ABA Banking Journal - August 2010 - (Page 34)
feature | Mortgage lending
That’s how bankers view the mortgage market. They continue to lend, but are frustrated by capricious markets, new rules and “strategic defaults” By Melanie Scarborough, contributing editor
omeownership, the cornerstone of the American Dream, has become the American Nightmare for many: mortgage-holders watching their home values plummet, applicants facing tough qualifying standards, and bankers who would like to lend but are struggling under regulatory constraint. The National Association of Realtors reported that contracts for pending sales on existing homes plunged 30% in May. While that likely was caused by the expiration of a tax credit for first-time buyers, the fact that the sales rate dropped more than twice what economists predicted suggests other factors are in play. Certainly, high unemployment and a shaky economy reduce the number of mortgage applicants. But even areas with the most stable housing markets report problems making loans.
Money available, but only for a few
Oklahoma has the lowest percentage of homeowners with negative equity—only 5.9%, compared to the national average of 23.7%—according to a recent survey by California-based CoreLogic. Yet Brad Swickey, president and CEO of Valliance Bank in Oklahoma City, says the state’s steady mortgage market doesn’t immunize them from problems because
34 | ABA BANKING JOURNAL | august 2010
banks are subject to the national underwriting standards of Fannie Mae and Freddie Mac. “What drives housing values is the availability of financing,” Swickey says, and financing is increasingly hard to obtain. “Everyone hears the mortgage rates quoted as being at historic lows, but those rates are offered only to individuals with a middle credit score of about 740.” Consequently, the moderate-income family with a score around 650 often is priced out of the market, frustrating them as well as their bankers. “I’m not saying mortgage money isn’t available; it is,” says Swickey. “But it’s not freely available for people with good, solid jobs and good, solid credit scores who are finding it more difficult to qualify than they would have two years ago.” Exacerbating the problem is examiners’ demands that banks have more capital on hand. For a $200 million-asset bank such as Valliance, that means reducing the number of assets on its balance sheet. I would love to make loans,” says Swickey, “but examiners want more capital. So I have to buy government or agency securities at 2-3% when I’d rather make loans at 6-7%.”
Big hit from new rule
In another small community, Placerville, Calif., El Dorado Savings Bank FSB faces a similar situation.
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