The District Chronicles

Issue date: 4/13/08 Section: Business

Dear Readers,

I am deviating from my normal Q & A format to update you on two recent changes I have seen in the mortgage market - a both for the worse.

In January, lenders changed their guidelines to require an additional 5% deposit in a "declining" or "D" market. Last month, for the first time, I encountered a lender who refused to do a loan in a "high foreclosure area" (the area was Leesburg, Va). It would not have mattered if the borrower had made a 50% down payment, the lender would simply not make the loan.

So far, this does not seem wide spread (meaning there are plenty of lenders who would have just treated it like a declining market), but it is certainly ominous. If lenders refuse to make loans in areas with high foreclosure rates, then even sellers who are not in foreclosure themselves, [but]who just want to sell their properties, would be unable [to do so]. It must also be noted that the areas with high foreclosure rates are often areas with high minority or immigrant populations, since those populations were more likely to get the high cost subprime loans that are now being defaulted on in record numbers.

According to one attorney, the refusal to make loans in high foreclosure areas is like red-lining, the illegal practice of denying people loans in areas that have a high concentration of minorities.

Additionally, some FHA lenders have started requiring more money down if the purchase property is in a declining market. Again, this practice is not wide spread, but it certainly runs contrary to what the government is trying to do with FHA - increase the loan limits and decrease the required down payment.

Now is a great time to be in the market for a new house. For sellers, evaluating purchase offers (if you are lucky enough to get one) can be tricky, because the loan guidelines are changing so much that there is almost no guarantee that the loan product the borrower applied and got approved for will still be available on the day of settlement.

Jessica White, also known as "Ms. Mortgage Maven," is a mortgage consultant with Tenacity Mortgage. Call or email her to discuss your home purchase or refinancing needs, including FHA loans and loans in "declining markets". She can be reached at 202-607-4449, Jessica@msmortgagemaven.com or jessicawhite@tenacitygroup.com. You can also apply online at www.msmortgagemaven.com.

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