In case the current housing market wasn't bad enough, builders should be ready for subprime mortgage underwriters to require higher credit scores or bigger down payments from borrowers—and a drastic reduction in the availability of stated-income loans.
“There are borrowers looking to purchase homes who, three months ago, could have qualified at any subprime outlet in the country,” says Ron Booth, senior vice president and national production manager of the subprime division of Nashville, Tenn.–based First Horizon Home Loans. “A lot of them can't qualify today.”
The biggest impact, he says, is in higher loan-to-value deals, where both credit scores and appraisals are being carefully scrutinized. Last year, many lenders would provide a 100 percent, full-documentation loan to a borrower with a credit score of 580, he says. Now, those loans require a score of about 620 to qualify.
Builders can help themselves by contacting lenders in advance to find out what kind of buyer profile is acceptable, says Richard W. Nirk, executive director of the National Association of Residential Construction Lenders.
It's to a builder's benefit to help a subprime buyer qualify, says Scott Baughman, sales and marketing director for Premier Homes, a starter-home builder in Pueblo, Colo., whether it's a lease-purchase program to help him improve his credit or helping him find a job. “We don't just roll over and say it doesn't work,” Baughman says. “We come up with creative ways. An on-site person would never think, ‘How can I help a person get a job?' [as a way to help a borrower qualify for a loan]. But in doing that, we accomplish our goals.”