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Looking for loans? Don't panic just yet
12:00 AM CDT on Monday, August 13, 2007
By PAMELA YIP / The Dallas Morning News
pyip@dallasnews.com
If you're shopping for a home loan and you've kept up with the turmoil in the credit markets, you've got to wonder whether there's still money available to fund your loan.
The answer depends on what kind of mortgage you're seeking and how good your credit is.
What started with a wave of defaults in mortgages made to credit-challenged consumers has morphed into a full-scale panic in the credit markets.
Colonial National Mortgage in Fort Worth said it's been getting calls from homebuyers worried about whether their loans will go through.
"They're calling us as a reference to see, 'Is my mortgage banker going to be able to fund my home loan? Will I be able to close?' " said J. David Motley, president of Colonial National. "It's a legitimate concern, and the problem has arisen because some of the people that provide mortgage financing are not able to provide funding for their customers."
He said that his company isn't having any problems finding funding because it's part of Colonial Savings, a federally chartered thrift whose funding sources include its own capital, as well as advances from the Federal Home Bank and Federal Reserve.
Despite all the turmoil, homebuyers should stay calm and evaluate their individual financial situation.
If you're hoping for a subprime or exotic mortgage, you'll have a tough time.
"The more out in the fringes of lending you are, the more difficulty your loan is likely to encounter finding funding, because the market has pretty much ground to a halt in the last couple of days," said Keith Gumbinger, an analyst at HSH Associates, which publishes mortgage information. "You may see that that deal may fall through."
This includes loans that required little or no documentation of your income or assets.
"Those things are flat off out of there faster than you can shake a stick at," said Gary Akright, a mortgage broker at Dominion Mortgage Corp. in Dallas.
The situation is also hitting so-called "Alt-A" mortgages, a category between prime and subprime.
"Over the last 12 months, the Alt-A market has not performed as well as everyone thought it was going to perform," Mr. Motley said.
The fallout is pinching even buyers of high-end homes with good credit records but whose large loans come without any guarantees against default.
Basically, investors who buy home loans, which are repackaged into mortgage-backed bonds, have turned the other way against risky loans. It's their money that's the source for home loans.
Generally, if you're applying for a plain-vanilla 30-year, fixed-rate mortgage and you've got good credit and savings, your loan will still be funded.
"Credit risk and credit pricing are being readjusted for common sense," said Craig Jarrell, president of the Dallas region of Pulaski Mortgage Co. "There's a shortage of credit for people with less-than-perfect credit and people who can't verify their income. For the traditional borrower with good credit, money in the bank and a regular job, there's no shortage of credit whatsoever."
But in this volatile environment, even the best customers can be hurt by events out of their control.
Mortgage broker Eduardo Carmona said a client who had been approved for a prime mortgage was recently blindsided when Aegis Mortgage Corp. in Houston notified mortgage brokers that it was unable to provide funds for loans already in the pipeline.
"Without even giving a warning, they just dropped a bomb and said, 'We can't do new loans anymore,' " said Mr. Carmona, branch manager at Homewood Mortgage in Carrollton. "Now we have to resubmit everything to a new bank and start from scratch."
That's why you should ask your lender where he's getting his mortgage funds.
"It's very important that the consumer know who's going to be funding their loan," Mr. Motley said.
Mr. Carmona and Mr. Jarrell said they've been asked by customers how the situation has affected their companies.
"They want to know that we underwrite our loans and that we can close them and that we have the capital and the staying power," Mr. Jarrell said.
Like Colonial National Mortgage, Pulaski has a banking connection; it's a subsidiary of Pulaski Bank & Trust.
"We're the safe haven because we're owned by a bank," Mr. Jarrell said.
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