Crunch time for credit

Everyone's looking for the bottom of the real estate market, but you'd need a crystal ball to pinpoint the day a home reaches its lowest price.

Waiting to make the right move that would maximize potential appreciation and home equity has its downside, said Chris Biaggi, president of All Western Mortgage in Las Vegas.

In today's skittish lending environment, worsened by the subprime mortgage crunch, consumers are left with diminishing options for loan packages. What's available today may be gone tomorrow, Biaggi said.

Someone who qualified for a $500,000 home last week may only qualify for a $400,000 home this week as lenders tighten credit requirements. Sharp increases in foreclosures and nonperforming loans have caused the mortgage industry to become extremely conservative and eliminate the more aggressive loan programs, Biaggi said.

"In my 20 years in the business, I have never seen the mortgage industry so scared and hyper-reactive," he said. "We seem to be looking for ways to decline loans rather than approve them. We seem to be losing products on a daily basis."

Carlos Moranchel used a 90 percent loan-to-value stated income loan to get into a larger home in July. He put 10 percent down on a $350,000 home in The Orchards subdivision near Sunrise Mountain and took out a five-year option adjustable-rate mortgage at about 7 percent.

"That loan's pretty much gone now," Robin Camacho of Direct Access Lending said. "You've got to have strong assets and reserves to get it. Carlos has reserves and he put 10 percent down."

Moranchel, with his wife and four daughters, dog and parrot, outgrew his previous home in the neighborhood of Christy Lane and Charleston Boulevard. He went from three bedrooms to four and doubled the size to 2,300 square feet.

The 37-year-old property manager from Los Angeles took a second job as a parking valet to make ends meet.

"I personally think it's well worth the effort," Moranchel said. "Look at what I have now. A big house, a big yard. It's a sacrifice. In all honesty, anybody who comes to Vegas can accomplish the same thing, but they have to put their heart into it."

Market conditions favor buyers right now, Biaggi said. Interest rates remain at historical lows and Las Vegas median home prices have dropped about 5 percent from last year to $295,000, the Greater Las Vegas Association of Realtors reported.

The Mortgage Bankers Association reported that its Market Composite Index, a measure of mortgage loan application volume, was 678.7 for the week ended Aug. 10, an increase of 3.4 percent on a seasonally adjusted basis from the previous week. On an unadjusted basis, the index was up 20.6 percent compared with the same week a year ago. The Refinance Index increased 2.6 percent to 1,929.6 from 1,881.1 the previous week.

"Recent upheavals in the mortgage industry may be temporarily increasing the level of retail application activity at the large lenders that participate in the MBA survey rather than representing a systemwide increase," Doug Duncan, chief economist and senior vice president for the Mortgage Bankers Association, said in a statement.

The average interest rate for 30-year fixed-rate mortgages increased to 6.45 percent from 6.41 percent, with points decreasing to 1.54 from 1.62, including origination fee, for 80 percent loan-to-value ratio loans.

The average rate for 15-year fixed-rate mortgages increased to 6.19 from 6.16 percent and one-year adjustable-rate mortgages increased to 5.81 from 5.69 percent. In the last three years, 14 million homes were refinanced. About half of those were adjustable-rate or "teaser" rate loans.

More than 100 lenders nationwide have ceased operations, including Silver State Mortgage in Nevada. Las Vegas-based Meridias Capital has ceased its wholesale lending, or money loaned from a line of credit, and is only acting as a mortgage broker in an effort to weather the storm. First National Bank of Arizona did the same thing.

"We are in the midst of a liquidity crisis in mortgage banking," said Jason Fox, president of Luxury Mortgage Group in Las Vegas. "Many people don't realize that even with an 850 FICO (credit) score, that certain programs are not available anymore."

Nonconforming loans in which the borrower uses stated income and stated assets with little or no documentation are going away, Fox said. Loan-to-value maximums have decreased 10 percent within the past three months.

In the immediate future, 100 percent financing, no down payment loans will be off the table and other exotic programs will be a thing of the past, he said. Second mortgages will be available only to those who can fully document their income and assets.

Major institutional conduit lenders such as Bear Stearns are saying that the current credit crunch is the worst in 20 years. Investor guidelines are changing almost daily, Fox said.

"Everybody hears the gloom and doom, but not this part of it, that loan packages they were qualified for in the past are no longer available," All Western Mortgage's Biaggi said. "So to sit and wait as a consumer or potential home buyer may not be in your best interest any longer. That program that could put you in a home might not be here in a month."

Camacho said some people are contributing to their own undoing by panicking and helping to bring about a self-fulfilling prophecy.

Product lines come and go in response to a number of factors and many mortgage brokers are finding it difficult to maintain a line of available products, she said. This is often attributable to the mortgage company's strength rather than the borrower's.

"It isn't as bad as people think," Camacho said. "It is difficult to borrow money unless you have assets right now. With assets and good credit, you will not find it difficult to get a loan. Cash is king today."

Home buyer Moranchel said Camacho worked with him for six months to find the right house and qualify for his mortgage with Direct Access Lending.

"It was a lot of persistence on her behalf and patience on my behalf," he said. "The main thing was getting our foot in the door. Once our foot is in the door, we can manipulate the finances."

Everybody hears about the subprime market because it took the hardest beating, but the A-Paper (prime) and Alt-A (midrange) markets have recently taken an equally hard beating, Biaggi said.

"Every sector of our lending pool has basically dried up in some area," he said. "If you were at the outer reaches of that particular category of borrower, you're no longer able to buy a home. You're done."

Biaggi had an applicant approved for a loan with 5 percent down payment and stated income, but investors weren't comfortable with it and offered another program at a higher interest rate.

"So the conversation between the loan officer and buyer goes something like, 'Your loan is approved, but not at the same terms, and by the way, in six months you may have to put 20 percent down instead of 10 percent to get the same loan,' " Biaggi said.

Lewis Shaw, principal of Dallas-based commercial developer Jackson-Shaw, said lending on any type of real estate boils down to three C's: credit, collateral and character.

"Will Rogers once said, 'I don't care about the return on my money, just the return of my money,' " Shaw said.

"Subprime is like submarine. It's below prime," he said. "It's very elementary. What kind of meat do you get if you ask for subprime meat? Three days old? All of a sudden they say there's a shortage of meat. We can take this subprime meat and sell it to Wendy's or McDonald's, but guess what? They don't buy subprime meat. We can get the money, but we have to pay more for it."

As an example of how quickly things can change, Countrywide Financial reduced the maximum loan-to-value ratios on all loan programs by 5 percent in what it classifies as "soft markets," which includes Las Vegas and Phoenix, housing analyst Dennis Smith of Home Builders Research said. Any loans processed since Aug. 13 are affected by the change.

"Just like that, down payment requirements increased by 5 percent," he said. "Just like that, how many more consumers have been taken out of the marketplace? It's amazing they can wield the hammer like that."