Texas Mortgage Lenders, Brokers Discuss Uneasy Market
Subprime lenders, who market to home buyers with low credit ratings, have been in distress nationwide and in Texas.
More than a couple have gone out of business or scaled back operations, the Dallas Morning News notes.
“We’re going to see about a 10 percent correction in our business over the next two months,” said Kevin Miller, CEO of TexasLending.com, a mortgage banker in Dallas.
That company does about 25 percent of its business in subprime lending, making what are often termed bad credit mortgages.
Subprime loans account for about 13 percent of residential Texas mortgage loans, and nearly 16 percent of those are currently past due.
The percentage of mortgage loan foreclosure in the state of Texas rose to 4.3 percent at the end of December, compared with 4.1 percent at the end of September.
The situation is apt to get worse before it gets better. Only six states had a higher overall home loan delinquency rate than Texas’ 7.4 percent.
“The number of foreclosures is going to increase this year and next year,” said Jim Gaines, an economist at Texas A&M University’s Real Estate Center.
“We’ve undergone a big social experiment in the last three or four years, where we have found ways to finance people to buy a home, who historically had not been able to finance a home before. But by definition a lot of these people were of risky credit in the first place.”
Lenders said they’re tightening up on who gets approved for mortgages.
“We’re just being real about what we’re writing,” said Stewart Hunter, co-founder of Benchmark Mortgage in Dallas. “We’ve always had a very sound underwriting process in place. If anything, it’s just a gut check right now and being honest with ourselves.”
Miller said that nowadays, rather than just stated income, “you’re going to have full documentation of income now if you want 100 percent financing.”
He added that buyers must also have a month or two of payment reserves sitting in the bank to cover principal, interest, property tax payments and insurance.
Still, area mortgage lenders say most of the effects of this widespread slowdown are generally limited to the subprime market.
Philip Schneider, owner of Dallas Mortgage Associates, a small mortgage broker, said he did not think the subprime meltdown would devastate his main business of extending prime mortgages.
“Interest rates are still very attractive,” he said. “Will it be my best year? Probably not. But there’s still plenty of business out there.”
Nationally, loan delinquency and foreclosure rates increased during the last three months of 2006, according to the Mortgage Bankers Association.
At the end of 2006, 5 percent of residential loans were delinquent on a seasonally adjusted basis, compared with 4.7 percent at the end of September and at the end of 2005.
The delinquency rate for subprime loans rose to 13.3 percent from 12.6 percent at the end of September. The delinquency rate for prime rate mortgages rose to 2.6 percent from 2.4 percent.
SOURCE: Dallas Morning News