Mortgage mess affects renters, too

It's no secret that the nation's subprime mortgage meltdown, spike in foreclosures and fallen home prices have affected legions of homebuyers, home sellers and homeowners. But what may be surprising is that the turmoil in today's U.S. housing markets has important implications for renters as well.The trends include:More renters. Some renters have delayed homeownership because they're afraid of foreclosure or can't obtain easy financing. Some former homeowners have been forced back into apartments after a foreclosure or short sale.More rental units. Some homeowners and builders have rented out condominiums or houses because they can't sell them today at a price that's acceptable to them.More roommates. Some homeowners have taken in roommates to help pay the mortgage and avoid foreclosure. Some former homeowners have become roommates, rather than renters because they've lost both their home and their job."There is some pickup in demand, but there is also a pickup in supply -- both new apartments that are being built and also units shifting from owner to renter," says Mark Obrinsky, chief economist of the National Multi Housing Council (NMHC), an apartment industry trade group.Until last year, many renters felt tremendous pressure to buy a home because prices were on the rise and financing was seemingly affordable. But now that pressure has subsided and many renters have decided to put off this major investment due to fear of falling home prices or an inability to obtain financing on what they consider to be attractive terms, according to Mark Verge, owner of Westside Rentals, an online rental listing service in Southern California.That the exodus of renters from apartments to homeownership has slowed was apparent in a quarterly NMHC survey of apartment company executives. In July 2007, 55 percent of the executives who were surveyed said the subprime mortgage meltdown and tightening of mortgage credit had decreased the number of renters who'd left apartments to become homeowners. Six months later, in January 2008, that figure had climbed to 79 percent, a significant jump.Yet the impact of actual foreclosures may be less important than the influx of new first-time renters and the psychological impact of foreclosures. Even 2 million foreclosures, a figure predicted by some analysts, would be a relatively small number compared with the nation's 35 million renters, Obrinsky notes.Meanwhile, though, "horror stories" about today's housing markets have caused "more fear of buying" and have "turned a lot more potential buyers into long-term renters," Verge says.Moreover, some former homeowners may not be able to rent until their financial situation improves. For these folks, the immediate aftermath of a foreclosure or short sale may be a roommate situation, rather than a rental. They "are looking to crash somewhere, to move back in with their parents or a brother or sister, or to move in with a friend," Obrinsky says.The trend toward roommates may or may not help homeowners who can't afford their mortgage payments."A lot more people are taking in roommates who never would have (done so before). We get calls from people who say, 'I want to rent out a room in my house.' They're looking to supplement their income, so they can pay their mortgage," Verge says. Other homeowners have opted to rent out their entire home because they've relocated, but can't sell the home for enough money to pay off their debts, which might include a home equity loan or line of credit in addition to a first mortgage. This trend increases the supply of rental housing.Many cities experienced a boom in conversions of apartments into condos, but now, due to lower condo prices, some builders and owners have opted to rent out units they'd intended to sell. This trend also adds to the supply of rentals.Former homeowners who've experienced a foreclosure or short sale face special challenges in the rental market.Landlords typically refuse to rent to people who have poor credit, which can result from a late mortgage payment, short sale, foreclosure or bankruptcy. A foreclosure typically can hurt a former homeowner's credit score for a number of years, though the exact duration is a matter of dispute since credit companies don't disclose that information. Renters who need to find an apartment in a competitive market should "put together a nice rental resume" that explains why they experienced a foreclosure or other credit problems, Verge suggests.X...X...XMortgage rates slipped this week, with the 5/1 ARM continuing to fall. The average 30-year fixed rate dropped 16 basis points, to 5.96 percent. A basis point is one-hundredth of a percentage point. The average 15-year fixed -- a popular option for refinancing -- fell 14 basis points, to 5.56 percent. The average jumbo 30-year fixed slid 14 basis points, to 7.38 percent. Adjustable-rate mortgages followed the trend. The one-year adjustable-rate mortgage was down 6 basis points, to 6.31 percent. Meanwhile, the popular 5/1 ARM slipped 9 basis points, to 5.95 percent. The 5/1 ARM has now fallen 49 basis points in three weeks. Mortgage application activity fell for the week ending April 4. Application volume fell a seasonally adjusted 5.4 percent, according to the Mortgage Bankers Association.(Distributed by Scripps Howard News Service. E-mail Holden Lewis at hlewis(at)bankrate.com)