Laurel Tokar made one of the biggest financial steps in her life a few weeks ago when she signed for a mortgage on her first home, a white Colonial in North Baltimore's Wilson Park.
But the next day, her lender, American Home Mortgage Investment Corp., disclosed that it was bailing out on as much as $800 million in loans promised to homebuyers across the country. Tokar's loan was one that didn't get funded as promised, and she faced losing her "perfect" place.
"It was terrible," said Tokar, 21, who managed to find another lender after a midnight paperwork session with her real estate agent. "I couldn't really sleep."
The same credit crisis that started in subprime loans and roiled global stock markets this week is injecting uncertainty into the already-stressful home-buying process. Some borrowers, like Tokar, have seen loan offers disappear and had to scramble for replacements. Even borrowers with good credit are finding that mortgages offered just weeks ago are no longer available or cost much more.
The situation is shifting so rapidly, brokers say, that terms are changing daily - and even hourly - as a constant stream of memos from lenders outlining modified underwriting guidelines crosses their desks.
"The bottom line is, we have people who want to buy homes or who want to refinance, and we have to turn them away because of tightening credit standards," said Tim Higgins, a loan officer with Patuxent Funding in Ellicott City. "They may have qualified for financing as little as a week ago."
Home lenders, including at least eight of the 10 biggest lenders in Maryland with almost 40 percent of the market, have dropped certain loan products, raised rates or tightened underwriting standards in recent weeks. American Home, which slid into bankruptcy this week, had captured nearly 3 percent of the market, according to research firm First American CoreLogic.
With borrowers left in the lurch, the credit crunch is hampering an already-slowing real estate market. A record number of homes were for sale in the Baltimore region last month, according to data released yesterday.
A significant number of those who could have qualified for a loan a year ago have been frozen out of the market, mortgage brokers and real estate agents said. Other buyers might have to buy less expensive homes. Some buyers with less-than-perfect credit might need to improve their credit score before obtaining a loan they can afford.
'Going to be a mess'
"It's absolutely going to be a mess. I've been in the business 24 years, and I've never seen anything like this," said Sara Lenes, president of Mortgage Associates Inc., a Columbia brokerage. "We're going to see more foreclosures, fewer people able to buy, and more houses sitting on the market for longer."
The problem is exacerbated in states with pricey housing markets, including Maryland, because loans that are more difficult to obtain include jumbo mortgages that exceed $417,000 and so-called 80-20 mortgages, which are two loans that cover the entire cost of a home so that no down payment is needed.
Both kinds of loans are popular in Maryland, where home prices easily reach the $500,000-and-up range, and the standard, 20-percent down payment can be an out-of-reach sum for buyers.
The clampdown on credit started this year in the market for subprime mortgages - those made to borrowers with shaky credit - which saw a steep increase in foreclosures. But it worsened in recent weeks as investors shunned mortgage-related securities, or pooled loans that can be traded, and financial firms stopped providing funding to some lenders. The situation left mortgage lenders with less money to finance new loans.
"Investors really drive the bus in terms of what's available in the mortgage market and at what price," said Greg McBride, financial analyst with Bankrate.com. "A lot of the loans made over the past few years were made because there was a willing investor who would buy it. Those investors have become very squeamish."
Even jumbo loans, which have not seen a spike in delinquencies, have been deemed too risky for some investors because they don't have loan guarantees from Fannie Mae and Freddie Mac. Those government-sponsored companies provide financing for many mortgages and set the $417,000 threshold based on average home prices.
The result has been a jump in interest rates on jumbo loans. The rate on a jumbo loan rose to 7.35 percent from about 7 percent two weeks ago. On a $500,000 loan, that means about $100 more on the monthly payment, according to Bankrate.com.
Jumbo loans are far more expensive than loans on less expensive homes; the spread between the two widened in the past two weeks from about one-quarter of 1 percent to nearly three-quarters of a percent.
The flow of easy credit in recent years pushed homeownership to historical levels. Home-ownership rates that had stayed essentially flat for decades began to move up in the 1990s, from 64 percent in 1990 to nearly 68 percent in the second quarter this year.
At the same time, subprime mortgages grew from the industry's infancy a decade ago to an estimated 20 percent of the market last year. Other products aimed at making housing more affordable, such as interest-only loans, payment-option features and adjustable-rate mortgages, took off.
The home-buying frenzy continued unabated as long as housing prices continued to climb, ensuring that borrowers who got into trouble could sell at a profit and cover the loan. When housing prices tapered off, problem loans were laid bare.
With adjustable-rate loans, which have a low teaser rate but adjust higher over time, some borrowers couldn't afford the bigger payments. While brokers say the market for so-called ARMs has shrunk drastically, as much as $482 billion of the loans made in previous years are expected to reset in 2007 and 2008, according to Credit Suisse.
"The industry is beginning to rethink some things we've done over the last few years," said David Pulford Jr., president of the Maryland Mortgage Bankers Association.
"In our attempt to house as many people as we possibly could, we made mistakes as a mortgage industry, as did the real estate industry and consumers. I think we are all culpable."
Lenders emphasize that there are still deals to be had. The interest rate for a 30-year, fixed-rate mortgage has remained steady in recent weeks at about 6.5 percent on loan amounts below the jumbo threshold.
Also, if borrowers can muster a 20 percent down payment, they can avoid paying private mortgage insurance, which protects the lender if the borrower fails to pay. Such insurance can add hundreds of dollars to a monthly payment as long as the loan covers more than 80 percent of the home value.
Also, many real estate experts expect prices in the Baltimore area to decline until demand picks up. The average home price in Baltimore City and the five surrounding counties was flat at about $331,000 in July compared with a year ago, but the number of homes sold has dropped at a double-digit rate for months, according to Metropolitan Regional Information Systems Inc.
William L. Yerman, chief executive officer of the Strata Group, a Baltimore brokerage, title and mortgage company, said he has been trying to persuade sellers over the past year that the market is not the same as it was in its heyday.
"Sellers really need to have realistic expectations of what their house is worth," he said. "Can a changing mortgage market affect that? Absolutely."
The mortgage mess certainly had Ilene Kessler spooked. She is president of the Maryland Association of Realtors but also a mother, and her daughter and son-in-law are looking to settle on a house this month. Her daughter, Allison Hobelmann, is a doctor and has excellent credit. Nonetheless, Kessler was on edge until she was able to lock in a loan rate for them Wednesday.
"They haven't overspent. They've been very, very prudent. But I still held my breath because the week they were locking in was when all this stuff hit," said Kessler, an agent with ReMax Advantage Realty in Columbia. "So you don't know. Even if you do everything correct. ..."
Laurel Tokar, the homebuyer who lost her loan through American Home, moved into her three-bedroom house Tuesday with her pit bull Lucci, a pet fish, a snake and a lizard. The assistant manager at an art supply store, who plays drums in a local band called the Cult Classics, was relieved to have made it through the mortgage maze unscathed.
"It's so awesome," she said. "I would have been devastated, because this place is perfect."
Sun reporter Jamie Smith Hopkins contributed to this article.