October 20th, 2008 9:38 AM by Lehel Szucs
Credit squeeze, credit freeze, credit system seizures: Everybody knows how severe and painful the global financial breakdown has been -- with banks unwilling to lend even to other banks.
But what about mortgages? Can you still get a home loan with less than a 20% or 30% down payment? Or with a credit score below 720?Absolutely. It would be a big stretch to label housing the sunny side of the market at the moment, but there's more light there than in other financial sectors. Consider these facts:
* There is no shortage of money available for home mortgages, no freezing of credit to purchase or refinance a house. Why? Because the American mortgage market effectively has been federalized -- at least for the time being.
More than 90% of new loans now are being made through the Federal Housing Administration insurance program, plus Fannie Mae and Freddie Mac. FHA is owned by the federal government, and Fannie and Freddie are operating under federal conservatorship. All three have unfettered access to global capital markets at rock-bottom costs because their borrowings are fully guaranteed by the Treasury. Ginnie Mae, which is FHA's pipeline to the bond market, recorded an all-time high of $29 billion in new mortgage-backed securities issued in August.
* Loan terms and credit underwriting standards have been toughened up, but you can still put down 3% (3.5% after Jan. 1) on an FHA-insured mortgage and 5% on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance. FHA's credit standards are generous and forgiving -- the agency exists to help people with less-than-spotless credit histories.
Fannie and Freddie have raised their credit-score requirements over the last year, but buyers and refinancers with scores in the upper 600s can still qualify for loans carrying reasonable rates and fees.
* Despite the global financial system's quakes, mortgage rates not only remain low by historical standards but have actually declined recently. For the week that ended Oct. 8, according to the Mortgage Bankers Assn., 30-year fixed rates fell to an average 5.99%, and 15-year mortgages averaged 5.71%. Freddie Mac said 30-year rates dropped to an average 5.94%.
* Maximum loan amounts through FHA, Fannie and Freddie in high-cost local markets on the West and East coasts continue to be $729,750 through December. In January, the maximum is projected to drop to about $625,000.
* Home prices -- pushed by foreclosures and short sales -- have rolled back to 2003 and 2004 levels or lower in many former boom markets. As a result, growing numbers of buyers are coming off the sidelines. The pending home sales index jumped by 7.4% based on purchase contracts signed in August, according to the National Assn. of Realtors. The heaviest increases -- pointing to higher closed sales in the coming two to three months -- were in California, Florida, Nevada and the Washington, D.C., area.
Housing and mortgage leaders say consumer worries about the stock market have obscured positive developments underway in real estate, where pricing pain and downsizing have been facts of the life for the last 2 1/2 years.
David G. Kittle, president and chief executive of Principle Wholesale Lending Inc. and incoming chairman of the Mortgage Bankers Assn., says "the mortgage market has never shut down" despite the global financial crisis. Money is "clearly available as long as you can qualify for it."
Bottom line: Scary as the news has been about stocks and banks, this is not the case for mortgages. Besides shopping at large national lenders, home buyers should check with local banks and credit unions, which may be originating loans for their own portfolios -- not for Fannie, Freddie or FHA. Many of them are healthy and have plenty of cash to lend.