Tighter Underwriting Stymies Refinancing of Subprime Loans.

Carlsbad, CA -- Tighter underwriting standards will help protect new borrowers from being pushed underwater by exotic forms of adjustable-rate mortgages, panelists agreed here at the Mortgage Bankers Association's Nonprime Mortgage and Networking Conference last week.

But several speakers warned that not enough attention is being paid to the plight of millions of borrowers who already have those loosely underwritten products and face the prospect of not being able to refinance when their loans reset this year and next.

Particularly vulnerable, they said, are subprime borrowers who have not been able to improve their credit standing in the short time they have had their interest-only mortgages, pay-option loans or short-term two- and three-year adjustable mortgages.

"Yes, credit quality is much better today," 30-year industry veteran Michael McQuiggan told the conference. "But how are we going to take care of all those customers who can't qualify for refinancing because their homes aren't appreciating as they expected?"

Mr. McQuiggan, chief executive officer of Lenders Direct Capital Corp., an Orange County, Calif., marketer of nonprime, alt-A and second-mortgage loan products, which shuttered its wholesale division earlier his year, said the entire industry has an obligation to address the problem and the sooner the better.

"This is urgent. We must do it now or it's going to snowball," he warned. "We've got to get everybody involved in this - Wall Street, the rating agencies, Realtors, homebuilders. If we don't solve the problem immediately, it will take on a life of its own and the government will come in and solve it for us."

Steve Nadon, president of Option One Mortgage Corp., agreed, saying that the potential debacle is "not owned by just one segment" of the housing sector. "It involves everyone," Mr. Nadon told the conference. "We need to all get together and find a solution."