From the Hartford Courant:
In the latest sign that the nationwide credit crunch is worsening, lenders are saying no to borrowers who want no-money-down mortgages.
The popular financing option – which required no down payments and financed 100 percent of a home loan – is being eliminated or strictly curtailed by lenders across the country and in Connecticut.
That means buyers will once again have to come up with cash for a down payment, at a minimum 3 percent of the purchase price but as much as 10 percent, to avoid costly mortgage insurance premiums that can add hundreds of dollars to a monthly payment.
The change is expected to hit first-time buyers hardest. That, in turn, would sap buyers from an already weakened market where the supply of houses and condominiums far outpaces demand.
Mortgage lending standards have already tightened for many borrowers in 2007, particularly those with spotty credit histories, the so-called subprime market. But a wide-ranging elimination of the zero-down-payment mortgages is a signal that the crunch is spreading more broadly, to those with a solid record of paying bills but who don’t have a lot saved for a down payment.
“If someone walks in today with an A-plus credit history and a $200,000 salary but no money for a down payment, I can’t help them anymore,” said Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford.
The company was notified by its lender this week that the lender will no longer cover no-money-down loans.
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So far, Sheahan said, the squeeze hasn’t crossed into traditional mortgage products that include a down payment. However, in the last week, borrowing rates for large, “jumbo” mortgages have soared by one percentage point, rising above 8 percent, which had a chilling effect on that part of the market as well, Sheahan said.The move by lenders away from the zero-down mortgages will not just affect people of modest means. It will also squeeze young professionals, such as doctors or lawyers, who have high salaries but little money for a down payment because of costly student loans.
“It’s going to have a big impact on the market,” said Menatian. “It’s tough enough to buy in this area, where prices are high and the cost of living is high. But now, in order to get a good loan, you are going to have to come up with 5 to 10 percent in cash.”
And that’s something that not every buyer wants to do.
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With a strong housing market where prices were climbing, lenders were willing to look the other way on these deals, the mortgage brokers said.“Now, with values dropping, if someone got into trouble, they might just walk away” from the house, Menatian said, because they’ve got no money of their own tied up in it.
That would leave lenders stuck with a loss. And that prospect is spooking lenders already rocked by turmoil after the collapse this year of the subprime mortgage market. That industry swelled to $1.3 trillion over the past few years, fueled by Wall Street’s easy money. But as home prices sagged and more borrowers missed payments on loans, the industry buckled.