A recent comprehensive market overview written by National Association of Realtors® (NAR) Senior Vice President and Chief Economist David Lereah assesses the current situation involving the negative impact of subprime and Alt-A mortgages (including hybrid ARMs—2/28s and 3/27s, payment option ARMs, interest-only mortgages, stated income underwriting, and 80/20 mortgages):
* A number of subprime lenders that made problematic loans have gone out of business.
* Nationally, the delinquency rate for subprime loans is more than 13 percent and 4.5 percent are in foreclosure.
* Wall Street investors are now requiring better underwriting and increasing the pricing for subprime loans.
* Federal and state banking regulators are tightening the underwriting standards for nontraditional mortgages and recently proposed similar guidelines for subprime mortgages.
* Congress is holding hearings that may result in new laws to protect consumers.
Lereah noted the bottom line is that the poor performance of some subprime and Alt-A loans (particularly 80/20s—no downpayment loans) has triggered stricter underwriting standards and higher costs. The new rules, accompanied by increased scrutiny by federal and state regulators, are causing some contraction within the mortgage markets that will limit the ability of some borrowers to qualify for a mortgage.
NAR is working hard to be a part of the solution, said Lereah. "Realtors® can play a significant role in helping anxious homebuyers navigate the mortgage application process and become satisfied homeowners. We also support efforts to help homeowners avoid foreclosure and stay in their homes."
Realtors can offer borrowers information about conventional products like fixed rate and traditional ARMs that may be good choices for first-time homebuyers—both prime and subprime. Members of the Silicon Valley Association of Realtors® (SILVAR) are aware of lenders in the area offering these products and can recommend to clients experienced and knowledgeable mortgage firms who are affiliate members of SILVAR.
The NAR "Shopping for a Mortgage? Do Your Homework First" consumer education brochure series is perfect for homebuyers with less-than-perfect credit. In addition, there are new brochures that describe recent changes to the FHA program that can help consumers avoid predatory lending. NAR issued the FHA brochure in partnership with the Federal Housing Administration of HUD and the others in partnership with the Center for Responsible Lending.
These consumer education brochures are designed to help a homebuyer make smart financing choices. They explain the pros and cons of conventional loans, such as fixed rate and adjustable rate mortgages; how to tap into existing home equity; and specialty (nontraditional) mortgages, including interest-only mortgages and payment option ARMs. Links to all of the brochures can be found at http://www.realtor.org/housopp.nsf/pages/mortgages?OpenDocument by clicking on the "learn more" tab for each brochure.
"The National Association of Realtors®, the California Association of Realtors® and the Silicon Valley Association of Realtors® are all committed to fully educating the public and our members on all aspects of the mortgage business and lender practices," said Coldwell Banker Realtor Mark Burns. "It is a shame that a few individuals have been taking advantage of less than astute buyers and sellers for these loans, eventually leading them into foreclosure."
"One of the key jobs a Realtor performs is helping the buyer with financial choices. The moral and ethical Realtor should be able to spot potential problems ahead of time and help the client decide on the right financing," explained Burns, who is president of the Silicon Valley Association of Realtors® (SILVAR). "We stress this with our members and, of course, all Realtors are bound by our Code of Ethics when it comes to dealing with our clients, each other, and the public in general."
Although Santa Clara County has fared better to date primarily because subprimes as a share of total loans are fewer here than in other areas of the state; the county's economy is doing better than many other economies in the state; and price appreciation in the Bay Area has a greater rate than elsewhere in the state, Burns said Silicon Valley Realtors remain concerned about buyers who may be in danger of losing their homes.
It is SILVAR's goal to help families achieve the American dream of owning a home and maintaining homeownership. SILVAR Realtors urge homeowners to assess their situation and if they feel they may be falling behind on payments, they should take action immediately by contacting their mortgage company right away. They may be able to work with their lender to refinance the debt, arrange a repayment plan or modify the loan by adjusting the interest rate or extending the terms to make it more affordable.
Homeowners may also call the Homeownership Preservation Foundation at 888-995-HOPE to speak to a counselor about their financial situation. Callers are connected with counselors who work for HUD-certified counseling agencies. The financial counselors help homeowners, free of charge, to address their financial situation and understand their options. The Foundation can also direct callers whose native language is not English to an appropriate financial counselor.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.