Published: August 25, 2007 10:17 pm      

Mortgage loans still available

During the financial uncertainties of the early 1980s, a brokerage firm hired the actor John Houseman to do a television commercial.

After reciting a list of disturbing headlines, Houseman would ask, “Is the world going to end tomorrow?”

Then he would look into the camera and reply, “Probably not.”

That same message came through in interviews with several locally based mortgage lenders this week. Despite news that world financial markets have been rocked by massive defaults in the sub-prime mortgage market, local lenders are still financing homes.

“From what you hear in the national media, you’d think that money for mortgage loans had dried up and that doomsday is near,” said Bill Walters, president of Madison Bank.

“That has made many people hesitant to apply for a mortgage. They think no one is making mortgage loans, but that is absolutely not true.”

Mortgages are available at historically low rates for borrowers with good credit, Walters said. That opinion was echoed by officers of two other Kentucky-based banks and two local mortgage brokers.

A drop in loan applications coupled with action by the Federal Reserve to pump money into the mortgage market should keep interest rates low.

Lenders who write loans for federal or state programs designed to assist first-time buyers can still finance 100 percent of a home purchase.

In at least two cases, local lenders said home mortgages are still available for the “sub-prime” borrower.

That term sub-prime applies to a customer with a spotty credit history and/or a self-employed person whose income may not be easily documented or forecast.

“A sub-prime lender would offer mortgages at a teaser rate of 8 percent or lower,” said Theresa Burdette of Lanco Mortgage. “The next year, however, the rate would jump to 12 percent or more. You’re not doing anybody a favor when you give them a loan like that.”

Sub-prime lenders also got in trouble by accepting overvalued property appraisals, Burdette said.

In that case, if a borrower defaults, the lender will have a difficult time selling the property to recover the loan proceeds.

Tim Edwards, chief operating officer for Cumberland Valley National Bank, cited an example from another state in which a sub-prime lender financed a $500,000 home at 2.99 percent. “A year later, when the rate jumped to 9.25 percent, the borrower could no longer afford to make payments,” he said. “Of course there’s not a big demand for half-million-dollar homes.”

Both Edwards and Walters said Kentucky has seen a slight increase in foreclosures, but no big problems.

While conceding there may be bad economic news for certain economic sectors and some parts of the country, Edward said, “The good news is that this is a good time for Kentuckians, even first-time buyers, to buy a home.”

Some agencies, such as Federal Housing Administration, the Veterans Administration and the Kentucky Housing Corporation are requiring more scrutiny of appraisals and documentation to verify a borrowers’ income,” Burdette said. “But there is still plenty of money in the mortgage market to finance home loans at very good, fixed rates.”

Kentucky’s diverse economy helps protect it from some of the economic shocks felt in other parts of the nation, said Jasper Pearson, Madison County president for First Southern National Bank. A state such as Michigan, which is heavily dependent on automobile manufacturing, is more vulnerable to a downturn in a particular economic sector.

Agreeing with Edwards, Pearson said, “This is a very good market for the qualified borrower.”

Neither First Southern National nor Madison Bank ventured into the sub-prime market, their presidents said.

Even while the national media are fanning the flames of economic anxiety, lenders should not turn their backs on customers with less than sterling credit histories, said James Woolery of Dove Mortgage.

“People may have had problems in the past, such as an illness or a divorce, that left a bad mark on their credit history,” he said. “Good folks can turn their lives around after a string of bad luck, however.”

If a lender makes the effort to verify the value of the home and the borrower’s ability to repay, a mortgage can be justified to sub-prime borrowers at a rate not far above that of a conventional loan, Woolery said.

Common-sense lenders will survive the “shakeout” in the sub-prime mortgage industry, Woolery and his colleagues all agreed.

“This is a buyers’ market if you want to purchase and finance a home,” Edwards said.

Bill Robinson can be reached at brobinson@richmondregister.com or at 623-1669, Ext. 267.