Area has a handle on loans
Steady appreciation of home values lessens impact of subprime loan meltdown in NEPA.
JERRY LYNOTT
jlynott@timesleader.com
If mortgages came in flavors, the fixed-rate version would be a scoop of vanilla.
No toppings, nothing fancy, just ice cream plain and simple.
For plenty of people in the area, that’s fine and for good reason, said Robert Snyder, president of Luzerne National Bank.
“They know what their payments are going to be,” he said.
Across the country, and to a lesser extent in Northeastern Pennsylvania, subprime loans made to millions of risky applicants with poor credit and low incomes have melted into a mess of foreclosures and late payments.
The loans come in a variety of types, but have a common thread of high interest, mainly due to the risk associated with the recipient. Often the loans start off with a low payment and adjust to a higher rate after a set period of time.
George Hanzimanolis, president-elect of the National Association of Mortgage Brokers, said he’s heard stories of people taking adjustable-rate mortgages and getting “very comfortable” with the low introductory rate.
They then take on other debt and can’t afford the higher payment “when it comes time to adjust.”
While lenders are made to look like the bad guys, “Consumers need to take some responsibility,” said Hanzimanolis, who works out of Bankers First Mortgage Inc. in Tannersville.
According to 2006 fourth-quarter figures provided by the Mortgage Bankers Association, the delinquency and foreclosure rates for all loan types in the Northeast region of the country were below national rates.
Mississippi led the nation with an overall delinquency rate of 10.64 percent, followed by Louisiana with 9.10 percent and Michigan with 7.87 percent. Pennsylvania ranked 19th with a rate of 6.26 percent.
Ohio had the highest foreclosure rate of 3.38 percent. Indiana trailed with 2.97 percent. Michigan was third with 2.39 percent. Pennsylvania fell within the top 10, at ninth place with 1.58 percent.
The subprime loan meltdown comes at a time when the nationwide housing bubble has flattened, lowering prices and cluttering the market with unsold homes.
Local lenders generally agree the impact has been less severe because the region has experienced a steady appreciation of home values as opposed to a rapid rise.
Christopher Baduini of Wachovia Mortgage Corp. placed the annual increase of property values between 3 and 5 percent.
Baduini, Wachovia’s mortgage banking director for Northeastern Pennsylvania, said there is a lot of real estate inventory in the region.
“Open houses are as active as they’ve ever been,” Baduini said.
Like Snyder, he said homebuyers in the region historically choose fixed-rate mortgages.
Other types are out there and Wachovia is having success with its fixed option adjustable rate mortgage.
The loan allows a recipient to pick a payment option each month for the first 10 years. They can choose from 15- and 30-year fixed rates, interest-only payments and minimum payments.
“People like to have options,” Baduini said.
Hanzimanolis said the stable growth has not completely insulated the region from the subprime fallout.
He said there is a tightening of guidelines by lenders and the elimination of some programs.
Foreclosures are not a problem for him and other brokers. Instead, he said, we’re “seeing people calling and having to turn people away.”
Take a home worth $150,000, for example. In the past the bank would finance it 100 percent, but with the subprime fallout, the financing is cut to 90 percent, leaving the buyer to come up with the remaining 10 percent or $15,000. That puts the purchase out of reach for people who are not able to save enough to pay that share, he said.
The impact is felt most by first-time homebuyers on the fringe with blemished credit or those who have never rented before, added Jim Bulger, president of the Pennsylvania Association of Mortgage Brokers.
“It does not impact someone who already has a loan,” said Bulger, of Homecoming Financial in Pittsburgh.
The problems arose from trying to create more homeowners. “We were challenged by the government to put more people in houses,” Bulger said.
Don’t expect a quick fix from the government. The market will correct itself, Bulger and others said.
The Mortgage Bankers Association cautioned against any intervention.
In a mid-March statement, Doug Duncan, the association’s chief economist and senior vice president of research and business development, discussed the rise in delinquencies and foreclosures for subprime loans.
“As we have noted before and as recent events have made clear, market discipline in this industry is swift, can be severe, and is more effective at changing lending practices than any potential changes in regulation,” Duncan said.