Bay Shore resident Thomas Vitti is getting over the threshold just under the wire: If he and his wife don’t close on their new home in Islip Terrace by the end of the month, they won’t be able to buy it at all.
That’s because the crisis in the market for subprime mortgages – loans that have less favorable terms that have until now been readily available to people with spotty credit histories – is changing products and standards so rapidly that the mortgage he’s been offered won’t be available in April.
Once we were close to getting our mortgage, a few weeks ago, the market took a dive and I was like, ‘This isn’t good for the mortgage rates’ – and I was right,” Vitti said.
Vitti’s credit slipped late last year after a couple of late payments. He managed to secure a two-year, adjustable-rate mortgage, but only because family members helped him pull together a $30,000 down payment on the new house.
Realtors and mortgage brokers across the Island are reporting that 100 percent financing, through which home buyers were able to close on homes without any down payments, is a thing of the past. And following the disappearance of subprime loans like those, more and more deals are falling apart at the closing table as lenders back out or require that terms be adjusted to reflect the new, more stringent financing market.
“It’s absolutely true that deals are falling apart,” said Ed Munteanu, whose Islandia-based New World Capital does 60 percent of its lending to people with poor credit histories. He said that in the past six weeks, 30 to 35 percent of the subprime loans he has handled have fallen through as lenders and investors have tightened their guidelines.