No Money Down Disappearing as Mortgage Option
Sunday, August 5, 2007
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."
National City Home Equity, a division of National City Bank, one of the nation's big home lenders, stopped funding some types of zero-down loans this month, said Ken Carter, the division's executive vice president.
"When home prices were appreciating and interest rates were declining, that product made sense," Carter said. "Today, we're on the opposite side of that coin, and it's not prudent to be stretching."
Washington Mutual, another big lender, in March stopped offering such loans to subprime borrowers, typically people with poor credit. It also reduced the size of loans to other borrowers.
"It used to be that we would finance a loan up to $1 million with no down payment for a first-time home buyer," said Daniel H. Aminoff, a senior loan consultant at Washington Mutual Home Loans in Alexandria. "But as of March, we will only finance a loan of $417,000 with no down payment."
Concerns about mortgages and credit continued to roil financial markets last week. And American Home Mortgage Investment of New York cut most of its staff of more than 7,000 employees, effective Friday.
Changes in lending policies will most affect people who lack great credit, steady income or cash reserves. These changes made it difficult for Robert Rebellino while he was trying to get a mortgage for a newly built townhouse in Gainesville.
Rebellino, 58, was preapproved for a no-down-payment loan by lender EquiFirst in mid-July. When he signed a contract three days later, EquiFirst had eliminated that type of loan, he and his mortgage broker said.
The next-best loan required a 5 percent down payment -- in his case, $21,000. Rebellino and his wife, Stephanie, put up the cash and recently settled on the house.