Buyers Squeezed Out of Arizona Mortgage Market

The mortgage industry’s tailspin from lofty heights has left potential Valley buyers scrambling to pick up the pieces of shattered deals, as lending standards tighten on a near-daily basis.

During the Arizona housing market boom, it was easy to get a loan, said Elaine Paddy, senior vice president at Alliance Home Mortgage in Mesa.

“If you lived and breathed, the underwriting guidelines would pretty much allow for you to get a loan,” she said.

Today, it’s harder than ever for borrowers to qualify for financing.

The days are gone when anybody could get 100 percent financing or use loans that didn’t require proof of income. That’s forced some borrowers who were already preapproved to start the process again from scratch.

Buyers now need higher credit scores and often a down payment of at least 5 percent.

Subprime and Alt-A mortgage borrowers are taking the biggest hits because they are at greatest risk for default, said Jeff Underwood, a loan officer with Mesa-based AmeriFirst Financial.

Subprime loans cater to borrowers with less than perfect credit, while Alt-A are geared toward people with decent credit scores but who can’t or won’t document their income or assets.

Many Alt-A borrowers are self-employed and have depended on these loans, Underwood said. That includes local investors, a number of them real estate agents, who hope to refinance loans on multiple properties in the coming months, he said.

“I really feel like we’re going to see a lot of Realtors, who are going to be in trouble this year,” he said.

While stricter guidelines have pinched struggling first-time buyers, luxury homebuyers are also feeling the heat.

Earlier this month, interest rates spiked on jumbo loans, which are larger than the traditional loan limit of $417,000. Jumbo rates jumped from 6.75 percent to 8.25 percent practically overnight, Underwood said.

The federal government is considering raising conforming loan limits, but for now, some luxury buyers are sitting on the sidelines. Borrowers have also watched deals evaporate as mortgage companies have shut their doors.

Lenders throughout the country have lost hundreds of millions of dollars, as surging default and foreclosure rates scared away Wall Street investors from buying up mortgages on the secondary market. More than 38,000 workers at mortgage firms have lost their jobs so far this year.

Tucson-based First Magnus Financial Corp., which filed for bankruptcy protection last week, and Scottsdale’s 1st National Bank Holding Co., which laid off 351 mortgage-related workers, are just two of the latest casualties of the fallout.