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Would-be buyers find loans are out of reach

Thanks to the housing slump, professional couple Gladys and Raul Castillo finally found homes they could afford – new condo units in foreclosure within walking and biking distance of their jobs in Miami’s Brickell financial district.

They also had the credit record to meet lenders’ standards. But they couldn’t land an actual loan.

“Almost all of them want 20 percent,” said Gladys Castillo, an administrative assistant, speaking of lenders they had approached. The Castillos had saved only 10 percent, and lenders were loath to get into units in buildings rife with foreclosures.

So the couple has stopped searching while they save for a bigger downpayment.

Reeling from an estimated $300 billion in losses from bad mortgages, lenders last year began making it tougher for would-be buyers to get financing. They boosted the credit scores needed to qualify and eliminated loans to borrowers with less than perfect payment histories. They asked for bigger down payments and solid proof of income and assets.

Back then, though, no one was buying.

Now, as buyers tiptoe back into the market, lending trends are frustrating real estate agents and mortgage brokers. They say they are losing deals because byzantine underwriting standards are forcing financially sound, mostly middle-income buyers back onto the sidelines of the housing market.

40 percent down

“In areas like Brickell or the Biscayne corridor, there is no way to get a loan unless a borrower is willing to put 30 or 40 percent down,” said William Zalaquett, a Keyes Co. Realtor who specializes in the area. “Europeans, wealthy Northeasterners and the wealthy locals who have the cash can buy. The average working class here, they are left out.”

As a result, more buyers are paying cash at closing. Ron Shuffield, president of brokerage Esslinger Wooten Maxwell, said 31 percent of the firm’s clients in July paid cash for their homes, up from 15 percent historically.

“[It] is the highest percentage that we have ever seen,” Shuffield said. He attributed the rise to tighter lending standards, but also the increased ability of buyers to negotiate better deals if they did not make them contingent on getting a mortgage.

Even wealthy individuals needing financing are having a tough time, said Alex Doce, president of Baron Mortgage, a Boston-based lender with an office in Miami.

“Right now, I have a couple of $4 million and $5 million loans, and it’s a nightmare to try and finance these people who have high net worth. The few people that were buying these loans, like Indymac, have gone out of business or don’t have the capital to lend,” Doce said.

Fannie Mae, the nation’s largest backer of home loans, announced earlier this month it would raise its “adverse market premium” – extra money charged in stricken markets – by a quarter of a percentage point. That could translate to an additional $750 on a loan of about $300,000.

Fannie Mae would not indicate whether South Florida made the list, but observers said the region was almost certain to be included since most analysts predict home prices here will continue falling well into next year.

Fannie Mae and Freddie Mac earlier this year had implemented a declining market policy in which it required bigger downpayments, including in South Florida. After being criticized for penalizing hard-hit regions, the two government-sponsored companies instead imposed stricter lending guidelines nationwide.

Because most major lenders sell their loans to one of the two companies, many followed suit.

Some lenders appear to have maintained distressed market policies, including Wells Fargo. In an e-mail, a spokeswoman wrote that Florida borrowers were subject to higher downpayment requirements. Earlier this spring, private mortgage insurers, who cover lenders when borrowers default, also implemented their own distressed market rules, requiring heftier downpayments even when lenders do not.

To top it off, investors who buy mortgages in the secondary market are leery of buying loans originating in South Florida, where fraud has reached epidemic levels.

Doce said lenders like him had been burned by some condo developers, who in desperation to close sales misstated the rate of buyers who planned to live in the residences as opposed to investors.

Consequently, some buildings have been blacklisted. Doce said it had been impossible for him to find investors for loans for some Fort Lauderdale condominiums. High foreclosure rates are exacerbating the trend.

To avoid wasting time, Doug DeWitt, a Miami-based real estate agent who lists bank-owned foreclosures for sale, has begun requiring potential buyers to get preapproval for themselves and the condo building before submitting an offer.

The difficulty in lending for some buildings is worsening a bad situation. Condo associations are behind budget and must raise assessments to cover costs, increasing the financial strain on unit owners.

That risk of special assessments being unexpectedly levied on borrowers puts off lenders as well, said Richard Swerdlow, chief executive of, because it could affect their ability to pay their mortgages.

Loan programs for foreign nationals have also withered, crimping a significant market that has bolstered luxury condominium sales in Brickell and Miami Beach.

Javier Noriega, a broker with First Southeast Mortgage in Hollywood, said a recent trip to the Florida Association of Mortgage Brokers convention yielded only one flier from among a hundred or so financial institutions with a foreign national lending program.

“That was amazing. I was disappointed coming out of the thing,” Noriega said, adding most of the lenders were peddling FHA programs and not much else. FHA loans are guaranteed by the federal government and offer downpayments of as little as 3 percent. They have become the loan of choice for many bust-era buyers.

Turned away

The lending environment forces him to turn away about five of every 10 calls he gets, Noriega said.

Solange Keough, an engineer who recently bought a home in Weston, said had she known the difficulties and cost involved in borrowing, she would have opted to rent.

Though she was prequalified for a 10-percent-down loan, once her Boston-based loan officer found out her property was in Florida, the game changed entirely. Her closing was delayed several times, each time requiring more original documentation, and her downpayment requirement kept rising.

In the end, she had to put down 25 percent on a $460,000 home, forcing her to decide between borrowing from family or depleting her personal reserves.

“It was a horrific situation,” she said, “They were trying every which way to have me give up. They didn’t want to give me the loan.”

Copyright © 2008 The Miami Herald, Monica Hatcher.

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