The percentage of mortgage applications rejected by the nation’s largest lenders increased last year, spotlighting how banks’ cautious lending practices are hampering the nascent housing market recovery. In all, the nation’s 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators. Lou Barnes, a third-generation mortgage banker in Boulder, Colo., says lenders have grown too cautious. Fannie Mae and Freddie Mac, in particular, “are behaving like a hurricane insurance company that won’t write any policies within 200 miles of an ocean.” Barnes recently told a mother of three who is finalizing a divorce and receiving a cash settlement of $400,000 that his bank would not be able to approve her for a loan even though she has a credit score above 800, no debt and is willing to put down more than 50% on a $400,000 house. She works as a real estate agent and had little income in 2009 when the housing market slowed. That has left her without the two years of documented income the bank wants for her loan application, even though she says business has picked up over the last year. Barnes says that in ordinary times, she would have had no difficulty getting a loan. “Going back as far as there has been banking, if somebody walked in the door with a 50% downpayment, good credit, cash in reserve, they’d walk out with a loan,” he says. (www.wsj.com)
Wall Street Journal Online (6/25/11); Nick Timiraos and Maurice Tamman

Lew Ranieri, once known as the father of mortgage finance, is daring to revisit the most infamous sector of the mortgage market — subprime. He believes now is the time for nontraditional lenders to enter the market. While the bank lending standards that created the mortgage crisis were too loose during the housing boom, they are now too tight, Ranieri says, reducing the supply of mortgages to average borrowers and opening a door for lenders like Shellpoint Partners LLC, a mortgage-finance company he recently founded with two partners. It isn’t clear whether Shellpoint can raise the large amounts of capital needed to play a big role in the nonprime-loan market. But there is little doubt that consumer demand for alternative mortgage financing is growing as traditional banks shut out all but the most pristine borrowers. Shellpoint’s aim is to target borrowers whose credit profiles prevent them from obtaining conventional mortgages in the tight market but who are nevertheless good credit risks and can make a downpayment of at least 15%. The company said a typical borrower could include self-employed contractors and other professionals who have assets and a steady income stream. The self-employed have been the hardest-hit by bank credit-tightening trends. (www.wsj.com)
Wall Street Journal (6/24/11); A.D. Pruitt

Unless Congress acts soon, this fall the government will stop backing loans of more than $625,500, making them subject to higher interest rates and downpayments. Heather King and her husband, Rick Yost, learned of the Oct. 1 deadline this month. They are rushing to put their Dupont Circle condominium on the market next month instead of September. They recently had a baby, and they want a larger home in the suburbs. But they need to sell before they can buy. If they took out a $729,750 mortgage and put down 10%, they could afford the $810,000 house they’ve been eyeing in Alexandria, Va., said Brian Martucci, their mortgage broker. But come October, a mortgage of that size cannot be guaranteed by the federal government, thrusting it into the “jumbo mortgage” category. Jumbos generally require at least 20% down — or, in this couple’s case, $162,000 — and their rates can be about a percentage point higher. Rockville, Md., builder Marty Mitchell said some in the industry were counting on the higher loan limits to stay in place until the housing market stabilized. “What we’ve been finding for the last couple of years is that the new home builders have been building to that $729,750 level,” Mitchell said. “The hope was that Congress would have the wisdom to extend these limits again, given how fragile the market is.” (www.washingtonpost.com)
Washington Post (6/26/11); Dina ElBoghdady and Dan Keating

With an emphasis on materials conservation and reuse, and developers looking to squeeze costs any way they can, modular construction is getting a closer look. A developer can expect to shave up to 20% off construction costs with modular building largely because labor costs are lower. A unionized New York City carpenter makes about $85 an hour, including benefits, when he works at a construction site. At Capsys in Brooklyn, the only modular factory in the city, a comparable worker makes less than $30 an hour plus benefits. Many modular factories are not unionized and pay even less. Developers also benefit from time savings. Speed aside, builders have the ability to create a production schedule that minimizes downtime. In traditional construction, a contractor is overseeing work by various subcontractors who work for separate entities and on their own schedules. Weather can cause delays and so can any number of unforeseen factors like waits for zoning approvals. But in a factory, all the various tradesmen from the plumbers to the carpenters to the electricians work for the factory, and all the pieces come together simultaneously. (www.nytimes.com)
New York Times (6/14/11); Ronda Kaysen

“The home office is everywhere,” said Steve Melman, NAHB’s director of economic services. About 2% of U.S. workers — the self-employed and unpaid volunteers excluded — consider home their primary workplace, the Telework Research Network says. It estimates that 20 million to 30 million people work from home at least one day a week. Today, for about $60, a single-band wireless router allows home owners to create a building-wide network of computers, printers and other devices linked to a single Internet source — a cable modem. Those who run a business from home, or take a lot of work home, probably will want dedicated space somewhere quiet. They should design the space for themselves, keeping the costs within a reasonable budget, rather than with resale in mind. In 2007, Remodeling magazine’s annual Cost vs. Value report said a home-office renovation would return 56.1% of the investment at sale time. This year, that was down to 45.8%. (www.philly.com)
Philadelphia Inquirer (6/24/11); Al Heavens

Faced with a languishing housing market, home builders are increasingly looking beyond bricks and mortar for more lucrative business opportunities to stay afloat. Atlanta-based Beazer Homes, one of the top 10 builders in the U.S., recently launched a pre-owned home division in Phoenix tasked with acquiring, improving and renting recently built, previously owned homes in the city, in an effort to capitalize on robust demand for rental properties. The company has discussed expanding the division to include Las Vegas and parts of California, other regions rife with distressed properties. Builders have also branched into remodeling, with a recent NAHB survey of home builders finding that more than 60% of those polled had diversified into remodeling. “A lot of builders are doing more than one thing,” says Steve Melman, NAHB’s director of economic services. “Remodeling is taking a bigger chunk than it has in the past. It could be a way to develop a new niche if the market doesn’t come back.” Despite sagging demand for new homes, some lenders saddled with unsellable foreclosure properties or unfinished projects have recruited builders to complete stalled projects,” Melman says. “They’re paying builders a fee to complete them because to the lender, a bunch of half-built homes is worthless,” he says. “But if they were to be completed, then they have something that they could potentially sell.” (www.usnews.com)
US News and World Report (6/24/11); Meg Handley