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Lenders: Area avoided housing crisis
Sunday, April 22, 2012
By PAUL COLLINS - Bulletin Staff Writer
Stable housing prices and prudent lending practices helped this area avoid the housing crisis of recent years, according to lenders.
Nationwide, between 2007 and early 2012, roughly 4 million Americans lost homes to foreclosure, according to news reports.
But, noted Todd Gruettner, vice president of SunTrust Mortgage, “Each marketplace is inherently different from another.” Whereas Arizona and Florida were hard-hit when the housing bubble burst, he said, “Martinsville and Henry County never really saw a huge appreciation, where homes went up 25 percent in a year.”
Housing prices remained stable here, he said. “We haven’t seen a lot of lot of losses in the community and a lot of foreclosures,” he said.
In 2011, there were 44 foreclosures in Martinsville, according to city records.
Gruettner added that he rarely made a subprime loan, which were common in many areas of the country.
“We had a no-homeowner-left-behind strategy by the federal government” with adverse results, he said. He added that he is glad there is a more prudent lending strategy in the U.S. now to ensure mortgages are affordable.
Gruettner said the mortgage lending industry has gone to risk-based pricing in recent years, which takes into account a number of variables.
According to Investopedia, risk-based mortgage pricing means that lenders grade the credit worthiness of each borrower and offer different rates and terms based on such things as the borrower’s credit score, payment history and loan-to-value (LTV) ratio of the mortgage.
LTV is calculated by dividing the mortgage amount by the appraised value of the property. Assessments with high LTV ratios generally are seen as higher risk, and it would cost the buyer more to borrow or he or she would need to purchase mortgage insurance, according to Investopedia.
Gruettner said typically a credit score of 640 or above is needed to get a mortgage loan (some mortgage programs are as low as 620), and a credit score of 740 or above is considered excellent.
He said conventional loans require 5 percent down payments; Federal Housing Administration (FHA) requires 3.5 percent down payment; and U.S. Department of Agriculture Rural Development (USDA RD) and Veterans Administration (VA) require no down payment.
Freddie Mac (Federal Home Loan Mortgage Corp.) and Fannie Mae (Federal National Mortgage Association) are government-chartered organizations formed to help provide money for home mortgages. They buy mortgages from lenders such as banks and repackage them as investment securities, according to The Associated Press.
Loans through Freddie Mac and Fannie Mae are considered conventional loans, as opposed to government-backed loans through the FHA, USDA RD, and VA, local lenders have said.
Gruettner urges people considering buying a home to get prequalified, which he said is the most important first step. Because a lot of variables are considered in lending, it is important for the prospective home buyer to work with a professional mortgage banker who can determine the mortgage program that is best-suited for the buyer, Gruettner said. He explained that income, savings and credit rating are among the variables considered.
In addition to a down payment, another variable is closing costs, Gruettner said. For instance, if a seller is willing to pay closing costs, generally 4 percent of a loan, on a $100,000 mortgage, that’s “four grand” less the buyer has to pay.
Sebrena Smith, branch manager of Fidelity Bank in Martinsville, said the down payment required has come down in the last year or so, from about 10 percent to a minimum of 5 percent for conventional loans.
“Banks have loosened up a little bit and want to lend money,” Smith said.
Randy Jones, secondary mortgage loan officer for American National Bank and Trust Co., said it takes a minimum credit score of 640 to get a conventional loan and a minimum score of 740 to get the best rate on a conventional loan.
As for government-backed loans, Jones said the minimum credit scores are 620 for a USDA RD loan and 640 for FHA and VA loans.
He said in addition to VA and USDA RD, the Virginia Housing Development Authority (VHDA) offers 100 percent financing. According to its website, VHDA is “a self-supporting, not-for-profit organization created by the commonwealth in 1972 to help Virginians attain high quality, affordable housing. VHDA provides mortgages primarily for first-time homebuyers and developers of quality rental housing.”
Jones said as for conventional loans, most lenders, such as Fannie Mae and Freddie Mac, require 5 percent down payment, but some, such as Wells Fargo, require as little as 3 percent down payment.
Jones urges anyone having thoughts about buying a home or refinancing to call a loan officer to see if you prequalify.
He also pointed out that based on what he has heard from real estate agents, he believes there have been more foreclosures locally in the last couple years than in the several years before that.