Utah Mortgage Lenders Feel Credit Crunch

It’s been called a meltdown, an implosion, an all-out crisis of unprecedented proportion.

But however the headlines read, the current home mortgage loan situation is extending its unforgiving, toxic fingers into small-town America.

And Southern Utah, regardless of its reputation as one of the nation’s most economically promising and fastest growing regions, is no exception. To put it bluntly, some experts say the bottom is simply falling out when it comes to the mortgage industry.

“I think this is a whole new realm,” said Chris McCormick, a loan officer with Investment Lending in Cedar City.

According to www.ml-implode.com, a Web site dedicated to helping lenders, buyers and sellers keep a close watch of the market’s every move, the number of national, formerly successful mortgage companies that are seriously struggling or have gone under completely is a whopping 137 - and rising.

In Cedar City, First Colony Mortgage Company recently announced its plans to close both branches by the end of the month. Countrywide Financial, another national lender with facilities in Utah’s Festival City, is also under distress, but hasn’t yet called it quits.

Ultimately, though, many professionals in the field are predicting rather harsh circumstances until the market repairs itself, which can take months, if not years.

Bottom line, things will likely get worse before they get better.

The situation at hand, according to market analysis, is the result of questionable lending practices, which have been happening for months on end. When the Utah housing market boomed in 2005, banks and mortgage companies scrambled to grant loans in order to compete with other lenders.

Then, when creditors loosened their standards to adjust to the demand, folks with less-than-perfect credit scores were getting loans with little or no down payment.

These loans, which often allowed people to pay a certain introductory rate for the first two years or so until they were able to refinance with better credentials, are known as subprime and Alt-A mortgages. Many borrowers found themselves in a tight spot when they realized they could no longer afford the note after the two years were up and payments increased, often by as much as 100 percent.

Then came defaults, delinquent payments and foreclosures, which forced lenders to tighten their qualifying criteria, making it difficult to get approved for a home.

“We’re just now starting to feel the impact of people who couldn’t pay their mortgages once their rates went up,” said Winnie Warner, principal lending manager for Desert Valley Mortgage.

So, now that there aren’t as many loan products available, that means the number of qualified borrowers will go down, too, by as much as 30 percent in some cases, according to information provided by Warner. This is where Utah mortgage lending companies are now feeling the pinch.

“It’s been very difficult for people to get qualified,” said Kam Ouellette, a former loan officer with First Colony Mortgage, one of the lenders that have gone belly up. “They’ve changed the guidelines so that they’re so unbelievably strict.”

Now without the job she enjoyed, Ouellette believes part of the problem stems from shady lending practices where real estate agents were more concerned about their commission as opposed to their clients.

Understandably, her opinion of the mortgage industry has changed significantly since everything started tail-spinning out of control.

“They allow people to get into these situations, but they won’t allow them a way out,” Ouellette said. “And that’s what really bothers me.”