Yes, it’s the lenders who have the money, but it’s the mortgage insurers who control the purse strings. Mortgage borrowers who can’t afford a 20 percent down payment (which means most borrowers!), even borrowers with good credit, need the backing of a mortgage insurer for their loan, and those backers are playing hard to get. The toughest restrictions, of course, are in markets where home prices are falling, but many areas are feeling the pinch. Some mortgage insurers have gone so far as to blackball entire states! California, Florida, Arizona, and Nevada are three examples out west; our Midwest neighbors Michigan and Ohio have made the blackball list as well. Needless to say, as a bankruptcy attorney in Indiana, I am intensely interested in all matters relating to debt, asset values, and foreclosures in our state (which, thankfully, hasn’t been blackballed as a state by any one insurer, at least not as of this writing). Many people are turning to me for help to try to avoid foreclosure, or to seek the best strategy for staying in their home while filing Chapter 13 bankruptcy. Some are just asking for my advice in keeping financially afloat during these challenging time..

What’s happened is understandable, in a way. Banks have lost billions of dollars, and so now they are going back to strict lending standards, the kind lenders used to use two decades ago. Now, a blackballed zip code doesn’t mean no loans at all will be made in that area . What it does mean is that people with no down payment, or people wanting to buy second homes or investment properties, may find themselves out of luck for awhile. New home buyers and those who want to refinance will need higher down payments – and higher scores in order to qualify for a loan.

Just in recent weeks, 9600 zip codes in 34 different states have become the “wrong place to be” when it comes to adjustable rate or interest-only financing. Federal and state programs for people with poor credit and for first time home buyers are available in some circumstances. But, the way things are today, there’s no question, to paraphrase a local bank’s commercial: “It’s not easy needing green!”