Why Mortgages Are Still Hard to Get

If you’re wondering why people are still renting instead of buying the Wall Street Journal has an item that helps explain what’s going on. In short, the banks are covering their butts and doing whatever they can to not repeat the mistakes they made during the housing bubble. After having to buy back toxic mortgages and pay billions of dollars in fines they’re playing things extremely close to the vest:

One way to reduce the risk of having to buy back mortgages is to make sure than any loans sold to Fannie or Freddie or submitted for a Federal Housing Administration guarantee not only meet official standards but surpass them. That way, if a loan falls short of the bank’s standards for some reason, it still will likely meet official ones.

Federal housing officials refer to the higher standards as “overlays” and want to eliminate them. To that end, officials have tried to clarify what triggers a buyback and strengthening procedures that allow banks to resist repurchase demands.

So far, however, these have had little effect. Banks have made it clear that it isn’t just repurchase risk that is triggering the overlays. They are the result of internal rules prohibiting banks from making loans their analysis predicts will have a high rate of default.

That is, banks are second-guessing Fannie, Freddie and the FHA. Even if the agencies approve a certain type of loan and promise not to ask the bank to repurchase it, the banks refuse to make the loan if they view it as too risky. Their aim: avoid a situation similar to the one that just cost them billions.

Those of us of a certain age can remember when bankers were seen as stodgy and boring, then deregulation happened and all the sudden they were running with the wolves on Wall Street. Looks like it’s time to say, “Welcome back, stodgy.”

Competition for CRE Lending Heating Up Among Banks

Looks like lending for commercial real estate is finally thawing out:

While a host of banks are still working through mounds of distressed commercial real estate assets, a number have decided the time is right to jump back in. Those banks that are lending again see lower risk owner-occupied properties and multifamily properties as preferred targets. But with lenders focusing on the same ‘safe shelter’ property sectors, it is creating widespread competition for the better-quality borrowers in those areas. 

The real battle ground may be next year from the coming opportunities in construction and development lending – the one area that more than any other brought down a significant number of banks when the subprime housing loan market collapsed and drove the world economies into a Great Recession. 

From Winston-Salem based BB&T’s Kelly King:

For its part, BB&T is looking to Florida.

“I would say the real estate market in Florida is stabilized and improving. For example, if you go to the Gulf Coast, clearly, prices have firmed up and beginning to go up. Activity is substantially up,” King said. “If you go to Miami where, as you recall, there was a huge glut from 28,000 condo units on the market. There’s been a major surge of Latin America investors coming in, and the latest report I saw was there’s a — is a 90% — 93% occupancy. So all of that is because they turned the condos into rental properties. So I’m sure you could probably find some spots of Florida that still have some issues. But overall, I’d [say] it’s stabilized to improving.” 

Where King won’t go he said is back to financing the super high-rise, office buildings and hotels that other banks may be doing. 

And it looks like the southeast is promising to others as well:

Bank of the Ozarks will be opening a new office in Atlanta in June that will be a satellite office of its Real Estate Specialties Group team. The bank will also be opening a second office in Mobile, AL, later this year. It is relocating its Bluffton, SC, and Wilmington, NC, offices to new expanded facilities and relocating its Charlotte loan production office into a full-service banking operation in a new facility it is building there. 

“We think there is really good potential in the Southeast and that’s going to be a real important growth area for us in the future,” Gleason said. “That’s going to be much more 2013, 2014, 2015, than it is 2012 growth, but you’ve got to put the platforms in place and build what you need to capitalize on those future opportunities now. So we want to start getting in and really carefully cherry pick and mining some good business opportunities.”