Lenders Worried About Everybody

DETROIT, MI - Jerrid Mooney was pumped about closing on his Detroit condo several months ago. He was counting the days and telling his friends. He had 20 percent down and a credit score that he calls "stratospheric." Yet hours before the Aug. 16 closing was scheduled to happen, the bank called it off. Mooney, 34, tried different lenders, but they all told him that the condo development he picked - which had many foreclosed units and a questionable association budget was too risky. Given the foreclosures, the banks were unsure whether property values would hold for any period of time. "There are a lot of foreclosures I know, but how do you spin that tide?" he asked.

It is a problem that's affecting depressed markets nationwide, said Dana Johnson, an economist with Comerica Bank. Lenders of all sorts are more cautious because there's more risk that people will run into job losses, take hits on their income and have problems staying current on loans. "The house is the collateral of the loan," Johnson said. "The safety of lending would look different if home prices stopped falling."

If they want a loan, potential homebuyers must find neighborhoods where property values haven't fallen as drastically. "A lot of people are finding that they're going to need better credit scores and bigger down payments to qualify for loans," Johnson said.

Matthew Adler, a mortgage specialist at North Star Home Lending who worked with Mooney, said the rejection was not his fault. Adler said the condo developer had financial difficulties. Contractors who weren't paid put liens on the condos that the title company was not able to clear.

That problem could have been solved in a better credit environment, but lenders have gotten tough, particularly with condos, Adler said. "We're seeing lenders treating condos as an added risk when underwriting loans," he said.

Robert Rahal, president of Shore Mortgage in Birmingham, Mich., said condos are depreciating more quickly than houses. "When you lose owners, you lose dues, associations fall into financial hardship, they can't maintain properties, this in return impacts the value" of the unit, Rahal said.

Some lenders are lowering the amount any buyer qualifies for by 5 percent just on condos. When choosing to lend, they are looking at associations and the health of reserves and the number of condos sold in a particular development. Some lenders have refused to do a deal unless 51 percent to 90 percent of units have been sold in a development. "We are seeing lenders make lending decisions more on the collateral than the capacity of the borrowers," Adler said.

Mooney, meanwhile, has been living with friends until he can get a loan approved to move into Detroit. "If you want to get a condo or loft in downtown Detroit, if you don't have cash for most of it, it's not happening," he said.

Austin Black II, a real estate broker with Max Broock Realtors, said the current situation means brokers must work closer than ever with lenders. "The first people we start talking to are the mortgage people, talking to them about the property I'm dealing with and what's expected of the client," he said. "When you're educated up front, we know what to expect ahead of time."