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Thanks to Kelly Delaney with Farmington Financial who was kind enough to forward me this great article! Gretchen | The cash flows on | By: Richard Lawson, rlawson@nashvillecitypaper.com
| Posted: Monday, November 10, 2008 12:02 am
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Home sales in Nashville continued a negative path last month. Prices dipped again. The Greater Nashville Association of Realtors will this week likely report more negative numbers.
But homes are still selling, which means lenders are still making loans to people looking to buy houses. This despite the talk of financial doom and lack of credit that has many people hunkered down like never before.
“I get more questions from buyers out there thinking there is no mortgage money,” said Christie Wilson, partner in realty firm The Wilson Group.
There is money and plenty of it, according to bankers, mortgage lenders and real estate brokers. Some buyers can still find loans for 100 percent of the value of a home and lenders are still doing first and second mortgages to keep a buyer’s down payment low.
“If someone wants to buy a house and they have a job, then they should start asking questions,” said Jim Schmitz, Middle Tennessee executive for Regions Bank. “Don’t assume you can’t qualify.”
The financial world’s debt debacle caused mostly bad subprime loans has helped paint the perception that just about everyone is shut out of the market. Lenders and big-name Wall Street firms have gone broke. Fannie Mae and Freddie Mac, the repository of many residential mortgages, have had to be bailed out after subprime loans went to buyers with poor credit and a high risk of defaulting.
Those days and those loans are gone.
“If you have bad credit, you just aren’t going to buy a house,” Wilson said.
Hart Weatherford, president and owner of Farmington Financial Group, said buyers can no longer obtain “stated-income loans.” With those loans, buyers provided their incomes only on their loan application and weren’t required to provide documented proof.
While there were a lot of lenders that did subprime loans along with standard ones, there were a lot of banks that never touched the subprime business. Those firms are now pushing their advantage and grabbing market share.
Brokers say Regions, Farmington, Pinnacle National Bank, Renasant Bank, Avenue Bank and Branch Banking & Trust are among those actively soliciting business locally while many others have to sit on the sidelines because of their subprime exposure.
Nashville’s relative stability in housing helps with the lending.
“We don’t have near the problems,” Mandy Wachtler, a broker and GNAR president, said from the national association’s convention in Orlando last week.
Wachtler said one anecdote came from a Las Vegas broker who said 85 percent of her recent sales were foreclosure or short sales, which involve a bank agreeing to sell for less than the mortgage value rather than foreclose.
Instead of those issues, area real estate agents say they see homebuyers taking a patient, almost lackadaisical approach to the process. That applies to getting a mortgage — many are waiting for better rates — but also in making an actual offer and a decision.
“What you have are buyers who have no sense of urgency to buy,” Wilson said. “I have heard people say, ‘I wonder if the market has hit bottom.’”
Credit scores, down payments still matter
Still, plenty of buyers are stuck on the fence worrying about living up to credit standards they believe have tightened so much that they must put at least 20 percent down. Schmitz said tighter credit standards are more perception than reality.
“They haven’t changed as much as people think,” he said. “The credit score situation has not changed that much.”
Bankers and real estate agents said buyers can get 30-year fixed loans for as much as 97 percent of a home’s value and still at historically low rates under 6.5 percent. And like in past, more “normal” cycles, Weatherford noted that credit scores are again playing a very important role in setting buyers’ rates.
Weatherford said buyers can get split loans as well up to 95 percent — a first mortgage at 80 percent and a second mortgage at 15 percent of value — with 5 percent down. Much more rare these days are 100 percent loans, bankers said.
BB&T has been offering those types of loans through its Community Homeownership Incentive Program. The rates have been 6.25-6.38 percent.
Buyers can earn 80 percent of an area’s median income as defined by the U.S. Department of Housing and Urban Development. That’s about $50,550 annually for a family of four. A single person can earn up to $35,400, according to HUD rules.
Rick McCreadie, a BB&T vice president and branch manager in Middle Tennessee, said these loans also work in targeted census tracts that fit HUD guidelines.
“That’s pretty much everything downtown,” McCreadie said.
Still a little reckless?
Ray Hensler, a former banker turned developer who handled The Adelicia in Midtown, expressed surprise that any bank would lend 100 percent.
“Considering we're shoveling hundreds of billions of taxpayer money out the door to compensate for bad loans, I think anyone still making 100 percent loans ought to be prepared to defend the practice, rather than be presumed to be acting responsibly,” said Hensler said.
McCreadie said these loans are held in the bank’s portfolio.
“We haven’t gotten into any of the same problems,” he said of other banks. “Just because they don’t have a down payment doesn’t mean they are bad credit risk. Delinquency has been very low on this product.”
Hensler, however, said these loans and anything that requires less than 20 percent equity usually require private mortgage insurance, which is getting more expensive and harder to get after the subprime fallout overwhelmed several players in that sector.
“In some cases, a 5 percent loan with PMI in small print isn’t quite what it seems,” he said.
Hensler said such loans require property values to appreciate at above-average rates. But with these loans — as well as with those requiring 20 percent down — it takes time for buyers to build equity because of the real estate fees and commissions they pay when property changes hands.
“What people forget, in a normal market, the day you buy your house, you are underwater,” Hensler said. |
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