HOME MORTGAGE: ‘A challenging time’

Getting a loan used to be about as easy as walking into a bank; the subprime mortgage crisis and its aftermath have changed all that

Bob Quick | The New Mexican

9/1/2008 - 9/2/08

The residential loan business these days is pretty much divided into those who have some savings, a good credit record and a down payment and those who have none of the above, lenders say.

"From the lenders' point of view, there's been a compete return to rationality in underwriting," said Glenn Wertheim, president and CEO of Charter Bank and Mortgage. "There's a much better match with what customers' expectations are."

The products Charter focuses on — including Federal Housing Administration and Veterans Administration loans, conventional and conforming loans, and Mortgage Finance Administration loans — "that business is really fine," Wertheim said. "Our production levels are up over last year."

Wertheim discussed the lending business recently — at a time that follows by some months major problems in the mortgage-lending market, difficulties that have persisted and resulted in a slowdown in lending and a sharpening of criteria needed to obtain a home loan.

In addition to Wertheim, Bryan "Chip" Chippeaux, chief operating officer and chair of Century Bank; Ginger Bowe Sullivan, qualifying broker at Anasazi Mortgage; and Patrick Dee, president and chief operating officer of First Community Bank, all discussed the residential mortgage business from their perspectives.

For borrowers whose credit scores are iffy, who don't have complete documentation of earnings or a down payment, "it's a challenging time," Wertheim continued. "That whole group of customers is excluded from access to funding."

And it's not a small number of customers in that category. "That so-called subprime business is about 40 percent of borrowers," Wertheim said. "They might get some service on a selective basis. ... It's going to be a challenge for them the next couple of years."

As mortgage broker Ginger Bowe Sullivan recalls in her newsletter, a few years ago "there was no stopping the market. It was hot! All a seller had to do was stick a sign in the ground in front of the house and wade through the pile of offers that came in."

Best of all, "mortgage money was easy and cheap — even with stated income, stated assets and no money down," she added.

These days, market conditions have gone the other way. Sellers are in a surplus, and buyers must document their income. Credit scores are crucial, and 100 percent mortgages "are a faint memory," Sullivan said. Mortgage insurance is usually required for mortgages in excess of 80 percent of the purchase price because most second-mortgage lenders of two years ago are no longer in business.

Those seeking a mortgage to buy a home should realize that not only have 275 lenders "imploded" since 2006, Sullivan said, "The remainder lenders and banks are scrambling to bring loan portfolios into compliance with ever-tightening guidelines."

Sullivan's best advice for a borrower is not just to be pre-qualified for a mortgage but pre-approved or fully approved. A pre-qualified borrower has already been approved in the opinion of a mortgage loan officer. A fully approved loan is one in which the underwriter has verified the information of the borrower.

Sullivan also recommends hiring professionals "for the important things you don't do on a regular basis."

Chippeaux said the lending business has done a complete flip-flop. "It was too loose for a while," he said. "You didn't have to document anything. Now you have to document everything. Underwriting has gotten much tighter. And the people we sell loans to are much more" demanding than they were previously.

The whole mortgage process, thanks to the tighter regulations, "is much less efficient," Chippeaux said. "From a (qualified) borrower's perspective, it's a little more difficult now. People who qualify have to go through more documentation and underwriting."

Chippeaux and other bankers are especially concerned about the condition of Fannie Mae and Freddie Mac, the two publicly owned, federally chartered corporations that end up owning most of the loans made in the U.S.

After both Fannie and Freddie suffered big drops in their stock prices on Wall Street, there is fear that both entities might have to be taken over by the federal government.

"It's absolutely critical they maintain some semblance of stability," Wertheim said. "It's an absolutely monumental issue. If something happened to Freddie and Fannie, it would be cataclysmic. It would be a problem for every real-estate market in the country."

The fact that Freddie Mac and Fannie Mae are in trouble has resulted in a wider spread between mortgage rates and Treasury bond interest rates, Chippeaux said. "That means mortgage rates are higher than they would normally be."

He added: "I give it another couple of quarters before banks flush out all the issues."

At First Community Bank, Patrick Dee, the bank's president and chief operations officer, said the credit crisis "is having a little bit of an effect" on his bank's lending business.

"The criteria are more stringent, and people need a little more money down," Dee said. "And lenders are now more thorough in terms of underwriting. It's a little more challenging."

Among the loans the bank issues, "jumbo loans (loans for $417,000 and more) are especially challenging," he said. "There are far fewer potential investors (in jumbo loans) out there. There's a much smaller group to pick from."

(Santa Fe's own Thornburg Mortgage, a jumbo lender that is now involved in a financial reorganization, has temporarily stopped originating jumbo loans, the firm's president and CEO, Larry Goldstone, said recently.)

First Community Bank typically sells all of the loans it makes in the secondary market, rather than holding them in its own loan portfolio, Dee said.

Overall, "loan volume is pretty good," Dee said. "We're seeing most of our volume out of Colorado and New Mexico. In both of those markets there's a reasonable amount of resale activity and new-home construction. There's just a little OREO" ("other real estate owned," which refers to properties the bank has foreclosed on.)

New Mexico loans are the least problematic, Dee said. "More of our issues are out of the Colorado market. And even there, it's not too bad."

Contact Bob Quick at 986-3011 or bobquick@sfnewmexican.com