Good credit? Good luck

Lowcountry home buyers struggle to find financing during market crisis

SUMMERVILLE — Susan Brooks has found the house of her dreams. The perfect place to watch her 14-year-old daughter grow and fly the nest.

As a single mother of three, two of whom already are grown, Brooks, 47, has worked at Summerville Medical Center for 17 years and works a second job part-time in the evenings at a nearby Wal-Mart.

She has a contract on a home in the Archdale area of North Charleston and has 20 percent to put down on a mortgage. Her Bacons Bridge Road mobile home is paid in full and a buyer wants to move in Sept. 10.

Her credit could be better, she said, but she's almost debt-free and has labored to improve her score.

But no one's giving her credit for the hard work.

"I have the money, but no one will finance me," Brooks said. "I really want this house."

Six months ago, mortgage companies would've fallen over themselves to provide financing to borrowers like Brooks. Not anymore.

What started as a meltdown in the subprime market has spread to nearly all mortgages. Real estate closings are getting canceled as lenders around the country go out of business, and mortgage brokers can't find enough lenders willing to loan buyers money.

Today, as the lending crisis claims some of the industry's biggest names, buyers like Brooks increasingly are left out in the cold.

Across the board, lenders stuck with piles of loans that investors wouldn't buy are jacking up rates and imposing stricter requirements on even the most creditworthy borrowers. For some, that means waiting an extra week or two for closing. For others, the wait can be a bit longer.

Last week, local mortgage broker Beth Goodman Davis, owner of Carolina Home Mortgage Group, met with a Columbia-area builder who has 30 buyers who can't find financing.

And Charleston-area real estate agent Louis Russo, who represents only buyers, said he knows of one local attorney, whom he declined to name, who recently had eight closings canceled in one day.

Buyers today must have solid credit or be prepared to lay out sizable down payments. They also must prove what they say they earn and show a track record for payment, or "they're not going to get the house," Goodman Davis said.

She had one buyer recently who was told, while sitting at the closing table, that the lender had gone under and there was no financing. The deal was off until a new lender could be found.

"Every day I wake up and I'm scared to death," she said.

Her brother, Harold Goodman, a North Charleston real estate attorney, said he has seen a dramatic slowdown in his business this year. While he has no doubt the market will recover, there's still much uncertainty to come.

"I probably should have gone on vacation last January and come back January next year," Goodman said. "To me, it's a recession in the real estate industry."

Meltdown

The credit tightening is viewed by some as a return to sanity after years of lending excesses.

The shift started in mid-2006, when rising defaults on mortgages to people with patchy credit history led lenders to raise standards for approving loans to subprime borrowers.

Subprime loans typically charge higher interest rates and usually are the only option for home buyers with blemished credit records.

But already saddled with loans ineligible for sale, the tightening came too late for Wall Street, and the subprime squeeze evolved into a broader credit crunch.

Soon, mortgages in a category known as "Alt-A," which target borrowers with higher credit scores than riskier subprime consumers but whose credit histories are not always verifiable, were caught in the mix.

Such borrowers typically don't qualify for "conforming" mortgages, the type that can be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.

Then the money tree stopped bearing fruit.

Earlier this month, Melville, N.Y.-based American Home Mortgage, the country's No. 10 mortgage lender, closed its doors and shed most of its 7,000-person work force. In the Charleston region, at least 20 brokers, as well as support staff, lost their jobs.

In mid-August, the nation's biggest lender, Countrywide Financial Corp., caused widespread panic by tapping an $11.5 billion line of credit. The announcement put investors in turmoil and prompted a stock market free fall.

And as recently as Monday, Capital One Financial announced that it will close its wholesale mortgage banking business and slash 1,900 jobs.

As the companies came crashing down, it brought to an abrupt end a decade of easy lending, when buyers were allowed to borrow way beyond their means, and in doing so helped the real estate boom fuel its own fire.

"I can't believe as lenders we did what we did," said Goodman Davis, who worked for Wells Fargo & Co's. subprime lending unit for six years. She left her job with the bank in June. The following month, the lending unit was shut down.

"We could do anything with anyone six months ago," she said.

Tightening belts

Those days are gone.

During recent weeks, Countrywide has cut back on no-money-down 100 percent mortgages, even to people with good credit. Banks are curbing Alt-A loans and loans to people who can't document income, so-called "stated-income" loans.

Kevin Brookes, a mortgage loan counselor with Wachovia in Charleston, said that for years, many lenders went purely off credit scores and ultimately lent borrowers more money than they could afford to pay back.

Then, as the real estate market began to cool, values started to fall and owners had trouble selling their property or refinancing their loans to escape the prospect of costly debt.

"There were so many companies out there that were doing the aggressive lending," Brookes said. "I am having to give some bad news to people."

Even the ever-optimistic Russo is telling his clients not to be surprised if their closings are delayed. The buyers are still out there, he said, but getting the keys to their new home might take a week or two longer than they thought.

"I tell people not to panic," Russo said. "Their mortgage person will find them someone else."

But with an estimated 23,000 workers in the financial services industry nationwide out of work since the beginning of the month, that task is getting harder every day.

The Associated Press contributed to this report.

Reach Peter Hull at 937-5594 or phull@postandcourier.com.