Earlier this year, developments within the banking sector clearly predicted a widening divergence between the basic needs of homebuyers, and the primary goals of mortgage lenders. Despite historically deep and dramatic interest rate cuts, for example, retail borrowers found it harder-not easier-to borrow money to buy or refinance property. Even when mortgage rates fell to extremely attractive lows, the closing costs and down payments tied to them became more costly.

Private lenders offered to take up the slack when jumbo loans became scarce, but some of them charged interest rates that were several points higher than normal. When Fannie Mae ramped up its efforts to help borrowers out of hazardous ARM loans through fixed-rate loan refinances, it seemed like good news. Then, homeowners discovered that Fannie Mae doesn't want to do refinances of homes that have outstanding second mortgages. The FHA stepped up to offer more affordable loans with low down payments, but then stipulated that buyers must have excellent credit. The consumer, in other words, got squeezed as mortgage companies tried to avoid financial exposure by denying loans, while simultaneously capturing vital profits by charging higher fees for their products and services.

While steeper mortgage expenses could possibly be offset by cheaper home prices, the unfortunate fact is that most banks are hesitant to lend. Without easy access to the mortgages they need to buy such affordable homes, consumers shopping for real estate are unable to take advantage of attractive prices. While the data on slumping home prices may be encouraging to buyers, it's cancelled out by parallel data that shows how many loan applications are being rejected.

Soon, both Fannie Mae and Freddie Mac plan to double the so-called delivery fee they charge lenders, an expense that's typically passed along to consumers. The FHA, famous for making homes loans more affordable thanks to lower down payments, plans to raise its down payment requirements. Meanwhile, banks across the country are interpreting credit scores more conservatively, and borrowers whose credit is blemished can expect to pay higher mortgage interest and steeper loan origination fees. Fannie Mae will completely discontinue its program of offering Alt-A loans this year. These are the loans that consumers with excellent credit, but difficulty proving assets and income, turn to as a last resort.

On a variety of fronts, the consumer is getting pinched, while banks and mortgage lenders raise their standards and lower the number of loans they're willing to make. Until banks can at least get beyond their own credit problems, experts believe that the average consumer can expect more difficulties and costs when applying for mortgage loans.

 

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