TD Bank eases mortgage rules

April 28--Cherry Hill-based TD Bank, which has 45 Bergen County branches, is making it easier for first-time home buyers to qualify for financing by offering them loans that require little money down and no mortgage insurance, a company official said.

The changes made by TD, as well as by some other lenders, are the latest sign that a credit crunch that's frustrated many potential buyers, especially first-timers, may soon ease up.

"The traditional first-time home buyer has been significantly underrepresented in this housing recovery," said Malcolm Hollensteiner, TD's director of retail lending sales and production in Washington, D.C. "We hope [the loan program] will increase first time homeownership in many of our markets on the East Coast."

Last week TD dropped the down payment requirement for its "Right Step" first-time home buyer program to 3 percent of the home's value from 5 percent, and it stopped requiring mortgage insurance – which is paid by the borrower but protects the lender from default risk, and can add more than $100 to a monthly payment.

Another change is that the program has been opened up to borrowers whose income is above 80 percent of the median, as long as the homes they are buying are in low-to-moderate-income census tracts. Interest rates are "at or below market," Hollensteiner said.

Some other lenders are easing off strict loan requirements for prospective home buyers. San Francisco-based Wells Fargo, which has more than 300 branches in New Jersey, has since the beginning of the year returned to making loans to those with credit scores as low as 600, a market that used to be commonly described as subprime. A spokeswoman said it's too soon to say how well the program is working.

A number of wholesale lenders, including Carrington Mortgage Services LLC in California, also have recently lowered credit score requirements.

Companies are easing loan-qualifying criteria as the post-financial crisis regulatory landscape has become more clear to lenders, who are reeling from a steep drop in refinancing and are eager to drum up new business, industry experts say.

Mortgage companies are turning once again to customers with modest savings and tainted credit histories, said Don Frommeyer, a mortgage originator in Indianapolis, who is president of the Association of Mortgage Professionals. "Everybody needs volume," Frommeyer said.

Even so, lenders are more discerning than they were a decade ago in the run-up to the sub-prime crisis. Keith Gumbinger, vice-president of HSH.com, a mortgage information firm in Riverdale, pointed out that loans backed by Fannie Mae and Freddie Mac, the large government-sponsored mortgage guarantee firms, still require credit scores of at least 620.

Now, Frommeyer said, a borrower may be able to get a loan with a below-average credit score, but "you still have to be creditworthy." Some lenders are digging deeper into customers' financial backgrounds to approve loans and are showing some flexibility, case by case.

One of the problems during the real estate boom was that lenders were "taking high-risk loans and pricing them the same as everybody else's loans," said Wendy Nastasi, owner of Crossroads Finance Discount Mortgage in Wayne.

Many of those loans were securitized and sold to ill-informed investors, who were left holding the bag when loans went bad.

The lenders reaching out to subprime borrowers today are usually pricing in the risks, either with higher interest rates, mortgage premiums or higher down payment requirements, according to Nastasi.

A wholesale lender she works with, which she declined to identify, recently introduced a loan program geared for the self-employed who have credit scores as low as 620, and who do not want to use tax returns to prove their income. They can use 12 months of bank statements instead.

The catch: "They have to put 45 percent down," Nastasi said.

TD's Hollensteiner said that bank's recently liberalized first-time buyer loan requirements meet new federal rules that require lenders to take steps to verify that the borrower has the ability to repay.

The loan program's minimum FICO score is unchanged at 660. The total debt-to-income and housing-payment-to-income ratios at 41 percent and 33 percent, respectively, also were unchanged. Typical of first-time buyer programs, borrowers must take a homeownership class to assure prospective homeowners that they understand their financial responsibilities.

Doug Rotella, executive vice president of HomeBridge Financial Services Inc., a mortgage lender with a regional office in Hackensack, said his company has begun making loans to Veterans Administration and Federal Housing Administration borrowers with FICO credit scores as low as 580, but only if there's other evidence that the borrower will be able to handle the monthly payments. For example, he said, HomeBridge usually requires that the down payment come from the borrower's own savings, not from a gift.

"There are lots of options if you really are interested in becoming a homeowner," said Vickee Adams, spokeswoman for Wells Fargo Home Mortgage in Iowa.

In January, Wells Fargo lowered its minimum FICO credit score requirement for FHA loans to 600 from 640 and for conventional home loans to 620 from 660. In another change, borrowers getting conventional mortgages are now allowed to use gift money from friends or relatives to lower down payments to 3 percent from 5 percent.

John McWeeney, president of the New Jersey Bankers Association, said the community bankers he has talked to remain concerned about a new federal rule that increases their legal liabilities if a non-conventional loan they made goes bad. They have remained conservative when weighing loan applications.

"There is no indication at all they are lightening underwriting standards," he said.

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Email: [email protected]. Staff Writer Kathleen Lynn contributed to this report.

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