Home buyers still finding it tough
For a middle-class family in Houston, homeownership should be a sure bet. Homes prices and the cost of living are below average. But some homebuyers are still finding it hard to make a deal. Kate Archer Kent reports.
House for sale (iStockPhoto)
More on The Economy, Spending, Housing - Real Estate
TEXT OF STORY
Scott Jagow: So, the government is bailing out Fannie and Freddie. The Fed has cut interest rates many times. Congress has passed a housing relief bill. And still, the housing market struggles. Here's a good example from Houston. It's a city where home prices are relatively low. Kate Archer Kent has our story.
Kate Archer Kent: Thirty-nine-year-old engineer Mahesha Udipi has lived for five years in a tiny Houston apartment with his wife and son. Now he's looking for something with a little more space.
Mahesha Udipi: It should have a good living area where there is a big place to keep TV and keep books.
Mahesha has been shopping for a home loan for about three months. He gets a lot of messages like this:
Tape of phone message: This is Scott Griffin calling from Countrywide. I just wanted to check back with you to see if you've been gotten taken care of yet for your new home loan.
Banks like Countrywide are still lending. But David Jarvis of Metro Study, a housing tracker, says mortgages look very different from a year ago.
David Jarvis: It is harder to qualify because you really have to have a down payment. And you really have to have a job. And you really have to document it. And even if you have a good job and lots of money, you still have to document. Well, that's OK. I mean, I think that's what we did from the 1930s all the way up through the 1990s.
Mahesha looks like a 1990s-era borrower. His job and credit rating are so good, the bank's offered him a $240,000 loan with just five percent down. But it won't get his business, because the interest rate is too high.
Udipi: It was about 5 percent two years ago. Now it's 6.25 percent if you have excellent credit.
The Federal Reserve has been taking the pressure off banks with a string of rate cuts this year. But Mahesha says he's not seeing the benefits.
Udipi: If you really want to buy the house you have to cut somewhere else. Maybe you have to cut 401K or you have to cut savings. Otherwise, you cannot balance the budget.
Mahesha doesn't get the banks behavior. On one hand they're reducing their risk by tightening lending standards and raising rates. But on the other, they're exposing themselves to another kind of risk by offering him a loan that would put him $252 in the hole every month.
Mahesha's resigned himself to getting a smaller home that won't bankrupt him. But in order to make it work, he says he's the one who'll be taking the risk by raiding his retirement.
In Houston, I'm Kate Archer Kent for Marketplace.
Comments
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From Birmingham, AL, 09/09/2008
I was a little disappointed in Marketplace to turn this into a typical NPR hard luck, it isn't fair, story. First, I don't think fixed rate mortgages ever hit 5.0%. Maybe a 15 year may have been at 5.5%. Historically, anything under 7.5% is a deal. My first home in 1973 was at 7.5%. Three homes later, in 1983 I was thrilled to get 11% ARM (Fixed was 14%). My current home built in 1992 was 8.75% and we have refinanced 3 times to get down to a 15 year rate below 6%.
So, the family in Houston needs to save more for the down payment if they want a better rate. Traditionally, 10% was required. A 39 year old engineer should be able to pull this off. Besides, it is a buyers market now and that is holding down the selling price.
Doug (a 55 year old engineer)
From Dallas, TX, 09/08/2008
Two weeks ago a house attached to my townhouse came on the market for sale or rent. I expressed an interest in purchasing the home. The original asking price was $70,000 and was reduced to $68,000. I stipulated that certain items must first be fixed, repaired or replaced, which were basically agreed to, with the exception of one. I secured 15 year lending with 6% apr and insurance coverage while awaiting a contract to start the process. During the week, nothing was done to the house and no one called me. The second Thursday, I got a call from the owner says a “Seller Financing” arrangement could be made and I asked her to present me with the papers, which she agreed to do. Over another weekend, I saw nothing done to the house but did see potential renters shown the house and the sign re-erected. The problem with this story is WHAT?????
The house obviously WILL NOT appraise for $68,000 and that’s why they only offered a “lease purchase” deal. Then I was offered a “seller finance deal (I DON’T NEED HELP WITH MY FINANCING THOUGH), but asked her to send it my way. NOTHING.
Do I have recourse?
From MI, 09/08/2008
Mahesha want's to borrow $240,000, but only has 5% down payment and feels 6.25% interest is to high. I would say he is looking at houses out of his price range. This is how the housing market got into this mess. If he defaolts who picks up the tab. Tax payer.
Banks need to get back to 20% down min. then talk interest rates.
This way we will not have people walking away and leaving it to the banks and the goverment to pick up the tab.
I know this will mean less houses will be sold, builders will build less. Back in the 70's and 80's interest rate for houses was in the double digits so 6.25% sound pretty good.
09/08/2008
Mahesh’s argument is precisely on the dot.
