Home prices are down, but mortgages are hard to land

Peral Carrington wrote letter after letter to the mortgage lenders, maybe 20 in all, explaining why she wanted to buy a home, how she thought she could afford one, what caused her to be late on payments in the past.

She said she had no idea the process of getting a home loan would be so laborious. These days her credit score of 775, stellar by any measure, wasn't enough.

"I had to tell them everything about my history, my husband's history," she said. "I guess they're trying to make sure they don't have another foreclosure here."

Her story is common. With foreclosures continuing to rise across the country, lenders are trying desperately to stem their losses and make up for the days - during the height of the housing bubble - when money was lent at the blink of an eye and credit histories didn't seem so important.

While mortgage brokers insist money is available for those who want to buy a home, for many potential homebuyers it is harder to come by.

The Federal Reserve reported this month that 70 percent of banks in the country have tightened their standards on mortgages in the past three months, according to a survey of senior loan officers.

Applications for mortgages rose across the country last week but are down about 22 percent from a year ago, the Mortgage Bankers Association said Wednesday.

"Underwriters have gotten their hands slapped, and they're passing that on to the customers," said Diana Glasier, a senior loan officer for National City Mortgage in Virginia Beach.

Carrington, 36, a charity coordinator for Sentara Enterprises, and her husband began thinking of buying a home more than a year ago. But debt from a charge card and another small loan weighed down their credit score. The couple used their income tax returns to pay down much of their $7,000 debt.

Finally, after more than a month of coaxing the lenders, the couple was approved for a $220,000 home in Chesapeake. They closed on the four-bedroom house at the end of October.

Glasier has made a specialty out of working with potential homebuyers who need to clean up their credit history, like Carrington. She said she tries to prepare her clients for the underwriting process.

"They can expect to go through the wringer," she said. "They look at your bank statements, want to know why you had a couple overdrafts."

Some people have no trouble getting approved, Glasier said.

But others, such as Jessica Johnson, aren't so lucky.

The 30-year-old Virginia Beach resident has rented for the past five years. When home prices started falling earlier this year, she said, she thought 2008 was the year she and her husband would finally buy a home.

"My husband and I had saved up," she said. "We were actually approached by a friend who told us we ought to quit renting."

Johnson and her husband began looking for homes in Virginia Beach and settled on one listed for $200,000. They spent about $1,000 on home inspections and expected to close on the house Oct. 16.

Just before approving the loan, underwriters asked for a letter from her husband's employer, stating he would be employed at 40 hours a week for the foreseeable future. His job as a brick mason was seasonal. Some weeks, he would work just four days; others, he would work overtime. Knowing a letter guaranteeing a 40-hour workweek would be nearly impossible to come by, the Johnsons saw their dream of buying a home this year slip away.

"They were telling us everything looked good," she said. "We had everything we had to have. Our only debt is a van."

The couple plans to wait a year to see what happens to the economy before trying again.

"There's been tears. There's been anger," she said. "People said this would be fun. This has been a nightmare."

Dan R. Fowler, president of the Tidewater Mortgage Bankers Association, said he's seeing plenty of people getting approved for loans, despite the tightening standards.

"There's plenty of money to lend," said Fowler, a senior loan officer with National City Mortgage in Virginia Beach. "They've just tightened up so much that they can't really give loans with a credit score below 600. Those folks are going to have to wait it out, and they're going to have to clean up their credit. That's the bottom line."

At the beginning of next year, getting a home loan will become even a little more challenging for some people. The Federal Housing Administration, which insures loans for people with limited income and average credit, will raise standards for its loans, requiring a 3.5 percent down payment instead of 3 percent.

Skip Templeton, a senior mortgage consultant with Virginia Home Mortgage, said changing guidelines will continue to shrink the pool of potential buyers.

"You swing from ultraliberal in your underwriting guidelines to ultraconservative, and they end up doing away with programs that make sense sometimes," he said. "It's just going to take a while to sort through."

Carl Fuller, an agent with Prudential Decker Realty, said he has had several potential homebuyers recently decide not to buy property in this market, either because they couldn't get financing or they believe home prices will continue to fall.

"And I've got five people just sitting on the fence," he said. "There seems to be an atmosphere of hesitation... among lenders, unless they are absolutely sure."

But Brittny Cobb remains hopeful.

The 22-year-old Norfolk resident and her husband started thinking of buying a home three years ago during the housing boom.

"The market was in that crazy mess, so we decided to wait it out," she said.

Earlier this year, the couple moved into another rental house. Cobb, a homemaker, said they decided it would be their last rental.

Last summer, they began the process of purchasing a home. With nothing more than a few hundred dollars in debt, the young couple was approved for a loan up to $119,000. Now they plan to use a program from the city of Norfolk that will help them pay closing costs and a down payment, which means they can look for a home valued as much as $30,000 more.

Still, getting approved for the city's program doesn't happen overnight.

"We had planned on being out of here by Christmas," she said. "It's taken a little longer than we thought."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com Story goes here...