Mortgage Lenders cut back, tighten terms

The Chicago Tribune reports:

Once seemingly confined to subprime lending, problems in the mortgage industry showed signs of spreading to more-creditworthy borrowers Friday, triggering concerns about the potential fallout on the real estate market.

Wells Fargo & Co., the nation's No. 2 home lender, stopped making certain loans to consumers with near-prime credit or prime borrowers who don't document their earnings. Wachovia Corp., the nation's fourth-biggest bank, also cut back some of its lending activity to consumers previously considered good credit risks.

Others imposed drastic hikes in interest rates in a matter of hours, and some took a breather from doing originations.

"As a result of market volatility, UBS Home Finance will be unable to accept any new loan applications today," the lender said in a Friday afternoon e-mail to clients. UBS, however, plans to begin taking applications again Monday.

Some real estate industry observers expect the upheaval to continue.

"The real estate market hasn't had a lot going for it, and now it's not likely to for some time," said Paul Kasriel, chief economist for Chicago-based Northern Trust Corp.

The housing market suffered a 15 percent drop in the sale of single-family homes from mid-2005 to mid-2006. The situation had appeared to hit bottom until last March, when the industry took a turn for the worse that hasn't abated, one observer said.

"Since March, we've had a significant decline that is very likely due to tighter credit conditions," said Richard DeKaser, chief economist for National City Corp.

Tougher credit standards mean less demand for real estate,whether the Fed lower the discount rate or not.Something to think about.