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ST.CLAIRSVILLE — Although many private lenders in the mortgage industry are making it harder for homebuyers to borrow, local real estate agents are confident the area’s housing market has a solid foundation.

Mortgage insurers, whose backing is required for borrowers who can’t afford the traditional 20 percent down payment on a home, have already flagged more than 9,600 ZIP codes in at least 34 states where they refuse to insure some home loans.

The entire state of Ohio — in addition to California, Florida, Arizona, Michigan and Nevada — is blackballed on some mortgage insurers’ lists.

But John Sambuco and Carl Nix of Harvey Goodman Realtor do not think it is time for those looking to buy a home in the Ohio Valley to panic.

“There are some mortgage insurers that have designated ZIP codes in our area as ones not to insure, but there are a lot of other ways to buy a house. Just because some lenders may turn you down does not mean they all will,” Sambuco said.

Banks that have lost billions because of bad bets during the housing boom are now reverting to strict lending standards not seen in nearly 20 years, according to industry data and interviews with lenders.

For new homebuyers and those seeking to refinance, it can mean higher down payments and a higher bar for credit scores, among other requirements.

The toughest restrictions are in markets where home prices are falling, though regions where property values are rising are not immune.

But Nix does not anticipate these problems will dramatically affect the Ohio Valley.

“The market in our local area may be a little tighter this year because of the problems at the national level, but most of these problems stem from the major housing booms in places like Arizona, California and Florida. We tend to have a much more stable housing market around here,” he said.

Sambuco agreed that despite concerns about the national housing market, the local market is a strong one.

“We have a vibrant housing market in the Ohio Valley right now, and it is really the ’perfect storm’ for homebuyers in our area. Right now, we have lenders offering 30-year mortgage loans with interest rates under 6 percent. When you combine the low interest rates with lower home prices, it makes it the perfect time to buy a home here,” he said.

The reluctance of some lenders to extend credit comes despite a flurry of government initiatives, including steady interest rate cuts by the Federal Reserve, intended to make it easier for would-be borrowers and those facing interest-rate resets on their mortgages.

Now, many mortgage insurers have designated areas where they won’t insure certain types of home loans — those for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making down payments of less than 3 percent.

With banks and mortgage insurers pulling back, state and federal programs for first-time buyers and people with poor credit are attempting to fill the void.

Sambuco said the Federal Housing Administration is still providing mortgage insurance on loans made by FHA-approved lenders.

The combination of sinking home prices and tighter lending standards has been a major aggravation for Ron Broussard, a 38-year-old sales representative for a home builder.

Broussard took advantage of soaring Southern California property prices three years ago to refinance a loan on a house he had owned since the late 1990s. Today he’s still stuck with a $720,000 mortgage and has been renting it out since moving with his family to Texas a year ago. Once appraised for $1.1 million, Broussard’s lender now says it’s worth about $300,000 less.

He does not yet owe more than the property is worth, but Broussard worries that is a possibility.

Broussard has found little sympathy from his lender, Countrywide Financial Corp. While Broussard accepts responsibility for taking out a mortgage whose monthly payments are due to skyrocket once the unpaid principal exceeds the home’s value by 15 percent, he feels betrayed by the lender’s unwillingness to negotiate better terms.

The stinginess of banks is showing up in home loan statistics: The value of all new mortgages plummeted to $450 billion in the fourth quarter of 2007, down 38 percent from a year earlier, according to trade publication Inside Mortgage Finance.

Subprime loans, made to borrowers with poor credit, virtually disappeared from the market, plummeting 90 percent to $13.5 billion in the October-December quarter.

There is a silver lining: The Federal Reserve has repeatedly cut interest rates, helping borrowers whose mortgages were just about to reset to higher rates and people with student loans. Reflecting the Fed’s efforts, rates on 30-year mortgages dropped below 6 percent this week for the first time in more than a month.

But the long-term impact of the Fed’s move is far from certain, and the central bank’s actions could end up feeding inflation and pushing up long-term rates.

Amid the turmoil, the mortgage industry is playing hardball with borrowers.

Wells Fargo & Co. now requires a 25 percent down payment in the most distressed markets, according to a document sent to mortgage brokers last month. A company spokesman said in an e-mail message that Wells Fargo is “focused, as we’ve always been, on fair and responsible lending and sound credit risk management.”

Some borrowers who took out home-equity loans or second mortgages are being blocked from refinancing. The problem is most common among consumers using two different lenders.

Companies that made second mortgages are now denying requests — common in a refinancing transaction — to take secondary status in the event of a foreclosure. Especially in markets where prices are declining, holders of those loans want to be paid off before a loan is refinanced rather than take on the risk of default, industry experts say.

Lenders’ changes have removed 30 to 40 percent of the borrowers who could have qualified in recent years, estimated Tom LaMalfa, managing director at Wholesale Access, a Columbia, Md.-based mortgage research firm.

Lenders and mortgage insurers are also requiring proof of income and employment, something they didn’t always do during the housing boom.

Many in the real estate industry hope that the economic stimulus legislation signed by President Bush earlier this year allowing Fannie and Freddie to back loans larger than their former limit of $417,000 will kick-start the housing market.

And while this week’s interest rate cut by the Federal Reserve could tempt banks to lend more, experts say they are likely to remain skittish for months to come.

 

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