Louisiana Mortgage Activity, Home Sales Dragged Down By Subprime Woes
Subprime mortgage market woes are slowing New Orleans mortgage activity and area home sales, and experts say national and local economies could sour as federal agencies tighten lending restrictions.
“Real estate agents all over [the New Orleans housing market] are complaining about clients’ inability to get financing to buy homes,” said Brice Howard, Senior V.P. of commercial lending at Omni Bank.
“This is drastically affecting our real estate market.”
Subprime home loans usually go to customers who do not qualify for prime (the best possible) market interest rates because of weak credit histories.
“Some subprime loans are risky because the lower payments end after a short time period of one or two years, confronting borrowers with much higher payments they can not afford,” said John Taylor, president and CEO of the National Community Reinvestment Coalition in Washington, D.C.
The increased risk associated with these home loans allows lenders to charge rates at least 2 percent higher than conventional home loans.
“The high rate of foreclosures and delinquencies is bringing the whole industry into question,” Howard said. “A year ago people joked that anyone with a pulse could get a home loan but those days appear to be over.”
According to the Mortgage Bankers Association, the Louisiana housing market has the nation’s second-highest delinquency rate for all loan types. Nationwide, 49 state delinquency rates soared to a 3 1/2-year high and foreclosures rose in 44 states.
Rising Louisiana mortgage problems and increased foreclosure rates across the U.S. have lawmakers calling for tighter lending restrictions.
“As with other markets, some political groups have failed to police the subprime market as well as they should,” said Milton Atebara, branch manager of Sunset Mortgage Co. in Metairie.
“Now some people want Congress to step up and tighten standards.”
Federal bank regulators will meet with Wall Street firms and other home loan agencies April 16 to determine whether high demand for subprime loans led to reckless lending practices over the past few years.
More than a dozen subprime [bad credit mortgage loan] companies have closed and others stopped underwriting new loans in the past few months.
The Mortgage Lenders Network, a Middlebury, Conn., home mortgage company that oversees $15.6 billion in home loans, backed out of the market in February.
Agoura Hills, Calif.-based Ownit Mortgage, partially owned by Merrill Lynch & Co., closed last year after increasing its mortgage load to $8 billion.
“In any business there are people who put the desire for a dollar ahead of the customer,” Atebara said. “With new restrictions, weak lenders will get out of the business after their line of credit from Wall Street dries up.”
With fewer credit sources available to home buyers, experts predict that properties will linger on the market longer and drive down home prices.
“As lenders retrench, it will be harder for working-class people to buy a house,” Taylor said. “As people lose their homes, the economy could be in danger, too.”
SOURCE: New Orleans City Business