Region's Bankers Writing More Mortgage Loans
YOUNGSTOWN, Ohio -- The rising number of people in the Mahoning Valley obtaining mortgages to buy or build a house reflects the rebounding regional economy. Refinancing older mortgages that carry higher rates continues, lenders report, but at a slower pace than a year ago.
Mortgage lending has become “a plain vanilla business,” as R. Bruce Wenmoth describes it. Wenmoth is executive vice president for retail lending at First Place Bank, Warren.
Originators report that most who buy houses take out 30-year fixed-rate mortgages while the preponderance of those seeking to refinance want 15-year fixed-rate instruments.
Gone are the “exotic” or “trick” mortgages available in 2007 before the housing bubble burst. Interest-only mortgages and mortgages with a 40- or 50-year term, for example, are no longer offered. Those with bi-weekly payments are available but in little demand.
”It’s still on the books,” says Michael W. Garmone, ”but it’s not taken advantage of.” Garmone is vice president for residential mortgage lending at the Home Savings and Loan Co., Youngstown.
And ARMs – adjustable-rate mortgages – are offered but only buyers who expect to relocate before the rate is reset secure them, lenders agree.
It’s still possible to obtain a mortgage requiring no down payment but that’s reserved for former members of the military who use their veterans benefits to finance their purchases.
The lowest down payment for those who aren’t veterans is 3% through the Federal Housing Administration. Otherwise lenders want a minimum of 5% down but most borrowers are coming up with at least 10%.
“Twenty-percent down payments predominate” at First Place Bank, Wenmoth reports. “There’s a decent share of 10% down and 5% has diminished a lot.”
“We do see quite a few with 20% down,” says John Lacy, vice president for mortgage lending at Huntington Bank, Youngstown. “More borrowers have equity in their property.”
At Home Savings, “Our average down payment is 20%,” Garmone says.
Those who have sold their first house and bought their second are the ones who come up with 20% down, says Rocky Page, vice president of retail mortgage lending at Cortland Banks.
Cortland Banks, which just opened a mortgage office in Canfield, has a staff of 25, including five originators, in its mortgage department.
“Interest rates are still attractive,” says Huntington’s Lacy.
While most economists foresee rates remaining low the rest of 2013, “Rates have started to come up a little bit,” observes Huntington’s chief economist, George Mokrzan, and he forecasts a gradual rising.
Yes, interest rates remain low by historical standards, says John Burgan, owner of Burgan Real Estate Ltd., Boardman. But buyers “know it’s not going to last forever” and he suggests that that awareness is also prompting people to buy now.
Those who want to buy a house are more confident about the economy and less worried about losing their jobs.
“Consumers are feeling wealthier, that a recovery is going on,” says Mokrzan. “That sense of wealth is reinforcing.”
With that confidence is a rebound in the market value of houses, making some owners more willing to sell.
“The value of homes is higher than it’s been in two or three years,” says Frank Hierro, president of the Mahoning Valley region of Huntington Bank, and his bank is financing more “higher-end houses – those [priced] $300,000 and above.”
Home Savings’ Garmone says the market value of houses in the Valley has risen 10% to 15% over the last year. And as did almost everyone interviewed for this article, he noted that values here fell nowhere nearly as much as elsewhere in the United States – California, Arizona, Florida, the East Coast – so the recovery isn’t the same magnitude.
Another reflection of an improving economy is the higher credit scores applicants present when they visit an originator.
“Credit scores have risen consistently,” says James Horvath, vice president for residential mortgage lending at Farmers National Bank, Canfield. “Last year they were above 740 and they’re slightly higher today [because] more people are paying down their revolving [credit card] debt.”
The average credit score of those seeking to finance through Cortland Banks is 780, says Jim Wellington, vice president of retail mortgage lending.
Bidding wars are returning, most lenders agree although Horvath says, “We’ve haven’t seen much bidding, just buying.”
“We’re starting to hear noise,” Home Savings Garmone says.
Cortland’s Page says most of the competitive bidding he’s seen is on houses priced at $250,000 and above. The other banks were aware of such bidding but think it’s more prevalent in other markets.
“We’ve seen multiple offers on several properties,” Burgan relates. “The main reason is that the houses are priced right.”
As the number of good houses – inventory in real-estate-speak – diminishes, the number of consumers who decide to build a house is increasing.
“We’re starting to see a shortage of good houses,” says Home Savings’ Garmone, something translating into more construction, “which to me is always encouraging.”
“The construction business has continued to grow healthier as the economy has grown healthier,” First Place’s Wenmoth says, although he allows it has a way to go.
At Cortland Banks, 15% of the mortgages it extends are for new construction, Page reports. “As home values go up,” he observes, “construction becomes more attractive.”
At Home Savings in May, mortgages for existing stock and new construction were up 70% from the previous May, Garmone says. “Business is very strong overall, up 30% for refinancing, purchases and new construction.
Where 35% of Home Savings’ volume a year ago was existing houses and new construction, 65% refinancing, “This year that’s starting to flip completely,” he says.
“We’re surprised at the number of people who haven’t taken advantage of refinancing,” he relates. That might be because “owners who think they’re still underwater” held back. But two government programs, one of them HARP – Home Affordable Refinancing Program – are becoming better known and helping such homeowners.
“Some think it won’t be worthwhile to finance unless their mortgage is 6%,” Horvath suggests. Even so, 60% of Farmers’ business is refinancing, 40% existing houses and construction.
First Place has gone from 65% refinancing, 35% purchase a year ago to nearly 50-50 this year, Wenmoth reports. Construction lending “has continued to grow,” the banker says. With a healthier economy, it’s healthier for builders.”
On the other hand, closings have fallen 10% between January and May and the volume of applications has fallen 20%.
First Place Bank and Home Savings and Loan “still dominate the [residential] mortgage market,” Burgan says, estimating the two originate or refinance half the business in Mahoning and Trumbull counties.
One thing Wenmoth and Garmone remain firm on is extending construction financing only to borrowers who have contracts with builders. They will not extend credit to home construction companies that want to build on spec.
“The risk has shifted from the builder to the borrower,” Garmone says.
Standards have returned to the point they should have remained all along, the Home Savings banker says. “Documentation requirements are back where they should be – verification of income, better credit scores.”
First published in the MidJune edition of The Business Journal, Youngstown, Ohio.
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Copyright 2013 The Business Journal, Youngstown, Ohio.