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Behind the lists, real obstacles for borrowers
| Friday, Feb 29 2008 5:15 PM
Last Updated: Monday, Mar 3 2008 8:45 AM
Lately, the Bakersfield area has popped up on a lot of real estate market “risk” lists.
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Jan. 15: National mortgage insurer PMI Mortgage Insurance Co. puts out a report placing Kern County in its highest-risk category for future price drops. Among the country’s 50 most populated areas, Riverside-San Bernardino-Ontario and Las Vegas-Paradise top the company’s risk list for price declines.
Jan. 24: The Bakersfield area pops up on First American LoanPerformance’s House Price Index, grouped with nine other areas that have experienced the largest price declines over the past 12 months. The San Francisco-based data company also named the California areas of Fresno, Sacramento-Arden Arcade-Roseville, Riverside-San Bernardino-Ontario, Salinas, Stockton, Merced and Modesto as markets leading in home price depreciation.
Jan. 28: Kern County lands in the number one spot on a mortgage risk report by Santa-Ana-based real estate data company First American CoreLogic. Kern’s homeowners are the nation’s likeliest to miss a mortgage payment, the report states, ahead of No. 2 Stockton and No. 3 Fresno.
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One January report, by national mortgage insurer PMI Mortgage Insurance Co., ranked Kern County’s risk of future home price drops among the nation’s highest; another pegged Kern’s borrowers among the country’s likeliest to miss a mortgage payment.
But aside from what these dire rankings might say about the state of the local real estate market, do they really mean anything?
Yes, mortgage industry experts said, although the degree to which lending institutions use these reports to guide underwriting policies is, for the most part, a closely guarded secret.
But investment companies, hedge funds, government agencies, the quasi-governmental secondary market investors Fannie Mae and Freddie Mac and large lenders all look for information that can help them manage risk, said Bob Visini, a spokesman for San Francisco-based First American LoanPerformance, whose recent House Price Index documented major home price depreciation in Kern.
And for the would-be borrower in Bakersfield, home shopping in a geographic region considered to be a risky market might translate into added obstacles at loan qualification time.
“This stuff is used,” Visini said. “The data is used by anyone in the mortgage industry that is in a position to lose or gain from being invested in, or originating, mortgages.”
One of the country’s largest residential lenders, Wells Fargo Home Mortgage, declined to discuss any potential differences in credit policies, or to comment on how individual geographic markets might be categorized.
For most banks, the cascade of available lists and reports is likely one part of a variety of information used to shape business decisions, said Mark Fleming, chief economist for Santa Ana-based First American CoreLogic.
One mortgage finance organization might do nothing with a report such as the House Price Index, he said, while another might use the report to build policies.
“The types of loans made available, and the way they are structured, is in large part due to what (Fannie Mae and Freddie Mac) and the secondary markets are willing to purchase,” Fleming said.
In December, Fannie Mae started restricting loan-to-value ratios — the amount borrowed compared to the property’s value — in “declining markets” by 5 percent, a move that has had real effects in Bakersfield, local mortgage brokers said.
For some would-be homeowners, Bakersfield’s classification as a “declining market” means coming up with a bigger down payment, and perhaps waiting longer to close the deal on a new home.
‘A GAME OF POKER'
“We’re doing very few conventional loans,” said Jan Covey, a mortgage broker with Direct Source Lending. “Most of the loans we’re doing now are FHA because many people do not have a sufficient down payment (to qualify for a conventional loan).”
Federal Housing Administration loans can help first-time buyers, Covey said, but buyers will need to exercise some patience.
“FHA isn’t staffed up for the volume they’re getting,” Covey said.
In 2005, when houses were selling like wild, most lenders would underwrite a home loan application within 24 to 48 hours, she said, but now the process takes five to 10 days.
It’s taking “beyond long” to close a home sale, said David Siador, a mortgage broker with Watson-Touchstone Real Estate’s in-house lender, Acceptance Capital.
The reduced loan-to-value ratios mean real estate agents sometimes have to renegotiate purchase offers, Siador said, which throws a wrench in the mechanics of a sale.
“It’s a game of poker,” he said.
In addition to a heftier down payment, buyers need a minimum FICO credit score of about 620 and may have more difficulty being approved by a mortgage insurance company, Covey said.
CHANGING BORROWING LANDSCAPE
Bakersfield real estate agent Terri Garcia is increasingly recommending credit counseling to many of her buyers.
“A first-time homebuyer, we’re OK with all of them because of the assistance programs available,” Garcia said. “With our families that had homes and are not first-time homebuyers, it’s harder for them because they’re asking for 5 or 10 percent down.”
Federal and state loan products that were neglected during the real estate boom are coming back in style, local brokers said.
“It’s tougher out there,” Buena Vista Mortgage branch manager Linda Schubert said. “It’s back to the basics. Thirty-years-fixed with the money down. FHA with 3 percent down.”
But borrowing realities can change again as the market twists.
“The market adjusts, basically, in a snap of the finger,” said Rick Roper, who handles secondary marketing for Golden Empire Mortgage, a Bakersfield mortgage banking company.
Current mortgage guidelines, set by the investors buying loans on the secondary market, have tightened up to resemble lending standards followed before 1998, he said.
Lenders classify nearly all of California as a declining market, said Steve Hops, a San Diego-based mortgage professional and a boardmember for the California Mortgage Bankers Association, a trade lobbying group.
While the tighter guidelines may restrict the number of people who qualify for a loan, he’s in favor of returning to a climate where lenders make sure borrowers will be able to afford their home for years to come.
“In the long term, it’s healthy for the market,” Hops said.