Lenders Tightening Loan Standards

Several lenders are tightening loan standards in the next month. Look's like Greenspan's jaw-boning this summer did have some impact. Or maybe the lenders just got tired of their disappearing profit margins.

Washington Mutual:

Told mortgage brokers that it will make it more difficult for borrowers to qualify for its option ARMs, which carry an introductory rate of as low as 1.25%. Under the new rules, which are expected to take effect next month, borrowers will have to show they can afford the monthly payment if the interest rate on the loan is 6% -- or 6.25% for borrowers purchasing a second-home or investment property -- after the introductory rate expires. Currently, the bank's rate for qualifying borrowers for these loans is roughly 5.25%

In mid-August, Washington Mutual increased the margin on its option ARMs by 0.20 percentage point to 2.5%. As a result, a borrower who took out an option ARM tied to one popular index -- the 12-month Moving Treasury Average -- might pay 5.52% instead of 5.32%.

New Century:

Said it was aiming to reduce the amount of interest-only loans it grants to less than 25% of total loan production from 33% in the year's first half. New Century said it was making the move in an effort to boost profit margins.

Option One:

This month, Option One Mortgage, a unit of H&R Block Inc., boosted the rates on all of its mortgage products by 0.40 percentage point. Option One says the move reflects both rising interest rates and changes in investor appetite for its loans.

Golden West Financial:

says that next month it will raise the introductory rate for its option ARMs to 2.20% from 1.95%. The rise "will be the first of several moves," says Golden West Chairman and CEO Herbert Sandler. "I don't know how high it will go, but it should go higher," he adds.