Mortgage lenders such as Wells Fargo & Co. and Wachovia Corp. are raising rates and imposing stricter standards on some of their most creditworthy borrowers as slumping demand in the mortgage bond market chokes off funding.
Wells Fargo, the second-biggest U.S. home lender, curbed its funding of Alt-A loans, made to borrowers with near-prime credit ratings or prime borrowers who don't document income. Wachovia, the fourth-largest U.S. bank, also stopped making Alt-A loans through brokers and smaller lenders and curtailed some adjustable-rate mortgages, spokeswoman Christy Phillips-Brown said.
"The credit crunch is here," said Keith Shaughnessy, president of Foundation Mortgage Corp. in Littleton, Mass.
Making it tougher for the most creditworthy borrowers to get mortgages may worsen the two-year-old housing slump and threaten U.S. economic growth by reducing the number of people who can buy houses.
IndyMac Bancorp Inc., the ninth-biggest U.S. mortgage lender, is making "major changes" to home-loan standards and charging higher rates after the market for mortgage bonds became "panicked and illiquid," Chief Executive Officer Michael Perry said.
The Standard and Poor's 500 Thrifts & Mortgage Finance Index fell 6.4 percent in the past three days to a two-year low after dropping 11 percent in July.
AmTrust Financial Corp., the former Ohio Savings Bank, which makes more than $2 billion a month in mortgage loans, stopped making loans yesterday that exceed 95 percent of a home's value.
The change applies to jumbo mortgages - those above the $417,000 limit set for loans bought by government-chartered agencies such as Fannie Mae - as well as mortgages the bank intends to hold in its portfolio.
"Borrowers have to have skin in the game," said Robert Eisendrath, a senior vice president for AmTrust.
Any changes being made by lenders now might be temporary, he said.
Almost all mortgages are jumbo in some of the United States' most expensive markets.
In San Jose, Calif., the median price for single-family home was $788,000 in the first quarter, according to the National Association of Realtors.
San Francisco's median was $748,000, and the median in California's Orange County was $697,300.
The suburbs north and west of Manhattan in New York are the East Coast's most expensive single-family market, with a median of $521,400.
First Horizon Home Loans has raised rates "significantly" on Alt-A and jumbo loans in the past two weeks, said Pete Makowiecki, the head of its mortgage unit.
"We're effectively curtailing our volume through price as opposed to some grandiose statement that we're pulling out of wholesale Alt-A completely, because it will come back," he said.
This week, National City Corp., the 12th-largest U.S. bank by assets, stopped buying second mortgages from other lenders and making some stated-income loans.
Greg Nierenberg, branch manager of closely held Approved Capital Mortgage Inc., a mortgage broker that handles about $100 million in loans a year, said he receives daily e-mail from lenders warning of tightening lending standards.
Washington Mutual told brokers and companies yesterday that sell mortgages that they can no longer use its software to lock in prices after 5 p.m., according to Alan Gulick, a spokesman. He wouldn't discuss other changes.
"This is probably the most dramatic I've seen in my career," said Nierenberg, commenting on changes in the industry he's worked in since the late 1980s. "Their own reps from their own lenders don't even know what they can do from day to day."
Yesterday was the last day of work for 6,250 of the 7,000 employees at American Home Mortgage Investment Corp., a lender that specialized in Alt-A loans. Last week, investors and lenders pulled the plug on at least $750 million of home loans promised by American Home to thousands of now-stranded borrowers.
Consumer spending in the U.S., which accounts for about 70 percent of the economy, is slowing as the two-year-old housing slump saps confidence and leaves homeowners with less money to spend. Consumer spending was at a 1.3 percent annual pace in the second quarter, the weakest in more than a year and the second-lowest since the 1 percent seen in the midst of the 2001 recession.