Consumers mistakenly believe it's a bad time to get good mortgage

The term "mortgage meltdown" has become so commonplace -- on TV, in headlines and even casual conversations -- that you might assume that this is a tough time to get a mortgage.

But the reality is starkly different: Mortgage money is plentiful, the majority of mortgage products remain relatively unaffected by troubles in the subprime segment, and interest rates for 30-year fixed-rate loans remain in the low 6 percent range for people with reasonably good credit. Interest rates on jumbo loans -- those over $417,000 -- have fallen after spiking this summer.

The main change over the past several months, said Ted Grose, president of Los Angeles-based 1st Mortgage Advisors Inc., is that "the products and underwriting that allowed people to buy houses they couldn't afford have disappeared."

Nonetheless, say lenders and brokers, there is a widespread and persistent belief by consumers that the entire mortgage market is in crisis.

Kit Crowne, a loan officer with Right Trac Financial Group in Manchester, Conn., says even sophisticated homeowners with high incomes are under this impression. He recently handled a relocation financing for a professional couple, one of whom wondered if they would "be able to even qualify for a mortgage."

Crowne checked the couple's credit, verified assets, and put them into a cream-puff fixed-rate first mortgage at 6¼ percent for 30 years.

Jumbo mortgages, which always have carried higher rates than "conforming" loans eligible for purchase by Fannie Mae and Freddie Mac, have recently been in the low 7 percent range, according to Crowne, down from the 8 percent and higher levels of a couple of months ago.

"The 'mortgage meltdown' idea is way overstated," agrees Jim Brown, CEO of Veteran Mortgage in Everett, Wash. "Other than subprime and high LTV [loan-to-value] stated-income" programs, he says, "we've got pretty much everything now that we did before."

Most lenders and investors do note underwriting standards are stricter than they were a year ago. Jumbo loans often require two appraisals -- one by an appraiser selected by the lender, the other by the investor.

Similarly, FICO score standards are higher than a year ago, stated-income mortgages with no verifications are hard to find, and major investors are on the prowl for any hint of fraud. They are especially wary of excessive "layering of risk" -- combining low down payments with marginal FICO scores and high debt-to-income ratios -- where prices are trending lower.

A legislative development on Capitol Hill could expand consumers' choices: Congress may transforming the once-stodgy Federal Housing Administration (FHA) program into a competitive home loan option nationwide, with lower minimum down payments and maximum mortgage amounts generous enough to fund loans in pricey California.

Under a bill passed by the House on Sept. 18, FHA loans could go as high as 125 percent of an area's median home price or 175 percent of the limit for loans purchased by Fannie Mae and Freddie Mac. In California that could mean FHA-insured mortgages well above $600,000. A companion bill approved by the Senate Banking Committee would cap FHA loans at the Fannie Mae-Freddie Mac limit, currently $417,000.

A strength of the FHA is that its funding base is virtually bulletproof: Its mortgages are pooled into federally guaranteed bonds issued by the Government National Mortgage Association (Ginnie Mae) and are considered nearly as safe as Treasury securities. FHA loans are consumer-friendly: no prepayment penalties, flexible and generous for consumers with past credit challenges, but strict on documenting income and assets.

Distributed by the Washington Post Writers Group. Kenneth Harney is a nationally syndicated real estate columnist. He can be reached at the Washington Post Writers Group, 1150 15th St. NW., Washington, DC 20071-9200 or by e-mail at kenharney@earthlink.net.