The news has been grim for years now. Spurred-on by Congress, lenders made loans to people who really couldn’t afford to pay them. Then sub-prime mortgages wrecked the banking industry. Then unqualified lenders led to mass foreclosures. The credit market got so tight you could bounce a quarter off of it – if you had a quarter left, or could find a place to borrow one. And all of it led to problems for homebuilders, both large and small, who couldn’t make the payments on spec houses and had to shut their doors.
It was a very sad time.
It was also a lot of hooey.
Sub-prime mortgages accounted for only about three percent of all mortgages. Foreclosures spiked, but didn’t really “soar.” Lenders tightened credit requirements in response to federal regulators who, in the opinions of many, overreacted. The rest … well, the rest pretty much happened as presented. So while the trickle-down problems were real, the impetus wasn’t as cut-and-dried as some would have you think.
So here we are, three (or four, or five) market fluctuations later, with a new President, a new Congress, and a lending industry that either has its hands tied or has put on mittens, depending who you ask.
“There is increased government regulation that is making it more and more difficult for borrowers and buyers,” said Matt Faust, president of First Community Bank, headquartered in Hammond. “It’s getting more regulated every day. Despite the administration’s efforts to get banks to lend, we are actually being hampered by their own regulations.”
Those regulations are requiring banks to avoid sub-prime lending at all costs. Your credit score had better be darn-near perfect, your down payment had better be sizeable, and you’d better have a quart of your own blood on-hand, just in case you need it. Lenders are inching back to the old 20-80 mortgages, where borrowers put up 20 percent as a down payment; virtually gone are the days of 0-100, which only a few years ago were fairly commonplace.
“There’s a little truth to that,” said Standard Mortgage Vice President Lloyd Labatut, who manages the company’s Slidell office, of the blame being placed on new regulations. “They’ve drawn a line in the sand with a minimum credit score of 620. On conventional loans, if you have a 620 you’ll be paying a lot of extra fees. You need a 740 and above for a conventional loan. If you have less than 740, you’ll be paying extra.”
How much extra just depends – on who your lender is, on just how far below 740 you are, and other variables.
Faust said, in years past, borrowers who wouldn’t qualify for a conventional loan could find options from local, community banks. Not so much anymore.
“Over the course of many years, a bank would make those loans,” Faust said. “Restrictions are now in place whereby the government is dictating the rates and fees we have to charge you. There’s a certain segment of the population who just can’t buy houses any more. Those people are just kind of out of luck.”
So despite the $8,000 tax credit for first-time homebuyers being offered from up above on Capitol Hill, and despite political pressure on lending institutions to write loans and more loans, the process gets a little circular. Lend money! But not to them! And there are an awful lot of “thems” running around loose. People who would have qualified for virtually any mortgage instrument on the market a few years ago, may now find themselves pitching a tent, hunkering down and praying for daylight.
“Community banks, historically, did a lot of lending like that,” Faust said. “But the cost of regulations is making it unattractive for bankers. We probably just won’t do that type of lending. But it is the mortgage industry’s fault, not the banks.”
“I can’t see how that would be true,” Labatut said. “The banks don’t keep those loans. They’re packaging those and selling them. They’re not really different from what we’re doing.”
What Standard Mortgage is doing is a lot of business.
“We’re the largest seller-servicer of loans in the state of Louisiana,” Labatut said. “We have headquarters in New Orleans and offices in Lafayette, Baton Rouge and Shreveport. We not only originate and service loans, but also purchase them.” And Labatut said that for a variety of reasons, things are looking better.
“Business has picked up a lot in the last 30 days,” Labatut said. “One, it’s just springtime. Also, the $8,000 tax credit for first-time homebuyers is pulling people in the door. Rates have been good, and there are a lot of good deals out there. It’s making for a good combination of factors.”
One element worth considering is the category of mortgage loans that fall under the federal designation of “Rural Development.” In St. Tammany Parish, Labatut said, only the Slidell area is ineligible for such loans. The rest of St. Tammany and all of Tangipahoa is still qualified as “RD” areas, making it easier for some potential buyers to qualify, even in the tighter, more regulated market.
“The combination of people thinking, ‘I can’t get a loan’ and general uncertainty has been keeping people out of the market,” Labatut said. “People can get loans.”
Faust also thinks things are improving on a variety of fronts.
“The housing market is showing slow improvement and I think it will continue to do so through the end of the year – slowly,” he said. “Community banks are lobbying Congress right now to let us show them how we do business. We’re hopeful that over the next few years, they will relax the regulations.”
And that could be a very good thing.
In the meantime, qualified borrowers can find loans at any number of places. That quart of blood may come in handy, what with the crackdown on qualifications and proof thereof, but it can’t hurt to try.
“I remain optimistic,” Labatut said. “The market has shown some life, and the combination of factors should move more foreclosures out of the market in the next six to nine months. The economy is showing positive signs.”