Stricter Rules On Home Mortgage Lending

SAN RAMON, Aug. 7, 2007 (KGO) (KGO) -- Because of the trouble in real estate, it's not as easy now to borrow against the equity you have in your home. So, more people are turning to conventional loans and credit cards. The government Tuesday today said consumer borrowing rose 6.5-percent in June. It's a trend that may continue for a while.

Borrowing money through a home equity loan is about to get harder for some people. National City Mortgage out of Ohio has offered new equity loans in the Bay Area, but not anymore.

Bill Erb, Diablo Funding Group: "What it says is, look, we don't want to lose our company."

Lenders are afraid they may lose even more money than they already have after subprime mortgages went south. These are loans given to customers with poor credit. Some have defaulted.

The rules of the equity lending game just got harder for some people.

Bill Erb is with Diablo Funding Group out of San Ramon.

Bill Erb: "Now you're going to have to prove that you can repay it."

Many families depend on home equity loans to finance their home improvements, to buy a second home and to even put their kids through college. However, when homeowners don't spend money, contractors, real estate agents and other businesses are affected.

Michael Gough, a contractor, is concerned.

Michael Gough, Contractor: "Certainly it makes me think that a lot of the jobs I might get in the home improvement sector won't be available."

Some real estate agents say buyers who six months ago qualified for a loan, now can't.

Mike Kell, Realty World Classic: "Now they can't sell their $500,000 dollar house to buy the $800,000 dollar (house), so it's affecting the whole market."

Thomas Davidoff is with the Hass School of Business. He says these home lending problems will have an affect on the housing market.

Thomas Davidoff, UC Haas School of Business: "Prices are probably going to fall, it depends how much. With prices falling people start to default on their mortgages, that means banks have homes to sell. When banks have to sell homes, they like to do it quickly. When banks are selling homes quickly, that drives down prices."

This may be a good buying opportunity for those investors with good credit.

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