What's a Borrower to Do?

RISMEDIA, August 22, 2007—(MCT)—It used to be easy to refinance, tap into home equity for cash or get 100-percent financing for a home. No longer. So what’s a borrower to do?

Mortgage experts say financing is still available to the right people, under the right conditions — at a cost.

Lou Pacific, a Mission Viejo mortgage consultant who has worked in the industry 30 years, said his informal surveys of brokers found BNC Mortgage LLC and Accredited Home Lenders continue to offer subprime loans while banks, such as World Savings and U.S. Bank, are aggressively offering conventional mortgages.

“They’re tightening guidelines, but they’re still offering loans,” Pacific said.

Credit unions and thrifts are offering the best rates to qualified borrowers, according to Newspaper Chart Services.

The Orange County Federal Teachers Credit Union, for example, offers loans up to $417,000 at 6.125% with a fee of 2.5 points. OCTFCU’s “jumbo” loans — between $417,000 and $1.5 million — are 6.5% with a fee of 1.875 points.

Pacific and other brokers say lenders are typically demanding credit scores of 660 to 680 for subprime loans. In the past, scores of 580 would qualify.

Gone, too, are “stated income” loans, so borrowers must show proof of income, such as tax records, bank statements or other documents.

What’s also changed is the size of down payments. Some lenders are offering loans at 90 to 95% loan-to-value, but most won’t go over 80%, Pacific said.
Getting the high loan-to-values is tougher because appraisals are falling.

That hits people needing to refinance especially hard.

In cases like that, some mortgage experts recommend deferring refinancing until better terms are available. The danger is that home prices could fall further — a distinct possibility at a time of soaring foreclosures and a glut of homes on the market.

“In parts of Mission Viejo where homes sold for $875,000 a couple of years ago, they’re now listing for $690,000,” Pacific said. “So what do you do if you want to refinance for $850,000 because you need money again? The house isn’t worth it.” Some industry experts say lenders prefer to help people refinance rather than push a homeowner into foreclosure.

“If you have to refinance, contact the lender as soon as possible, before you go into default or foreclosure,” said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. “It’s like detecting cancer. The sooner you find out, the more options you have.” Other industry experts say it’s already too late — that even locking in a loan doesn’t guarantee financing.

“I’ve been hearing the most heart-wrenching stories in my 21 years in this business,” said Jeff Lazerson, president of Mortgage Grader, a Laguna Niguel-based Web site that helps consumers shop for mortgages.

Lazerson had these tips to survive the tough times: Consider partial seller financing to avoid jumbo loan rates.

If you are purchasing a home and can’t afford a 20-percent down payment, it’s cheaper to purchase mortgage insurance than go for a second mortgage, which has a higher interest rate.

If you can’t wait to refinance, try to get a “no cost” loan with no prepayment penalties but a higher interest rate than you’re paying now. The interest is tax deductible and better terms could be available soon.

“The key is don’t panic,” Lazerson said. “This too shall pass.”

Getting Help

Homeowners in mortgage trouble can call the Homeownership Preservation Foundation for help. The nationwide nonprofit has counselors who work with lenders to try to prevent foreclosures. Call toll-free in English or Spanish: 888-995-HOPE (4673).