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"Alt A" Guidelines Tightening

Lenders bracing for weakening economy

November 12, 2001

By MortgageDaily.com staff

Mortgage brokers and lenders are reporting a tightening of credit standards for borrowers that utilize no-income verification loans, jumbo loans and subprime loans, according to a story in the interactive edition of the Wall Street Journal (WSJ). As a result, many borrowers will not see the full benefit of recent mortgage rate declines.

Last week, Freddie Mac reported that the average 30-year fixed rate mortgage at 6.45%, the lowest it has ever been during the thirty years that Freddie Mac has been tracking rates.

Home loans with loan-to-values (LTV) greater than 90% reportedly account for 25 percent of the mortgage market now, compared with between 5% and 10% in the late 1980s and early 1990s.

Greenpoint Mortgage reportedly raised its minimum credit score on no-documentation loans to 660 from 640. WSJ said Greenpoint also raised its minimum credit score on loans greater than 80% LTV.

WSJ reported that Chase Manhattan Mortgage raised its minimum credit score requirements to 680 from 660 on some limited documentation loans last month. In addition, Chase has reportedly begun demanding bigger down payments for loans greater than $1.1 million, and has increased scrutiny over borrowers who have relatively high levels of debt. WSJ said that Chase is demanding that appraisers use comparable properties that are no older than six months old.

Lenders say the changes reflect concerns that rising unemployment and slowing home-price appreciation will result in more mortgage defaults in the future, according to the story.

Peter Kretzmer, a senior economist at Banc of America Securities, was quoted as saying that tighter standards "will benefit the economy in the long run."

One New York mortgage broker reportedly said that one of her lenders told her to stop making loans to lower-level employees at several New York investment-banking operations, because the lender already had a large number of loans to employees at companies in the financial sector, which is laying off workers because of the economic slowdown.
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