PhillyDeals: Cheap home loans aren't affordable for all

The price of money is falling again, and homeowners who need cash are heading back to their banks for refinancing loans.

But not everyone's getting what he or she wants. "In the last two weeks, [applications] have picked up 30 percent to 35 percent," to about $10 million a week, said Joe Blaston, who runs Sovereign Bank's Villanova home-loan office.

Posted rates for traditional loans on "conforming" homes have fallen from a little over 5 percent earlier this year to near-record lows around 4.75 percent.

"Jumbo" rates on the bigger loans Fannie Mae won't buy ($417,000-plus in the Philadelphia area) have fallen a lot more, to about 5.25 percent from about 7 percent last year. Construction-loan prices are down, too, said veteran Sovereign lender Michael Kent.

But it's not like the easy-money mid-2000s. Today's would-be borrowers are surprised to see tougher

loan limits, plus appraisals coming in 10 percent to 30 percent below peak levels. There's less room to borrow, or none.

Besides low appraisals, "the issues we're hitting are job loss and declining income for people that are self-employed," said Kent. "We have to do verification of employment seven days before closing," and he's surprised how many he still has to tell "no" because they're losing their jobs.

Who's funding the jumbos? Big banks, said Blaston: "There's a pretty strong need by a lot of institutions" to make new loans to recover from their old, bad loans. Businesses aren't borrowing more. By contrast, home values "have stabilized," so "Bank of America, Chase, and Wells Fargo have been getting back into jumbos."

Thank free-spending Europeans, too: "Part of what has happened is all the issues with the sovereign [debt]" in Greece and other countries, Blaston said. With the value of the euro falling, skittish investors are buying U.S. Treasuries and driving down bond rates; same goes for U.S. mortgage securities, which investors still see as government-protected.

Will cheap money last into summer? "I don't make predictions," said Blaston, laughing, a little.

Raj Gupta is back in the chemicals business, a year after he sold Philadelphia-based Rohm & Haas Co. to Dow Chemical Co. on orders from the Haas family and other big shareholders.

Gupta is advising New Mountain Capital L.L.C., an $8.5-billion-asset New York private-equity firm, in its planned $280 million cash purchase of Mallinckrodt Baker Inc. from Covidien Inc. He'll be chairman, not day-to-day boss.

Mallinckrodt, of Phillipsburg, N.J., makes materials for solar panels, computer chips, and the stuff that dissolves in your gut when you swallow pills. Covidien is the former health-care division of Tyco International Ltd., where Gupta is on the board. Buyer and seller were in talks since last fall; they announced the deal Wednesday.

Gupta left Rohm & Haas with $102 million in stock, severance, and retirement, which gave him a lever to go into the buyout business.

"When I retired from Rohm & Haas in April 2009, I made a conscious decision not to join the boards of any of the chemical-materials companies," because he wanted to run one, he told me.

"I approached the private-equity companies. I went with New Mountain," founded by New York investor Steve Klinsky. New Mountain owns EverBank, the Camber Corp. surgery chain, and multiple software and insurance firms.

Gupta said he liked New Mountain's record of keeping investments for a decade or longer, instead of turning them around for quick sale. In a statement, Klinsky praised Gupta's industrial experience.

Mallinckrodt has 1,000 employees in Phillipsburg, Kentucky, Mexico, and the Netherlands, plus contract manufacturers in Asia.

"We see this as a great platform for New Mountain to build a larger business. With the right management team, this business has a lot of opportunities," Gupta told me. He'll add plants and scout "tuck-in acquisitions, between $50 million and $100 million, in related markets."