Having trouble getting home financing? You're not alone. Even wealthy people are getting rejected under the tough new lending rules adopted after 2008's housing market crash.
Moneyed enclaves are still feeling the impact of tight mortgage money. In the breezy New Hampshire lakes region where "On Golden Pond" was filmed and waterfront homes routinely sell in the $5 million to $10 million range, sales are "brisk" but loan applications are often rejected, says sales associate Jerry Love of Peabody & Smith Realty in Holderness, N.H., on the shore of Squam Lake.
"We don't see deals sail through with the automatic approvals that we used to see," Love says. "And we are seeing plenty of wealthy people turned down on million-dollar loans who would easily have qualified a few years back."
The rules may get even tougher under proposals now being considered in Washington designed to cap borrowing as a percentage of income. That will be especially bad news for first-time homebuyers and people with moderate incomes who have the hardest time lining up financing. But even those with millions in assets and high credit scores are being turned down if their income is low. And in a low-rate environment, their investment income counts for less than ever on bank loan applications.
"People with a lot of resources are usually OK getting first mortgages, but they are finding they can't refinance or get funding for a second home," says Tyler Vernon, a loan specialist for Biltmore Capital Advisors in Princeton, N.J. "Of course it's a nice, high-level problem to have. But it's a real problem for retirees in places like the Northeast."
Also, while increasingly stringent income requirements are posing the most barriers, stingy assessments are also a frequent problem for costlier deals, according to real estate agents and lenders. In part, that's because "assessors are protecting themselves because banks have been suing them over mortgage failures that showed inflated values," Vernon says. Costly properties can pose difficulties when assessors try to find comparable sales for estimating what mansions are worth, Love adds.
"Everything has moved to a much more rigorous underwriting environment, and every datapoint in every application is verified, checked and documentation is gone over multiple times," says Michael Fratantoni, vice president of single-family research and policy development at the Mortgage Bankers Association.
People with money are finding ways to buy properties, but in the first go-around, they are finding surprises. "The lenders want income statements. They want to check with employers directly on people's work record, and they want to see people who have been in jobs for awhile," Love says. "That's not something our wealthy buyers can always show."
To be sure, it's first-time buyers and people with moderate incomes who are having the most trouble getting credit, Fratantoni says. But this is a dramatically different lending environment no matter what income strata you are in. The MBA's index on mortgage credit availability has risen slightly over the past year, but it's nothing like it was prior to the crash. The MBA's credit availability index is just two years old. But it calculates that home financing would have been eight times as easy in the years leading up to the housing collapse.
Still, some lending has thawed a bit. The MBA says there has been some recent easing up on loan requirements, and wealthier borrowers have benefited the most: Even borrowers without high incomes are starting to qualify based on healthy savings and high credit scores alone. "They have a better chance, but not every lender is willing to do that," Fratantoni says. "It might require some shopping around."
But even as the housing market improves, loan originations overall are expected to drop by 10 percent this year versus last, according to the MBA. Banks remain reluctant to part with their own reserves, even though they are flush after five years of easy money from the Federal Reserve. Fratantoni says the change in credit availability reflects the banks' more prudent lending and the elimination of "no-documention" and "interest-only" loans that led to many of the foreclosures in the real estate crash.