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Scott Jagow: So, the government is bailing out Fannie and Freddie. The Fed has cut interest rates many times. Congress has passed a housing relief bill. And still, the housing market struggles. Here's a good example from Houston. It's a city where home prices are relatively low. Kate Archer Kent has our story.
Kate Archer Kent: Thirty-nine-year-old engineer Mahesha Udipi has lived for five years in a tiny Houston apartment with his wife and son. Now he's looking for something with a little more space.
Mahesha Udipi: It should have a good living area where there is a big place to keep TV and keep books.
Mahesha has been shopping for a home loan for about three months. He gets a lot of messages like this:
Tape of phone message: This is Scott Griffin calling from Countrywide. I just wanted to check back with you to see if you've been gotten taken care of yet for your new home loan.
Banks like Countrywide are still lending. But David Jarvis of Metro Study, a housing tracker, says mortgages look very different from a year ago.
David Jarvis: It is harder to qualify because you really have to have a down payment. And you really have to have a job. And you really have to document it. And even if you have a good job and lots of money, you still have to document. Well, that's OK. I mean, I think that's what we did from the 1930s all the way up through the 1990s.
Mahesha looks like a 1990s-era borrower. His job and credit rating are so good, the bank's offered him a $240,000 loan with just five percent down. But it won't get his business, because the interest rate is too high.
Udipi: It was about 5 percent two years ago. Now it's 6.25 percent if you have excellent credit.
The Federal Reserve has been taking the pressure off banks with a string of rate cuts this year. But Mahesha says he's not seeing the benefits.
Udipi: If you really want to buy the house you have to cut somewhere else. Maybe you have to cut 401K or you have to cut savings. Otherwise, you cannot balance the budget.
Mahesha doesn't get the banks behavior. On one hand they're reducing their risk by tightening lending standards and raising rates. But on the other, they're exposing themselves to another kind of risk by offering him a loan that would put him $252 in the hole every month.
Mahesha's resigned himself to getting a smaller home that won't bankrupt him. But in order to make it work, he says he's the one who'll be taking the risk by raiding his retirement.
In Houston, I'm Kate Archer Kent for Marketplace.