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By Raelynn Ricarte
News staff writer
October 4, 2008
The nation’s widening credit crunch has slowed new home
construction in
Hood
River
— and made it more difficult for potential buyers to obtain
financing.
“Everything is going back to the ABCs of lending,” said Agi
Bofferding, owner of
AGI
Mortgages in
Hood
River.
“I am glad that I am finishing a project and not starting
something new — then I’d be very nervous,” said Greg Crafts,
developer of affordable housing.
He has one house left to sell out of 18 in his
Cottage Lane
project on
29th Street.
These dwellings were listed for $194,000 to $215,500 — well below
the average market price of $363,719 reported for
Hood
River
between Jan. 1 and Aug. 31 of 2008.
Crafts said many of his potential buyers no longer qualify for a
mortgage. His goal has been to provide professionals earning
$33,000 to $60,000 per year with the opportunity for home
ownership.
He said some of these individuals have become jittery about taking
an economic risk — or attempting to borrow money from equally
nervous bankers. As a result of the financial sector woes, Crafts’
waiting list — which has averaged 80 applicants for years — is now
down to 30 names.
“I’m in no rush to buy more land and start another project right
now,” he said.
Crafts said a borrower for his sole remaining dwelling, which is
valued at $214,500, would now need to earn $67,500 per year for
mortgage eligibility.
Banks have returned to the practice of asking that applicants come
up with a 20 percent down payment for the home. Although 100
percent financing is still available from the U.S. Department of
Agriculture, there is no longer any flexibility in lending
requirements.
The federal agency mandates that no more than 29 percent of the
borrower’s salary be used for the house payment. In addition, the
person’s total debt, including a house, car payment and credit
cards, cannot exceed 45 percent of his/her income.
“A lot of the people moving into one of my houses were classified
as subprime borrowers but there have been no foreclosures,” said
Crafts.
“I don’t think that most people can save a 20 percent down payment
in today’s market. I think bankers were too lax in some situations
and now they are too tight. So, hopefully, at the end of the day
it’ll come back to the middle and be more reasonable.”
Cindy Walbridge, city planning director, said there is little
construction going on right now in around the city. Although the
clock is running on the two years to develop 243 planned unit
development lots and 152 subdivision lots, no building is taking
place.
“We’ll probably have people asking for extensions to get their
final plat filed,” said Walbridge.
Many economists believe the seeds were sown for a mortgage-related
securities crisis with a policy change in lending that began
almost 10 years ago. According to a New York Times report in 1999,
the Clinton Administration encouraged a pilot program to increase
home ownership among minorities and low-income consumers.
Under that program, the Fannie Mae Corporation, the nation’s
largest underwriter of home mortgages, reduced down payment
requirements. The government-subsidized company also encouraged
more creativity in lending practices by expanding the types of
mortgages that it would buy in the form of asset-backed
securities.
Many financial experts warned that the lending risks might not
pose difficulties during flush economic times. But, if a recession
occurred, it could prompt a government rescue similar to that of
the savings and loan industry in the 1980s.
“From the perspective of many people, including me, this is
another thrift industry growing up around us,” said Peter Wallison,
a resident fellow at American Enterprise Institute, in 1999.
“If they fail, the government will have to step up and bail them
out the way it stepped up and bailed out the thrift industry.”
By 2005, 43.6 percent of new mortgages and home-equity loans
across the nation were interest-only, up from 0.6 percent in 2000.
Additionally, 43 percent of first-time home buyers in 2005 put no
money down and 15.2 percent of these buyers owed at least 10
percent more than their home was worth, according to Lon Witter,
principle trader for Witter and Westlake Investments of
Louisville, Ky.
Bofferding, who holds a business marketing degree from Southern
Oregon University, said easy lending practices began to spawn
greed throughout the housing industry. She said in large
subdivisions nationwide, developers connived with “snake charmers”
to create a false demand for their dwellings.
For example, a developer would be approached by a speculator who
promised to deliver 10 buyers for residences in a new subdivision.
The developer, in turn, provided that individual with a monetary
reward for his/her services. That funding was obtained by bumping
up the price of the units.
The speculator used some of his/her proceeds to pay “borrowers”
for the use of their credit. A fake deal would then be pursued and
the appraisal of the homes established upon the high number of
pending sales.
“The looser lending practices that were developed to help more
Americans become homeowners backfired with the lack of oversight
and regulation and became a breeding ground for fraud and
corruption,” said Bofferding.
“The attraction of easy money brought unscrupulous characters into
the industry. Although many ethical lenders felt that this trend
of ‘easy money’ couldn’t continue, I don’t think that any of us
would have predicted the unprecedented impact it has had on our
economy.”
Bofferding said interest-only and adjustable-rate loans work well
for short-term investors in a strong economy. But she said common
sense should have dictated that, if someone had to go out on a
financial limb to make the purchase, he/she could end up in
foreclosure with any change in circumstances; for example, if the
wife lost her job and the home could not be promptly sold because
it had been devalued.
She anticipates that the federal government to further regulate
the financial sector. On the plus side, Bofferding said most of
the shady lenders are now out of business. She expects the market
to right itself within the next few years.
“There are some good buying opportunities out there right now and
contrary to the doom and gloom we hear in the media, there are
still good loans out there for qualified borrowers,” Bofferding
said.
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