Lenders Raise the Bar


IF you have a mortgage, consider yourself lucky.

That is the upshot of the most recent survey of mortgage lenders by the Federal Reserve Board, which found that banks’ lending standards were significantly tighter in April than they had been in January, when credit was already tight.

Some prospective borrowers who just a few months ago were considered easy bets for mortgages are being turned away with the slightest credit blemishes — or even with stellar credit scores.

“Standards are getting a lot tighter,” said Bob Moulton, president of Americana Mortgage Group, a brokerage firm based in Manhasset, N.Y. “For every 20 calls I get, I might close four or five loans. Two years ago, it’d be 18.”

Mr. Moulton said that one recent client sought to buy a $2.5 million home on Long Island with a $1.5 million down payment and full documentation of his income. The bank refused the loan because the borrower’s credit score was 672. A single recently missed credit card payment can sometimes be enough to drop a borrower’s score below 700.

“It’s all about the credit score now,” Mr. Moulton said. “I’d say 700 is a minimum score now. Some banks are requiring 740, particularly for interest-only loans,” in which the borrower pays only interest for the first 5 or 10 years of the loan before starting to pay down principal.

Brokers and bankers in the greater New York area said that stated-income loans — typically used by the self-employed or workers paid on commission who cannot document steady streams of income — are all but gone. (Mr. Moulton said he had recently found only two lenders who would write such mortgages.) The same is true for subprime loans, offered to high-risk borrowers.

James Bremm, a senior mortgage banker with Atlantic National Mortgage, a brokerage firm based in Westport, Conn., said borrowers with credit scores between 680 and 700 can still find loans, especially from regional savings banks, which have been more active in marketing mortgages in recent months. But that threshold was 20 points lower until a few months ago, he said.

Those with slightly lower credit scores have to make significantly higher down payments, Mr. Bremm and others said, and they must endure longer reviews. “If you’re self-employed, you might need a letter from your C.P.A.,” he said, “or if you’re a landscaper for a family company, you might need to show two full years of tax returns.”

Mortgage industry executives say they expect even further tightening of lending standards in the coming months, as banks protect themselves from the possibility of a deepening recession and stabilize their own financial situations.

Meanwhile, those who can qualify for loans are facing more fees than in the past. David Hamermesh, an analyst with TowerGroup, a financial consultancy based in Needham, Mass., said, “In the past, borrowers with credit scores below 680 and down payments of less than 30 percent could not get the best deals.” Now, he said, the threshold for higher fees has been raised, dragging in those with credit scores below 720 and down payments of less than 40 percent.

The fees range from 0.5 percent of the loan amount to 0.75 percent, which borrowers pay upfront or with a higher interest rate. Borrowers in areas where property values are declining, Mr. Hamermesh added, face additional fees of 0.25 percent and requirements for an additional five percentage points on the down payment.