No Seattle Mortgage Blues So Far

Many Americans are finding themselves unable to make mortgage payments. Those folks generally share common traits:

They’ve borrowed too much, they’ve lost their jobs or they hold an adjustable rate mortgage - and mortgage rates are soaring.

They also share this - for the most part, they don’t live in the Seattle housing market or Puget Sound region.

“It’s not happening in Seattle to any degree whatsoever,” local economist Matthew Gardner said Wednesday. “We’re not really seeing any fallouts.”

As home prices in other cities have soared, people have relied on exotic loans to enter the Eastern part of the Washington housing market.

But now, those decisions are looking suspect.

That was one of the messages that sent a jolt through the mortgage industry and the stock market Tuesday after Countrywide said its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults.

Countrywide, whose shares have lost 11.7 percent of their value in the past two days, laid part of the blame on borrowers with good credit who had taken out prime home equity loans.

What added to the worries was the idea that even credit-worthy homeowners will default on mortgages at higher rates as home prices fall - and that even a well-run company such as Countrywide could be hit by big losses.

“Countrywide is highlighting what is an industrywide problem,” Christopher Brendler, an analyst with Stifel Nicolaus, an investment firm in St. Louis, said. “A 2nd mortgage is really an unsecured loan. Like a credit card.”

Experts say such problems are not happening in the Seattle mortgage market.

As of the first fiscal quarter, about 1.3 percent of prime rate borrowers were delinquent in Washington state, or half the national rate, the Mortgage Bankers Association reports.

Washington Federal Savings President and Chief Executive Roy Whitehead said that his company has not seen deterioration in its Washington mortgage loan portfolio.

“We’re in a very healthy market, still, in the Seattle metropolitan area,” he said.

Of Washington Federal’s 40,000 prime Washington mortgage loans, only 167 are at risk, Whitehead said, and all the loans are all fixed rate and usually made with conservative borrowers.

“We’re pretty plain vanilla,” he said. “I think our borrowers tend to want to hold onto their homes.”

Also, the bad credit home loan market in and around Puget Sound represents less than 7 percent of loans, and of those less than 7 percent are in some kind of distress, Gardner said.

“Why are we so lucky? We didn’t get huge amounts of speculative development occurring,” he said. Plus, “our prices have gone up, but not at the expeditious rates that we’ve seen in other areas.”

Seattle developers are less inclined to sell to speculators, he said. And the region’s “appalling transportation system” keeps the real estate market buoyant, as people want to buy homes close to their jobs.

Analysts said the national trend could continue, particularly in areas that have been hardest hit by job losses in general or seen a decline in home construction, such as South Florida, parts of California and Las Vegas.

Last week, Seattle-based Washington Mutual warned in its quarterly earnings report that it was seeing increasing levels of delinquent and defaulted loans, and not just in the subprime category.

Countrywide Mortgage, the top U.S. mortgage lender, said in its earnings report that it was forced to take impairment charges as it braced for the possibility of more people failing to make payments on time.

The company said borrowers becoming unemployed or divorcing were the major reasons why many with prime loans were falling behind on payments.

And company officials told analysts in a conference call that the uptick in missed payments was not due primarily to borrowers seeing their loans’ mortgage rate reset, triggering higher monthly payments.

Still, the industry anticipates it could face a rash of defaults in coming months as many adjustable mortgages originated in 2005 and 2006 during the height of the housing market frenzy begin to reset to higher mortgage rates.

SOURCE: Seattle Post-Intelligencer