Daily Briefing Weekend Edition

Brokers: More Stimulus Needed to Revive Housing Finance

By Lew Sichelman

SACRAMENTO, CA-Recently enacted federal legislation to stimulate the country's moribund housing market doesn't go far enough, a group of California lending professionals charged earlier this month.

The California Association of Mortgage Brokers said funding lenders and eventual investors in mortgages on the second market need to review and revise their underwriting rules so would-be homebuyers who have good credit once again can qualify for financing.

The group also said lenders should make it easier for current owners who have continued to make their payments even though they owe more than their homes are currently worth to either refinance or obtain loan modifications.

"More remains to be done to help homeowners struggling to meet their mortgage payments as well as to help those who want to purchase a home," said CAMB president Fred Arnold, a broker in Stevenson Ranch.

According to CAMB, lenders and investors have turned the screws so tightly in the face of mounting losses that some otherwise creditworthy borrowers, particularly self-employed persons and those with part-time jobs, can no longer qualify.

While it was necessary to tighten the rules, said John Holmgren of Holmgren Finance in Oakland, the underwriting pendulum has swung too far.

Unless teachers and policemen have had the same second job for at least two years, that income can no longer be counted, the association's leaders said at a press conference. And entrepreneurs with multiple sources of incomes are now having trouble documenting their earnings to the satisfaction of lenders.

"Good borrowers face significant challenges trying to qualify," Mr. Arnold said. "Guidelines are much more stringent, especially in the 'conventional jumbo' market" between $417,000 and $729,750.

Mr. Arnold said he recently worked with a couple who couldn't qualify even though they had "great credit" and more than $100,000 for a downpayment because neither one could adequately verify their rent. He had been living with a friend, and she had been living with her parents.

CAMB wants the market to create new products that are more conducive to the financial situations of these and other potential borrowers and "return to common sense underwriting."

The 1,800-member group didn't specifically mention no-doc loans, which are one of the so-called toxic loan products, which led to the mortgage market meltdown and caused lenders to pull in their horns. But Mr. Arnold said those are "not the kinds of loans" CAMB has in mind.

"We want sensible, alternative loan products," he said. "We can no longer allow loans with multiple risk factors."

To help current homeowners who are not yet delinquent, CAMB called on lenders and investors to devise flexible payment modification plans and create streamlined refinancing programs without having to have their properties re-appraised.

Homeowners need better options, said Mr. Arnold, who pointed out that efforts to prevent foreclosures have so far been aimed mostly at borrowers who seriously delinquent on their loans.

With a little more resilience from the lending community, CAMB said, people who otherwise meet prudent qualification criteria would be able to keep their homes until the housing market stabilizes.

"We're not talking about speculators or investors, but we have to go deeper," Mr. Arnold stressed. "We want to keep families in their homes."

The brokers also pointed out that the window of opportunity to obtain financing at favorable rates will close at the end of the year unless efforts to persuade Congress to declare California a high-cost market are successful.

On Jan. 1, the temporary $729,750 limit on loans in high-cost markets that can be insured by the Federal Housing Administration or purchased by Fannie Mae and Freddie Mac will drop back to $625,000.

Loans above the so-called conforming loan ceiling are priced anywhere from 1.5 to 2 percentage points higher than those under the limit.

"There's a big difference between the mid-6s and 8% or higher," said Ed Craine of Smith-Craine Real Estate Financing in San Francisco.