Au revoir 100-percent financing

Au revoir 100-percent financing

Just a few months ago, Micah Davis, a broker for Mahone Mortgage, thought he had a deal done. He had run the customer’s numbers through Fannie Mae’s automated underwriting system, and the system had blessed the customer with an approval for a mortgage. Then came June.

That was the month when Fannie Mae updated its system, making mortgages harder to come by. Davis ran the same customer’s numbers through this month—the very same numbers—and the system spat out a “refer,” meaning that Davis couldn’t do the loan.

“Nothing had changed,” says Davis. “I’m going to be able to do it because, until October, they’re honoring anything that was run before June. But all things being equal, it went from an approval to a refer.”

Micah Davis, a broke for Mahone Mortgages, says that loans with 100-percent financing and different degrees of documentation, "are essentially nonexistent."

This is just one local story of a larger lending market that has assumed a defensive posture in the wake of the credit crisis. Nearly a year ago, the subprime section of that market began its collapse. A year later, investors are still unsure how bad the crisis is and as a result, the national lending market has tightened up, making it much harder to get a mortgage now than it was a year ago.

But is the local picture as bad as the national?

Two things are certain. The days of 100-percent financing—no down payment—are gone. And the baseline credit score you need for approval has risen sharply.

“It is more difficult to qualify borrowers for loans these days,” says Peggy Deane, vice president of mortgage services for Member Options, which provides mortgages for the UVA Credit Union. Dean says the secondary markets, institutions like Fannie Mae and Freddie Mac who buy loans from originators, have tightened up their guidelines around the county.

“Even a year ago, for credit scores in the 500s, I won’t say those loans were easy to come by, but they were certainly possible,” Deane says. “That’s not the case today. We’re seeing a migration to a minimum of a 620 on more programs.”

Borrowers in Charlottesville do have an advantage over homebuyers in larger cities like Boston, Washington, D.C., and Phoenix, says Doug Adamson of Bank of America. Because of the slump in housing prices, many larger cities are considered declining markets. That label limits some loan options.

While home prices in and around Charlottesville are stagnant, it isn’t considered a declining market. That means some loan options like 95-percent financing are easier to come by here than in larger cities.

Deane says that generally people are going to have to have some money saved to buy a house now that 100-percent financing has disappeared.

“And there’s going to be a whole lot more focus on how they manage their credit,” she says. “For those who have the income and credit history to qualify, I’d say it’s just as easy as it always was.”

But for those who haven’t saved any money and have some dings in their credit, Deane says, they’ll need to go through some local counseling programs to shore up their standing. “Even though lending guidelines have tightened, there are still a wide variety of programs out there. I certainly wouldn’t want to paint the picture that it’s all bleak.”

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