Brokers see steep drop in lending

NATIONWIDE last month, 33% of home buyers' closings were cancelled, and 57% of refi applications were declined, a study found. Local brokers also say many customers no longer qualify for a loan. Above, a house for sale last week in Charlotte, N.C. /
NATIONWIDE last month, 33% of home buyers' closings were cancelled, and 57% of refi applications were declined, a study found. Local brokers also say many customers no longer qualify for a loan. Above, a house for sale last week in Charlotte, N.C. /

The pain continues for mortgage brokers and borrowers.

A nationwide survey of brokers released earlier this month found that 33 percent of home purchase closings were cancelled in August, in part because of tighter underwriting guidelines – a byproduct of the subprime meltdown that has gripped the mortgage industry.

The survey of 1,744 brokers by Washington, D.C.-based Campbell Communications also found that 57 percent of brokers’ customers learned they could not refinance their adjustable-rate mortgages that were close to resetting.

In addition, mortgage production was down as much as 30 percent in August, according to the survey.

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Locally, some brokers said last week that they have not experienced nearly the rate of cancellations reported in the survey, but they have seen an increase in the number of customers they turn away because they just can’t qualify for financing – or refinancing – anymore.

And that, in turn, is hurting their overall mortgage production.

Janet Bausch, president of Trident Mortgage in East Providence, said her company is turning away about 15 percent of the customers who seek financing. That number was about 5 percent a year ago.

“You don’t have the products for the people with the low credit scores or the people that need 100-percent financing – those products have dried up,” she said last week.

She even suggested to two new customers that they might be better off filing for bankruptcy.

“It’s the first time I’ve done that in a long time,” Bausch said. “They were overextended and kept refinancing into [non-conforming] products. Now their credit scores aren’t high enough to refi again. They got themselves in real trouble.”

“They’re not going to be able to keep the house, that’s the bottom line,” Bausch added.

Paul Laprade, president of the Mortgage Button in Woonsocket, predicted that those situations are certain to become more commonplace as millions of adjustable-rate mortgages nationwide are due to reset in the coming months.

“There’s no question that a lot of people are hurting,” Laprade said. “And my personal feeling is that we’ve got more pain to go through before we see the light.”

“We’re seeing a lot of customers that we would have been able to help a number of months back, but because of the market, you just can’t help them out now,” Laprade said.

In a bit of good news, the Federal Reserve lowered the federal funds rate half of percentage point last week to 4.75 percent, and Congress has begun moving on legislation to help homeowners at risk of foreclosure. One bill would allow the Federal Housing Administration to back refinanced loans for borrowers who fall behind on payments when adjustable rate mortgage reset.

Some institutions are benefiting from the climate of uncertainty.

Paul Cappello, president of the Rhode Island Mortgage Bankers Association and senior vice president of lending at Pawtucket Credit Union, reported that the credit union’s mortgage pipeline increased in August by more than 25 percent as consumers sought out more stable lending sources.

“I think [consumers are] afraid that the loan may not end up being funded” if they don’t go to a solid financial institution, Cappello said. “We fund our own loans through deposits. Or they may not qualify now, based upon the underwriting guidelines that have changed with those types of lenders.”

Officials at Rhode Island Housing said the agency has experienced a similar boom since January, with lending through the First Homes program up 20 percent over last year’s numbers. “People are flocking to us,” said spokeswoman Jo-Ann Ryan.

Through its own origination or through its lending partners, Rhode Island Housing loaned about $211 million for home purchases in the first eight months of 2007, agency officials said last week. That put it on top in terms of market share for Rhode Island, according to figures compiled by The Warren Group, a Boston-based real estate research company. Bank of America ranked second with $187 million, Ryan said.

Although Rhode Island Housing is benefiting, Cathleen Paniccia, the agency’s director of homeownership, said some consumers are benefiting, too, in the midst of the mortgage turmoil. “The consumer is now more aware about the need to be cautious and ask for a safer product,” Paniccia said.

But it’s tough for many mortgage brokers to see the bright side as mortgage production declines.

“In the last 60 to 90 days, you definitely saw a dropoff,” said Laprade, who has been involved in the mortgage industry for about 20 years and has 20 employees at the Mortgage Button. “A significant portion of the products you were able to write before no longer exists. And it happened very rapidly.”

At Trident, Bausch said volume is down about 30 percent from 2006, partly because of the real estate market and partly because of industry problems. “But we seem to be holding our own,” she said of Trident.

Bausch, who has 20 years of mortgage industry experience, laid much of the blame on the newcomers who entered the field in recent years to take advantage of the mortgage boom and make a quick buck.

“The industry started getting flooded with people, huge amounts of people,” she said. “And they’re with these shops that throw spaghetti on the wall to see what sticks. … They’re not professional. They don’t know the guidelines and the rules. So they’ve taken loans that they shouldn’t have taken.”

Both Laprade and Bausch predicted that the pendulum will now swing the other way, as the closure of many major national home loan lenders trickles down. “By the spring, you’ll see a lot of people without jobs,” Bausch said. “You saw the big places go under and now you’ll see the loan officers start dropping out.” •

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