Iowa Borrowers Face Adjustable-Rate Mortgage Concerns

There’s a danger is holding an Iowa mortgage these days: better make sure you can make those monthly payments.

Donna McFadden, director of the home ownership program with Family Housing Advisory Services, said foreclosures are becoming more of a concern as many adjustable rate mortgages have adjusted upward.

“We probably see at least two a week,” she said. “A year ago it could have been maybe, three or four a month.”

Usually the reason homebuyers received the ARM in the first place is they wanted a lower monthly payment, but couldn’t get a fixed rate because of poor credit. Many were told they could home mortgage loan refinance, but circumstances didn’t work out that way and they’re now in trouble with a higher monthly loan payment.

“They’re not looking at tomorrow. They’re looking at the here and now,” McFadden said.

Scott Simpson of Western Horizons Mortgage Group in Council Bluffs said during a recent week his office saw six people who could have been approved for a home loan six months ago, but no longer were eligible.

“The person that was a tougher credit, or a credit risk, so to speak . . . those people are not going to be able to get a home loan,” he said.

Simpson is concerned that the number of foreclosures will increase as people unable to make the higher monthly payments when home loans adjust and the interest rate goes from 9 percent to 14 percent. He couldn’t immediately say what percentage of loans made in his office were subprime loans.

“It’s going to get real ugly, I’m afraid,” Simpson said. “I don’t think people understand what’s going to happen.”

Doug Goodman, president of Peoples National Bank in Council Bluffs, thinks mortgage rates are still good for those with good credit and traditional 30-year fixed rate mortgages remain in the low 6 percents. The problems are with national sub-prime lenders who took on high-risk loans.

“Those rates have gone up notably,” Goodman said. “Many of those rates were high and pegged to go higher.”

Dave Selene, Council Bluffs market president for TierOne Bank, and Rhonda Bockenstedt, assistant vice president and mortgage loan officer, said most of the bank’s lending has involved 30-year fixed rate loans.

A few years ago there was an 80/20-loan product was introduced that involved 20 percent of the mortgage as an in-house ARM, Bockenstedt said. Some people were in a “panic mode” after the ARM adjusted and the assessed value of the home wasn’t enough to convert the entire loan to a secondary market product that could be sold to Fannie Mae.

She feels TierOne has a strong underwriting team that has helped avoid many problem loans.

Byron Menke of NP Dodge, president of the Southwest Iowa Association of Realtors, said the situation has been a topic of discussion and some tightening was expected on institutions that issue higher-risk loans.

He sees few if any changes for consumers with solid credit and incomes. Many of the problems will come from those individuals who entered “creative financing” agreements with 100 percent mortgage financing, he said.

“They just walked away because there’s nothing invested on their part,” Menke said.

There may even be a positive side to the situation.

“Maybe it’s not a bad thing to see a little tightening up,” Menke said. “The industry doesn’t need to see a lot of these homes coming back on the market.”

SOURCE: The Daily Nonpareil