Loan turmoil closes doors for buyers

ShaRon Lewis is facing a 50% hike in the payment on her adjustable-rate mortgage next month.

This week, she discovered she can't qualify for a new loan with payments that she could afford.

And although she's willing to sell the West Hills home she's owned for two years, she has been told it won't fetch what she paid for it. "I have to laugh to keep from bawling," the 30-something Lewis said.

Her situation is becoming increasingly common across the country amid the implosion of the business of sub-prime mortgages -- loans for people with less-than-perfect credit or no credit histories.

Many would-be home buyers, and homeowners who want to refinance, are finding that virtually overnight their status has changed: They no longer are eligible for the kind of easy-credit loans that helped millions of people join the ranks of property owners during the housing boom.

On Friday, Calabasas-based Countrywide Financial Corp., the nation's No. 1 mortgage lender, told brokers it would stop making adjustable-rate loans covering 100% of a home's value for customers with low credit scores and unverifiable incomes.

WMC Mortgage, a Burbank-based sub-prime lending unit of General Electric Co., this week also quit making loans for 100% of a home's purchase price and said it would stop lending to people with very low credit scores.

Susan Bies, a governor of the Federal Reserve, said in a speech Friday in Charlotte, N.C., that the troubles of sub-prime borrowers represented the "front end" of a wave the central bank was monitoring.

"This is not the end; this is the beginning," she said.

A surge in the number of homeowners defaulting on sub-prime mortgages has triggered the collapse of more than a dozen lenders in recent months.

The latest casualty: Irvine-based New Century Financial Corp., one of the industry's biggest lenders, said Thursday it would stop taking loan applications because its Wall Street banks had cut off credit.

The company's stock plunged to an eight-year low amid speculation that New Century would file for bankruptcy protection.

Under pressure from federal banking regulators, lenders that are still standing are shutting out customers they were eagerly embracing just six months ago.

Even some borrowers already in the pipeline are being rejected.

"You don't know how frustrating it is to [have] a client who was approved for a loan 60 days ago, and then the bank calls to say it won't honor the deal," said Philip X. Tirone, a senior loan officer with United Pacific Mortgage in West Los Angeles.