3/25/2007 - Putting a local perspective on the subprime mortgage crisis
by David Kanis and Beth Burdick
Ever since we penned our recent column on the crisis in the subprime mortgage industry, we have been barraged with questions about possible implications for the real estate market in Asheville. Since neither of us is a fortuneteller, were going to call it as we see it, given our combined 20-plus years in the mortgage industry.
Just as all politics are local, all real estate is local. We are not predicting a flood of foreclosures in Asheville instigated by subprime borrowers defaulting on their loans and dragging down all home prices as a result.
Are there people with subprime loans in Asheville? Yes. Are some of those people going to have problems when their mortgages readjust? Yes. And if you think you are one of them, we encourage you to contact your lender sooner than later to explore your options. Remember, the people who are predicted to face the greatest problems are those in states with stagnant or declining real estate values where it will make it difficult to impossible for an owner to refinance into a conventional loan. Expect to see the most significant impact in states like California, Florida, Arizona and Nevada, where real estate prices had a huge run-up or in the industrialized states like Michigan, which have had heavy job losses.
One hundred percent loans for any property other than a primary residence are pretty much gone with the wind. The subprime crisis has impacted conventional A paper (good credit) borrowers as well. Lenders are eliminating 100 percent loans for all properties other than primary residences that conform to F guidelines; that is, verifiable income, assets and employment and strict debt-to-income ratios. Subprime lenders have raised the minimum credit scores for first-time home buyers by about 40 points on 100 percent loans. Gone are the days when if you could fog a mirror, you could get a loan.
Down payments will be required for second homes and investment properties. For those individuals with less than a 20 percent down payment, piggyback loans will come with higher interest rates, especially if you are a stated income borrower. More borrowers opt for mortgage insurance if they do not have the necessary credit scores to do a piggyback second. Its a good thing Congress made mortgage insurance tax-deductible in 2007.
Even if you are genuinely a low-documentation loan, expect to provide some documentation to your loan officer to verify the information that you are communicating to him. Since some members of Congress are proposing legislation that would allow borrowers to sue their lenders for placing them in loans which they cant afford, you can expect loan officers will want you to show them the money. No loan officer wants to set a borrower up for a potential foreclosure, not to mention losing his licensure.
Foreclosures represent only 1 percent of the total U.S. mortgage market. Interest rates for good-credit borrowers are at historic lows and because of the recent backlash on Wall Street, there is a flight by investors to bonds. Rates on fixed long bond products are actually coming down.
If you live in Asheville, dont let the national media reports prevent you from shopping for the home of your dreams. Last year real estate value increased an average of 11 percent. That sounds like a pretty good investment to us.
This is the opinion of David Kanis and Beth Burdick of Ashford Mortgage Advisors. They can be reached locally at 350-8886 or at www.ashevillehomeloans.com.