Alabama Home Loan, Housing Markets Defy Trends, Remain Strong
To the outside observer, the Alabama housing market may appear to have an uncanny knack for bucking national trends - at least bad ones - in recent years.
The Tuscaloosa News observes that even as speculative buying drove prices in Florida and California to precarious levels, Alabama real estate was, for the most part, uncontaminated.
When stagnant home prices and rocketing inventory hit the national market, Alabama ended 2006 on a very strong note, on top of four years of record-breaking sales.
Now, judging from the opinions of local experts, it might be time to add the growing bad credit mortgage fiasco to the list of bullets dodged.
“I just don’t think it’s going to have as big an impact on the [Alabama] housing sector as it would in other parts of the country,” said Leonard Zumpano, professor of finance at the University of Alabama and former director of the Alabama Real Estate Research and Education Center.
According to a recent report issued by the Mortgage Bankers Association, more than one out of every 200 mortgages were in the beginning stages of foreclosure during the last quarter of 2006.
Fueling the crisis are subprime mortgages - high interest home loans given to people with less than perfect credit. Subprime loans can be profitable but risky investments for mortgage lenders, who must contend with higher rates of default and delinquency.
Lenders were not afraid to issue such loans as long as the housing market was booming, because troubled borrowers could refinance a mortgage easily. But stagnating prices have left many of these borrowers in default, and at least 20 subprime lenders have gone out of business.
While not totally immune, Alabama does seem to be avoiding the worst of it. The reason is a strong economy that keeps personal incomes competitive in relation to housing costs, Zumpano said.
“You’ve got a strong market in Tuscaloosa because of growth in employment,” he said. “You’ve got the same thing in the Huntsville market, the same thing in Montgomery with Hyundai and Mobile is looking to expand.”
The result is that fewer borrowers have to resort to bad credit mortgages and other forms of creative financing to purchase a home.
The only potential fallout Zumpano and others see for the Alabama mortgage market is a decrease in the availability of loans to people with marginal credit ratings as lenders across the country tighten their underwriting criteria. Fewer loans means fewer homes sold.
While this could prove troublesome for those parts of the country with weak housing markets, Zumpano anticipates new standards will have only a slight impact on the strong Alabama mortgage market.
In the meantime, there are simple precautions any perspective home buyer can take to protect themselves, no matter their credit score.
Most people know to check mortgage rates and closing costs when shopping for mortgages, but other important factors often slip by unnoticed.
Key among these is private mortgage insurance, homeowner’s insurance, real estate taxes and possible penalties assessed on mortgage prepayments.
As a general rule, mortgage insurance is a percentage of the total loan paid each month as insurance on loans with a less than 20 percent down payment. PMI for a normal home loan is about 0.0078 percent, while subprime mortgages have rates as high as 2-3 percent.
Subprimes also typically have high prepayment penalties; fees charged if the home loan is paid off before a certain period of time, usually a couple years, has passed. This can make it difficult for struggling borrowers to refinance.
Though it all sounds rather frightening, the tanking subprime market should not be a reason for Alabamians with good credit to put off buying a house.
“Frankly this is a time I would be looking for a house,” Zumpano said. “I think a buyer with a motivated seller could work out a very good deal.”
SOURCE: Tuscaloosa News