Even with all the tax cuts, rate cuts and recent Florida real estate property price declines Lenders are making it harder for would-be buyers qualify for a mortgage.
Brokers for the nation’s largest home-loan lender, Countrywide, were told in a memo last week to immediately raise the down payment 5% for all loans made in the tricounty area. This new policy applies to 108 counties across the United States which includes 23 in Florida.
Example: For a medium priced home of $352,500 in Miami-Dade County, this new requirement by Countrywide means buyers have to add an additional $17,625 down payment to obtain a home loan.
Are we going to see more defaults in Florida if homeowners struggling to afford their current loan can't refinance? Some people in the Florida real-estate industry fear the hikes could narrow the already-thin pool of buyers, further dragging down home values. But doesn’t this mean that sellers in fact could be forced to cut prices to help buyers meet the new requirements thus counteracting the required 5% down payment increase by Countrywide?
This new requirement by Countrywide and other lenders likely come in response to the new lending guidelines that took effect January 15th from mortgage giant, Fannie Mae.
Fannie Mae buys mortgages that meet its underwriting standards on the secondary market. The company said it would require cuts in the percentage of a home's market value a lender will finance by 5%, in areas it has designated as ''declining.'' Example: If a lender would finance 85% of a home's value, requiring a 15% down payment, it would now finance only 80%, meaning a 20%t down payment.
Some lenders are applying tighter policies to the entire state such as SunTrust.
AME Financial, a smaller lender, also notified its brokers Friday that Florida loans were subject to a 20% down payment and, for loans of more than $417,000 in Miami-Dade, 25%. They also recapped in their memo that cash-out refinances for condominium on Florida were no longer allowed.
Chase and Citibank pass similar policies months ago. However when the Miami Herald requested a comment Lenders would not confirm or deny the tougher requirements, saying the information was proprietary.
The tighter standards are a result of failed mortgages that have cost lenders hundreds of billions of dollars. Florida's foreclosures are among the country's highest. Locally, foreclosures affect roughly one in 30 homes.
Some analysts have said the new restrictions could negatively affect the problem, if they lower prices further and make it harder for struggling homeowners to sell, thus leading to more defaults in Florida. That in turn would cause lenders to further tighten credit, accelerating the downward spiral.
Terry Francisco, a spokesman for Bank America said “Fannie Mae was looking to strengthen the overall health of the secondary market, so you can have more lenders who can offer more products, which brings competition, which is good for borrowers.''
But for an investor in Coral Gables, anxious to sell three Miami condos that were bought in 2005, the new development means more bad news. His concern was; how is he going to find buyers for his Miami properties even after dropping the price of one of the condos from $347,000 to $299,000 in the recent months. He has not received one offer, so how are people going to finance that property?
Some people feel that lenders are not playing fair by singling out certain markets, even though it’s obvious the market is declining in South Florida.
President of First Alliance Mortgage in Hollywood, Amaury Cifuentes, believes requiring a 5% higher down payment region wide would fail to take into account that every house and neighborhood is unique.
The restrictions could prevent some from refinancing and taking advantage of mortgage rates that have dropped to a two-year low, he said. ''Now, they are going to scrutinize that loan even though the borrower is going to be placed in a better position to pay it,'' Cifuentes said.
Banks are now just behaving responsibly making up for the time that they gave borrowers 120% of the sale price with a majority of those properties ending up in foreclosure.
Contributed by MLR Realty
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