More and more mortgage consumers are getting squeezed on both ends of their home loan.
On the application side, lenders are taking a harder look at mortgages before they approve them. And on the payment side, both home owners and financial counselors are getting jittery about homeowners' ability to make monthly payments.
Home loans in the "slam-dunk" category -- those approved with the least amount of underwriting scrutiny -- accounted for 66.6 percent in the last six months, nationwide, down from 68 percent in the previous six months, according to HomeSmartReports.com, a San Juan Capistrano, CA, website that makes sales trends, property value estimates and risk data available to the public.
A new survey conducted by Roper Public Affairs for San Luis Obispo, CA-based TransUnion's TrueCredit.com found that 27 percent of home owners think rising interest rates will make it tough for them to make mortgage payments.
Consumers second guessing their ability to make payments, certainly doesn't take away from lender squeamishness.
"When deciding whether or not to make a home loan, lenders look at the borrower's finances and at the security for the loan, namely the home itself. They're not going to provide financing even to the most qualified of households if the property itself appears to be overvalued and in a shaky neighborhood," said Mike Ela, president of HomeSmartReports.
Ela, sifting through several hundred thousand home loans and applications to examine default and flipping activity, sales trends, value changes and neighborhood characteristics, said lenders in a growing number of states are putting the squeeze on home loans.
In Michigan, the slam-dunk category accounted for 43.3 percent of mortgages, down from 50.5 percent; Louisiana dropped from 67.4 percent to 58.2 percent; Hawaii from 83.9 percent to 75.4 percent and Florida from 60.6 percent to 55.6 percent.
Meanwhile, TransUnion's survey also found that rising interest rates could cause:
- Twenty-three percent of homeowners to consider refinancing.
- Sixty-one percent of renters to have difficulty paying their rent.
- Seventy-eight percent of renters to have difficulty purchasing a residence in the near future.
The survey also reveals 24 percent currently carry an adjustable rate mortgage (ARM) or specialized home loan -- a figure that jumps to 37 percent for those aged 25-49.
In some markets the percentage is 50 percent or more for those who recently signed for home loans.
Market conditions recently prompted the Washington, D.C.-based NeighborWorks Training Institute to host a five-day workshop so financial counselors from 4,400 partner organizations could bone up on skills to tutor financially troubled home owners on debt management.
The agencies are bracing for an influx of home owners seeking mortgage and budget counseling as interest rates rise, home price appreciation slows, and adjustable rate mortgage (ARM) payments continue to ratchet up. The convergence threatens to push many home owners into mortgage delinquency, dire budget straits or worse.
The housing boom has left home prices in the ozone in many locales. The higher costs force home buyers to seek greater financial leverage and that typically means riskier ARMs, especially those with additional low initial-cost benefits, including interest-only payments, option-payment and piggy-back loan terms.
The loans start off cheaper and allow buyers to afford a home, but those alternatives are also deemed riskier over the long term than fixed-rate loans and the best way to invest in a home is over the long term.
According to Ela, nationwide, most states, 30 of them, have either reduced the level of slam dunk loans or have not changed the level of the loans, as more and more lenders roll back the red carpet of easy money that came with the now waning housing boom.
