Jeff Jaye, a mortgage broker in northern California, used to rely on homeowners looking to refinance their loans for more than two-thirds of his business. Today, he rarely bothers with those applications because he knows most homeowners can’t qualify for a new loan.
Fannie Mae and Freddie Mac may or may not need a government bailout, but the turmoil surrounding the mortgage-finance companies’ decline has already meant four things for borrowers: higher interest rates, more fees and closing costs, bigger down payments and fewer loan choices.
Lenders that must satisfy the requirements of Fannie Mae and Freddie Mac — the dominant buyers of U.S. mortgage debt — are now demanding bank statements, big cash reserves and second appraisals before they approve a loan to refinance a home.
“The lenders are making it so difficult to qualify,” said Jaye, who now mainly works with buyers snapping up foreclosed properties and homes selling for deep discounts. “I know everybody’s scared right now, but it’s just so over the top.”
Mortgage rates are hovering around 6.6 percent, about the same level as a year ago. But if investors weren’t so nervous, rates would be about 1 percentage point lower, based on historical comparisons.
“Mortgage debt is viewed as much riskier now than it was a couple of years ago during the housing boom,” said Greg McBride, senior financial analyst at .
A person with a $1,170 monthly payment for a $200,000 loan now would be able to afford only a $180,000 loan, McBride calculated, although lower prices could make the home affordable.
Borrowers also are paying higher rates and fees as Fannie and Freddie try to raise revenue and stem losses.
Fannie said it will stop buying risky Alt-A loans, and Fannie and Freddie raised standards for loans they will buy.
Around the country, borrowers like Cathi Parson are already feeling the pinch.
Parson, 49, a hospital administrative assistant, is facing the prospect of asking her mother for help with a down payment. She plans to sell her home in Texas and move back to her native California this year. She wants to buy a house for up to $400,000 and expects to bring a down payment of around $50,000, about 12.5 percent.
“Probably about a year ago, that would have been fine,” Parson said.
