The recent news about subprime mortgage lending has left some mortgage shoppers confused when navigating today's real estate loan market.
Borrowers have become increasingly perplexed by what they can expect in terms of their own financial qualifications for a loan. In addition, the Federal Reserve's recent decision to cut the benchmark interest rate by half a percent has launched a new round of aggressive advertising from traditional loan brokers. This sometimes adds to the confusion, rather than clarifying the situation for people in the market for mortgage loans.
Mortgage lending can be a complicated industry to understand in the best of times, according to Art Metras, assistant vice president of lending for California Coast Credit Union. When the mortgage industry becomes unsettled, as it has lately, it can impact consumer confidence.
"What's important for the consumer to know is that interest rates remain extremely low by historical standards, and that trustworthy, reputable lenders do exist," Metras said.
Although the real estate market in San Diego has fluctuated, people are still buying and refinancing homes. With credit tighter now than a few months ago, borrowers are looking for reliable lenders with a high degree of credibility. They also have more trust in lenders they use for other financial services, and those that have established positive relationships with organizations like Fannie Mae and Freddie Mac, which exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.
An increasing number of consumers are turning to their credit unions, which traditionally have maintained relationships with Fannie Mae and Freddie Mac as the mainstream option for securing mortgage financing. As a result of these relationships, credit unions have excellent liquidity.
"The industry's underwriting standards have remained consistent, ensuring that loans get funded on time," Metras said. "While credit unions are generally more conservative than the mortgage industry as a whole, liquidity permits credit unions to retain many quality loans in their own portfolios. This is reassuring to credit union members."
Selling nonconforming loans in the secondary market recently has been a challenge, as the market has been reconsidering the risk associated with loans that are not purchased by Freddie Mac and Fannie Mae. Some lenders have discontinued certain loan products, or are demanding higher credit scores or larger down payments. Credit unions, on the other hand, have not had to change their underwriting policies. This stability, along with the willingness to work with the consumer, has made credit unions increasingly attractive during these turbulent times in the mortgage industry. This is particularly true in San Diego, where the high cost of real estate and the growing number of loan defaults and foreclosures have made the borrower more wary.
California Coast Credit Union, for example, has pledged $10 million to the Home Loan Payment Relief (HLPR) program so that home loans can be offered at a more affordable rate. California Coast is one of four area credit unions that together have pledged a total of $22 million to the program. Designed for median income homebuyers, HLPR helps provide lower monthly payments and makes it easier for borrowers with good credit to quality for larger mortgages.
"Since the credit union is often a member's primary financial institution, it often takes a more conservative approach to how a mortgage might work within the member's overall financial situation," Metras said. "The majority of credit union mortgage products don't tend to be risky, regardless of what is going on in the rest of the lending market."
One way that credit unions help borrowers address the real estate loan market is to offer 40-year mortgages and interest-only loans, but only if they fit the borrower's needs.
California Coast also offers 15, 20 and 30-year fixed-rate loans, and currently a home loan with no fees, no points and no closing costs. "We offer a variety of programs, so we can work with members to determine the one that best meets their particular needs," said Metras. "We never want to let members get into a situation where their home may be at risk."
According to Metras, borrowers in today's economy are looking for a comfort zone. They want a program where the monthly payment remains affordable, a lender that is stable and a program that allows them to feel comfortable for as long as they own their home. "These are very reasonable and achievable goals if consumers shop around and research the lender and the program, as well as the rate."
Ellman is owner and a principal of Beck Ellman Heald.