The ongoing credit crunch has prompted the nation’s lenders to forsake the generally lax practices that fueled the rise of zero-down mortgages over the past decade and contributed to the run-up in home prices that peaked in the summer of 2006.
Today’s lenders are requiring much higher down payments and credit scores, while many private banks are no longer investing at all in “jumbo” home loans–those for an amount greater than the limits set by Freddie Mac and Fannie Mae.
In addition, both buyers and properties are being put through additional layers of scrutiny, with some lenders even requiring a second home appraisal to boost their confidence–which can inflate closing costs–and proof from borrowers that they can repay the debt.
To top it all off, a wave of consolidations among financial institutions has resulted in much confusion and many delays in the mortgage process nationwide. According to the Mortgage Bankers Association, each time a foreclosure goes to sale, lenders take an average net loss of between $30,000 and $60,000.
Source: USA Today, Stephanie Armour (10/28/08)