For homebuyers, mortgages safer today but also tougher to come by

Keri Weishaar lives in a spacious, four-bedroom house near Tampa, Florida, thanks to the easy financing that prevailed during last decade’s housing boom.

“It was basically nothing to get into this house,” said Weishaar, 48, who bought the house in the spring of 2003 after obtaining a nomoney down, adjustablerate mortgage.

Then again, Weishaar and her husband are fortunate to still have their home. That same mortgage eventually morphed into a financial albatross and, for a time, the house in the suburb of Tarpon Springs was on a countdown to foreclosure.

As home values plummeted after the housing bubble burst in 2007, many borrowers with exotic types of loans were stuck, unable to refinance as lenders began to tighten their lending criteria. That set the stage for cascading mortgage defaults that eventually took down Lehman Brothers, Wall Street’s fourthbiggest investment bank at the time, 10 years ago this week. Lehman and other financial institutions were big buyers of securities backed by some of these dicey mortgages.

Today, getting a mortgage is tougher — and less risky. For one thing, no-money down mortgages and their ilk, which enabled many borrowers to initially lower the costs of buying a home but often saddled borrowers with far higher balances or steep monthly payment increases, have vanished.

Banks also remain a bit gun-shy after racking up billions in losses stemming from mortgages gone bad. That means homebuyers, especially those with lessthan-stellar credit, face more hurdles qualifying for a mortgage than they did in the housing boom years. But the loans are safer, more transparent and actually take into account whether a borrower can afford to keep up with payments.

“The banks have certainly loosened underwriting criteria for low-risk borrowers; they haven’t loosened underwriting criteria for low-credit score borrowers,” said Aaron Terrazas, senior economist at Zillow. “The types of lending that we saw leading up to that crash in 2008, for the most part, we’re not seeing nowadays.”

When interest rates began to plummet at the start of the 2000s, lenders rushed in to make nontraditional loans that could be sold for hefty profits to Wall Street banks, as well as government-sponsored mortgage buyers Freddie Mac and Fannie Mae.

The riskiest of these loans required little proof that the borrower could afford to pay them back and an initial period of low payments and interest rates. Some let borrowers defer interest payments. Ultimately, these loans overwhelmed many borrowers’ ability to keep up with payments.

The private market for mortgage-backed securities, which helped fuel so much easy lending during the housing boom, is now a sliver of what it was back then.

Mortgage-backed securities issued by private firms now represent about 4.5 percent of the market, according to data from Inside Mortgage Finance and the Urban Institute. In 2006, the peak of the housing boom, it was nearly 60 percent.

Legislation aimed at averting another financial crisis set out certain guidelines that lenders must follow if they want to make their home loans eligible to be guaranteed by the government. The biggest change is a rule requiring lenders to establish the borrower’s ability to repay the loan.