These days, the subprime free-fall is akin to watching an episode of TV”™s “Fear Factor” ”“ only instead of being asked to dangle from a cable, lenders and borrowers are trying to avoid twisting in the breeze of bad credit risks, overpriced homes and “no doc” loans.
Houses in the Hudson Valley that were selling in three to six months now spend twice as long on the market.
The stock market has been a roller coaster. And retail sales ”“ down nationally 0.7 percent in June, up 0.3 percent in July ”“ are along for the ride.
While Federal Reserve Bank Chairman Ben S. Bernanke has remained steadfast in his refusal to cut interest rates, it may only be a matter of time before he reverses his stance as the economy leans on the brakes.
The American housing market was at fever pitch until recently, with multiple buyers engaged in bidding wars. The regional housing market, though more lethargic than in recent years, remains stronger than the high-profile slides playing out in speculation-fueled Miami and Las Vegas housing.
For lending institutions like First National Bank of Jeffersonville, the subprime blowup is not affecting its bottom line.
“We don”™t do lending of that nature,” said Tanya Hahn, chief operating officer for the bank. “There is nothing for us to tighten up, since we”™ve always taken a conservative approach. Our mortgages stay in-house, so we haven”™t had to change our structure.”
Typically, Jeffersonville”™s first-time buyer should expect to put at least 20 per cent down to avoid premium mortgage insurance and to pay the closing costs on the purchase of a home.
“You can put your closing costs into a refinance, but not a purchase,” said Hahn. “And we don”™t deal with FHA (Federal Housing Administration) mortgages. As a rule, we have not found them to either our advantage or our customers”™ advantage.”
Time on the market for homes has changed dramatically, noted Hahn. “Marketing time used to be between three to six months. Now, it”™s more like six to 12 months before a house is sold. And I don”™t think we”™ve seen the worst of it yet.”
Hahn said rising property taxes are also negatively impacting home sales. She”™s starting to see escrow, which was once 25 percent of the principal and interest, rising to 40 percent or 50 percent of monthly mortgage costs. “People are very nervous. I think we will see the housing prices come down further. This is almost reflective of the period we went through during late 1987 through the early 1990s.”
Â
On the other side of the room are the mortgage brokers. Many that blossomed during the subprime heyday have folded their tents. Others, like Countrywide, are feeling the heat.
Robert Villone, director of Atlantis Mortgage in Fishkill, said the subprime market has been around for a long time. “The FHA were the original subprime lenders. Lazy loan officers didn”™t want to deal with the legwork so they took other routes. But if you are willing to deal with the requirements, the FHA is the way to go.”
Villone”™s business is off 20 percent to 30 percent. “Last year, some loans that were no-brainers, we turned away. The days of ”˜no doc”™ loans are over. If the peg doesn”™t fit into the hole, you had better wait until you have some money to put down, as well as closing costs.”
During the subprime heyday, continued Villone, “All you needed was a credit score, a piece of property with equity and a pulse. A lot of people in our industry were stupid and greedy. Everyone was sure the market would just keep increasing. They were wrong.”
Villone predicts the Hudson Valley will be seeing many short sales. National City ”“ one of the nation”™s biggest lenders ”“ told Villone recently it is only doing conventional, fixed-rate loans.
Home sellers”™ best bet, said Villone, is to listen to their real estate agents. “They will tell you what your house is really worth. You need to take the emotion out of it.”
For those standing at the granite kitchen island looking out on their new in-ground pool and lushly landscaped patios, it”™s little comfort knowing their investments are not worth what they invested, at least for not now. “People will have to hang tight and wait for the market to bounce back. We”™re not really sure how much lower it”™s going to go,” said Hahn.
Â
