YOU ARE HERE: LAT HomeCollections

Fannie Mae Warns of Home Loan Crunch

March 09, 1985|KATHLEEN DAY | Times Staff Writer

The president of the nation's largest single source of home loans warned Friday that housing will be less affordable for millions of Americans in the next few years because a rise in bad debts has forced mortgage lenders to demand bigger down payments and to tighten credit.

Mark J. Riedy, president of the Federal National Mortgage Assn., known as Fannie Mae, said the measures may force many home buyers, especially first timers, "to borrow from parents or friends" or be forced out of the market.

Riedy, who spoke to the Mortgage Bankers Assn.'s secondary mortgage conference in Los Angeles, said the 5% to 10% down payment typically required today will rise to 15% or 20%.

"There's still plenty of money available, but bankers have been burned," Riedy said in an interview. "If borrowers don't help bankers reduce the risk . . . lenders will simply channel that money out of the home loan market."

Security Pacific National Bank, which said it typically requires a 10% down payment, agreed with Riedy's assessment.

Bank of America agreed "in spirit" but said it has no immediate plans to change its policy of requiring either 20% down or 10% down with default insurance.

"The higher the down payment, the lower the risk of default, there's no doubt," said Ellen Buchanan, chief financial officer of the bank's mortgage group. "But the trend in the last few years has been to qualify more people for loans and have insurance companies step in to insure against the risk."

Riedy said the days when inflation "bails everybody out" by pushing up the market value of homes and ensuring regular pay raises for mortgage payers are gone. Those who have relied on inflation to increase property values and, therefore, correct any "overestimates" will have to "get their act together," he said.

Without additional equity capital from borrowers, he said, "we in the mortgage market may well have sown the seeds for more instability . . . and, in all probability, increased losses."

Los Angeles Times Articles