprime borrowers. Executives also said they would curtail 100 percent financing for more creditworthy prime borrowers and impose more restrictions on first-time home buyers.
Without the piggyback option, many first-time buyers who want 100 percent financing may find themselves priced out of the market because they would have to pay mortgage insurance, said Eric D. Gates, a mortgage broker at Apex Home Loans in Bethesda. "That will make the monthly payments much higher," he said.
www.washingtonpost.com/wp-dyn/content/article/2007/08/04/AR2007080401418_pf.html
Good riddance. Nothing down eliminates the incentive to make payments.