Mortgage Crisis?

Local Lenders Provide Insight on Mortgage Crisis
The mortgage lending waters have been a little unpredictable predict lately, to say the least.

Lou Barnes, a mortgage banker and an owner of Boulder West Financial Services Inc., described the mortgage crisis phenomenon as “a panic on the far side of Wall Street among investors who were buying loans that were far too risky and have now decided not to buy at all.”

The virtual shutdown happened so quickly and so completely that it’s starving the marketplace of needed credit, he said, leaving companies such as American Homes bankrupt and Countrywide Financial treading water just to stay in business.

“This is a dangerous thing,” Barnes said. “It’s one of those rare financial events that is a sign of trouble in the financial system and a cause of trouble in the financial system.”

However, the crisis hasn’t cut off all mortgage loans. What it has done is virtually wiped out subprime loans, made to those with poor credit, and increased rates for “jumbo” loans more than $417,000 that government programs such as Fannie Mae and Freddie Mac will not purchase.

“All of the traditional products are unchanged,” he said. “They’re just as available as they ever were.”

Stated-income and no-documentation loans are difficult to find, and the safest interest rate lock comes from banks or bank-affiliated mortgage brokers, Barnes said.

“We haven’t had to draw back near to the extent other funding sources have,” agreed Karen Woolhiser, sales manager for Wells Fargo Home Mortgage in Boulder. “We’ve been known as a conservative lender, and it’s the right way to do business.”

Wells Fargo still offers 100 percent financing, interest-only and stated-income loans, but the interest rate on those products are higher than traditional loans, Woolhiser said.

And the bank has enough in assets to make jumbo loans at a reasonable rate and maintain them until pricing improves and the bank can sell them, she said.

Woolhiser said the lending market has also changed in that it no longer is advantageous to get an adjustable-rate mortgage, as rates on those are as high – if not higher – than those on a 30-year fixed-rate mortgage.

Although the crisis is cleansing the industry of unqualified borrowers and lenders, it is an overcorrection of overgenerous lending practices that will have a profound effect on the economy and market, Barnes said.

“The credit pendulum has been on too easy for nearly 10 years,” he said. “It was swinging gently toward sensible swing until (the second week of August, when it) went as far as it possibly could to oth-er side. The housing market has become conditioned to availability, and to take them away all at once is unquestionably a shock.

“We’re too far away to predict” the impact the crisis will have, Barnes added. “We need to see whether or not and what kind of recession we’ll have. … I think the psychological damage is worse than the financial damage. If you were bombarded everyday about foreclosures and mortgage meltdowns, it tends to make you want to avoid the subject. One symptom would be backing away from the market and doing something else.”

Woolhiser said she has observed that the local market is slowing, but since it usually does as summer ends, it’s hard to say if it is a result of the crisis or just “that time of year.”

Barnes predicted that Colorado should survive the “meltdown” better than other states, but “the sales data takes time; we won’t really know the impact even nationally until October, when we get September’s sales data.”

By RE/MAX of Boulder, Inc.