Downpayments Just Got Bigger
Real Estate Down payments just got biggerBuyers in so-called risky areas will need to pony up more cash at purchase time.By Kenneth R. Harney, Washington Post Writers Group
February 3, 2008 WASHINGTON — Critics call it the new redlining: Many of the country’s largest mortgage lenders are imposing restrictions on entire counties or ZIP Codes that they rank as risky or declining.
Countrywide Bank sent mortgage brokers a list on Jan. 25 that categorized hundreds of counties as soft markets with rankings from 1 to 5, in ascending order of perceived risk. In areas rated in Categories 4 and 5 — roughly 100 counties in metropolitan areas nationwide — Countrywide said it would now require larger down payments from most applicants.
If a loan program previously allowed a minimum 5% down payment, applicants will now be required to come up with double that amount — 10% — to qualify.
Riverside and San Bernardino counties are both ranked as Category 5, and Los Angeles, Orange, San Diego, Ventura and Santa Barbara counties are in Category 4.
An additional 970-plus counties are rated more moderate risks, in Categories 1 to 3, with 5% down-payment increases if an appraisal report indicates there is an oversupply of houses for sale or a marketing time over six months.
Other national lenders have their own such lists. Minneapolis-based GMAC-ResCap even has a website allowing loan officers to type in a ZIP Code and learn whether the area is ranked as risky.Restrictions imposed by Fannie Mae late last year have prompted lenders to compile area-by-area risk ratings and impose down-payment penalties. In a notice to lenders on Dec. 5, Fannie Mae said all loans delivered after Jan. 15 of this year on properties in declining areas would be subject to higher down-payment requirements. The company’s electronic underwriting system began flagging selected markets as high risk last summer.
Critics charge that such requirements are unfair to homeowners and buyers whose properties are in sub-markets or neighborhoods within those jurisdictions that may not be declining in value, or not by enough to justify punitive underwriting requirements.
Ted Grose, president of Los Angeles-based 1st Mortgage Advisors Inc., said labeling entire counties as declining is “ridiculous — it totally fails to distinguish between areas where prices are rising or relatively stable and other neighborhoods or communities where they are not.”
Paul Skeens, head broker for Carteret Mortgage Corp., in Waldorf, Md., said he had observed that the county and ZIP Code designations “have their heaviest impacts on areas with high proportions of minority groups and people with moderate incomes who bought houses” through low- and no-down-payment programs.
Brian Robinett, chief credit and operations officer for wholesale lending at Countrywide, rejected the criticism. “It would be hard to make the case” of redlining against the company’s ratings, he said. After all, he said, a wide variety of property types, income levels and ethnic groups are “equally affected” by every risk ranking.
So, if a lender has tagged your area, you’re going to need more cash upfront.
February 04 2008 06:02 pm | La Times