The fact is that Fanny and Freddy being bailed out by the American Tax Payers, will cause the burden to be shifted from the borrowers who have unscrupulously borrowed money during the housing boom and the lenders who lent this money without sufficient safeguards or risk management, on to people like Mahesh who have been prudent and well planned in their approach. These are the work-horses that Secretary Paulson is hoping will put “housing” out of this slump.
If we are propping up the housing market with infusion of money then the money has to come from somewhere. I believe that it is the hope of Secretary Paulson, that these will be people like Mahesh (prudent, with good credit and hardworking) rather than people how are simply house flippers.
Now Mahesh will have to pay a higher interest rate. There is socialism for you. ….. government backed safety nets for the corporations and Wall Street.
09/08/2008
Mahesh’s argument is precisely on the dot.
The fact is that Fanny and Freddy being bailed out by the American Tax Payers, will cause the burden to be shifted from the borrowers who have unscrupulously borrowed money during the housing boom and the lenders who lent this money without sufficient safeguards or risk management, on to people like Mahesh who have been prudent and well planned in their approach. These are the work-horses that Secretary Paulson is hoping will put “housing” out of this slump.
If we are propping up the housing market with infusion of money then the money has to come from somewhere. I believe that it is the hope of Secretary Paulson, that these will be people like Mahesh (prudent, with good credit and hardworking) rather than people how are simply house flippers.
Now Mahesh will have to pay a higher interest rate. There is socialism for you. ….. government backed safety nets for the corporations and Wall Street.
From Austin, TX, 09/08/2008
I'm a 34 year single black female and I wanted to share my story finding my first house. For over 4 years family and friends have urged me to buy. I waited because I thought interest rates would go down. Boy, was I wrong. I realized last year that I missed my window, but decided to try anyways. My credit was good and I was confident that I could get a great rate with Navy Federal Credit Union (have been banking with them since I was about 14-15ys old). I did all my homework...secured a loan, got estimates on insurance, even shopped around for the best movers. After getting pre-approved for my loan and went house hunting. After about 5 months of hunting the house I found was PERFECT! It was a brand new townhouse in an established neighborhood, green built, and easy access to shops. I got a great deal on the house and I was so excited! A week before I was supposed to close, I get a call from Navy Federal saying I was approved for the loan but my builder wasn't. "Excuse me?" I asked. Due to recent housing issues there was a very little unknown fact I didn't check. Since my development was new and building project hadn't been complete, the homeowner's association was still in the hands of the builder. That is a serious liability and most banks don't want to take on the risk. "So where does that leave me?" I ask the very nice mortgage broker. "Well," she says, "you will need to either get the builder to turn over the homeowner association, or find another house." I was in utter shock! I can't find a new house! This was MY house! I had a third option and that was a find another lender. One lender willing to lend in this building project was Countrywide at a extremely higher interest a monster down payment. I was very reluctant so I wanted to shop around before making a decision. The Countrywide mortgage broker was a like a pit bull! He was relentless and called me 4 and 5 times a day pushing me to accept their offer. Under high stress, I was beaten down and took their offer. The hoops I had to jump to verify my employment, the money in the bank, savings, IRA, stocks and retirement was exhausting and over the top! After all was said and done, I had to put down nearly $10,000 at closing with an interest rate of 6.255%. My monthly mortgage payment is over $1400 per month after adding in insurance. If I could have stayed with Navy Federal, I would have no money down, a rate of 5.65% and a mortgage payment of around $1000. Needless to say I'm counting down the days when I can refinance back to Navy Federal!
From Gilboa, NY, 09/08/2008
I live in a 4,000 square foot home built in 1978. It's no coincidence that it is solar. 1978 was the year of the first gas crisis and a time when tax incentives were quickly put into effect for persons building/designing with alternative energy sources in mind.
Unfortunately, those incentives didn't help when I began trying to refinance a couple years ago. No fewer than 6 banks refused my business. Five did so because my house didn't have a central source of heat. When I would fill out the forms, they would ask, "Do you have a furnace?" or "Do you have electric heat?". And, I, of course, would reply "No".
This left the lender with only an oral explanation of my heating source - not enough for banks to go on. Even though it costs me less than $600.00 a year to heat my home, I was considered a risk.
My mortgage broker and I learned by our mistakes, though. We didn't even apply for a re-finance again until we had a verbal agreement that the potential lender would consider my home on equal footing with other applicants.
It took over 2 years, but the 7th lender was the charm.
In these times of sky rocketing oil prices, I consider my home a valuable asset. When people find out how cheap my heating bills are (two cords of wood for a central fireplace), they consider me lucky.
I think all lenders should alter their forms to include solar as an option. It should be an incentive to have alternative heating - not a liability.
Thanks for reading..
Betsy Miller
Gilboa, N.Y.
P.S. You're probably wondering why the 6th bank turned me down. It was because I had too much land - 26 acres.
Go figure.
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