It's not just sub-prime borrowers who are having trouble getting affordable home loans.
Because mortgage investors stung by growing defaults in the sub-prime sector are shunning all but the most traditional loans, creditworthy borrowers are getting hammered if they want mortgages with payment options or the "jumbo" loans used routinely in Southern California and other high-priced home markets.
If you get such a loan, you'll pay a higher rate than before. And to add insult to injury, it's taking more time for all mortgages to get approved and funded, market experts say.
Rancho Palos Verdes marketing consultant Steve Ammons discovered the new jumbo reality after he began shopping for a mortgage on a Manhattan Beach home that he and his daughter own and rent out.
Ammons and his daughter have credit scores of 750 to 760, he said Wednesday, making them prime borrowers, the most creditworthy. What's more, the house is worth an estimated $1.6 million and has a current $650,000 mortgage, so there is plenty of equity to serve as a cushion for the lender.
Ammons is looking for a 30-year, fixed-rate mortgage, but with a twist -- the option to pay only the interest on the loan during the first 10 years. Such loans have been widely used by landlords seeking to maximize their cash flows. Ammons said a jumbo loan with an interest-only option that he took out just last year on another rental property had an interest rate of 5.5%.
But the story was different this time: A loan officer at Washington Mutual Inc. quoted him a rate of 9.75%, saying that the lender "had to charge such high rates so that they could sell off the loans," said Ammons, who has since put off refinancing.
"It's rough out there," said Doug Duncan, chief economist for the Mortgage Bankers Assn. He blamed "the absence of a securitization market," in which lenders sell loans and investors buy them in the form of mortgage-backed securities.
That market has practically vanished because investors who bought mortgage-backed bonds and other instruments during the housing boom feel betrayed by the lenders, Wall Street banks and rating firms that teamed to create, certify and market supposedly safe securities out of sub-prime loans.
Except for certain banks that keep large mortgages on their books, and charge a premium for that service, "No one's buying mortgage-backed securities that are backed by jumbo loans," Duncan said.
