Regional and national trends in mortgage lending
Scotty Ball, a real estate attorney specializing in residential and commercial real estate law with the Gainesville, Ga.-based law firm Stewart Melvin & Frost, discusses trends in mortgage lending from a regional perspective. As a specialist in real estate law, Ball certainly has a unique insight on what has taken place on the front lines of the real estate market crisis.
Question: The past several years have seen a significant downturn in new home purchases across the country due to the recession, high unemployment, and the collapse of the real estate market. What trends are you seeing in mortgage lending today in our Northeast Georgia market - any bright spots?
Scotty: We are still experiencing a slow market. Most of the mortgage closings that I handle now involve either investor purchases of distressed property or purchases of second homes. I am still seeing very few purchases of primary residences - which used to be the majority of our real estate closings only a few years ago.
The positive spin on our regional real estate market is the low interest-rate environment. Rates are still at historical lows. For example, I recently closed a 15-year fixed rate mortgage loan with an interest rate in the threes. These low rates are definitely sparking interest and increasing the number of mortgage applications. But at the same time, I am witnessing a lot more applications being turned down due to stricter requirements for mortgage loans.
Question: What other real estate trends are you seeing? Is the rate of foreclosures beginning to slow down yet?
Scotty: Unfortunately, the rate of foreclosures still has not slowed down this year. However, one bright side to this real estate crisis is that people seem to be demonstrating more financial responsibility and are much more careful about buying only what they can afford.
Unlike a few years ago, I see very few mortgage closings on big million-dollar mansions. Today, the price point is much lower, and in fact the new-home market is actually showing a resurgence in the $100,000 - $150,000 range. People are buying smarter and within their budget.
Question: Then, do the majority of real estate purchases today involve these smaller, less expensive homes?
Scotty: No. While that area of the market has definitely picked up, the majority of real estate closings that I handle involve home refinancings. In fact, I see about two to three refinances for every one new-home mortgage.
Nationally, the trends are charting about the same with refiances representing about two thirds of all mortgages today, according to the Mortgage Bankers Association. It continues to be an attractive time for people to refinance if they haven't taken advantage of these low rates yet.
Rates on average are around 4.5 percent for a 30-year fixed-rate loan. The rates can drop below 4 percent if you are in a position to refinance at 15 years.
According to national real estate stats, the average outstanding home loan still carries an interest rate of around 6 percent. So there are likely still a lot of homeowners who could - and should - be refinancing to take advantage of this once-in-a-lifetime opportunity.
Question: Besides taking advantage of low interest rates, why are people refinancing their homes? What are they doing with the savings?
Scott: The positive spin on this recession is that people are being much more responsible with their savings and watching their expenses much more closely.
Just a few years ago, folks viewed their homes like an ATM machine. They would refinance to gain more access to cash for luxury expenses on showy toys like a big new boat or an exotic vacation.
Today, the focus is much different. Homeowners are refinancing - not to get cash out of their homes but to pay down debt or to pay for such things as college or a wedding, as opposed to frivolous expenditures.
Question: As you mentioned, it is a lot harder to get a mortgage or refinancing application approved these days. How has closing a mortgage changed in this real estate environment?
Scotty: There have been big changes. You used to be able to contact a mortgage lender and set a closing date for a loan as quickly as within 15 days. Today, you can hardly get a loan processed and closed in 30 days. The average is more like 40 to 60 days from the point of application.
The reason is that there is much more scrutiny by the lenders and a whole lot more legal paperwork - which is what I have to keep up with for our clients. It used to be that you could sign an affidavit verifying your income and as long as your credit score was good, you could breeze through the loan process. Today, lenders look at every aspect of your finances under a microscope. Now, they want to inspect not only your credit scores but your tax returns, all your loans and outstanding debts, etc.
The legal paperwork is tremendous now, especially in comparison to a few years ago. Many more verification forms and government-required disclosures must be completed. But the bottom line - if you can get through all the extra time and hassle to purchase or refinance, homeowners can truly benefit like never before with these low interest rates.
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