A Plea For Mortgage Forgiveness

By Beacon Staff

As Federal Reserve Chairman Ben Bernanke makes pleas for lenders to show mortgage forgiveness to help cope with national housing woes, Northwest Montana Association of Realtors (NMAR) President Cal Scott makes a similar plea here in the Flathead.

Caught up in a prolonged period of subprime mortgage practices, fluctuations in interest rates and house prices, and worries over predatory lending, a high percentage of homeowners have been looking to refinance their home loans nationwide. Scott said this is an appropriate time for lenders to show lenience with consumers struggling with debt. It’s also a good time for consumers to increase their awareness about home financing’s many options and complexities, he said.

“The point is, given time, given consideration, given humanity, it makes sense for lenders and borrowers – homeowners – both to work this out,” Scott said. “I think it’s time to sit down at the table and kind of get along.”

The number of Americans refinancing their mortgages has leveled off somewhat since a frenetic January period, but it’s still high. Between November 2007 and late January 2008, the Mortgage Bankers Association (MBA) reported that nationwide the number of people applying for refinances increased by 92 percent. At one point, refinance applications constituted nearly 70 percent of all mortgage activity, MBA reported.

The refinancing trend is, in part, a reflection of some consumers already taking steps toward understanding the dangers of get-rich-soon buying practices, risky adjustable-rate mortgages and entering a complex housing market without proper knowledge, Scott said. Others are just trying to crawl out of a financial hole. Also, the nation’s slowing economy has people looking to get rid of debts and save money.

But Scott and local loan officers warn against jumping into the refinancing trend. Scott stresses that people here should not get caught up in scary headlines proclaiming a national housing crisis because Flathead’s market is relatively healthy. Chris Yunker, a loan officer at First National Bank, said “you have to be very cautious about refinancing” because it could end up being a money-losing proposition.

One major problem Scott sees with refinancing is that many consumers are trying to crawl out of an impossible hole.

“Only a small portion of those people have the credit worthiness and job stability to do a refinance because they didn’t really qualify in the first place,” Scott said.

Yunker and Mike Smith, real estate manager for Glacier Bank, both said they are seeing a lot of people shy away from adjustable-rate mortgages in favor of fixed rates. Thirty-year fixed mortgage rates in the Flathead now hover around 6.25 to 6.5 percent, relatively low but not anywhere near January’s rates of 5.5 or less. Adjustable rates are usually much lower, but less dependable too.

“With what’s going on now, people want that security of a fixed rate,” Smith said.

When considering refinancing, or applying for an original home loan, Scott said there are a few important details to consider. One is that loan seekers should make sure they are going through a regulated lender. People applying for a loan on the Internet could be putting themselves at risk, he said. Secondly, consumers should ask the lender if they use their own money instead of borrowing from an unknown source. Thirdly, Scott recommends using local lenders.

“Getting a loan is as individual as the borrower’s personal fingerprint,” Scott said. “There are hundreds of programs, so (loan seekers) inherently by human nature take the path of least resistance.”

In recent weeks, Bernanke has made it a top priority to remedy national housing woes. After lowering federal interest rates, Bernanke made a public plea for lenders to slash principal payments on loans in an effort to encourage mortgage forgiveness. Scott echoed Bernanke’s call for mortgage forgiveness. Lenders, Scott said, have “the power by deed of trust” to make concessions and lower consumers’ payments.

Yunker said lenders need to be careful about their initial loan approval decisions so homebuyers don’t get into trouble in the first place.

“We as a bank and a mortgage lender have to make sure, number one, people are giving honest information,” Yunker said, “and number two, this is something they can afford to do.”

The housing boom of the last decade has made many lenders and consumers alike overconfident and overzealous, Scott said. He said “a lot of people have made huge profits, but they have to realize you can’t continue at that pace forever.” For lenders, forgiveness might mean lesser immediate profits, but it could also mean more stability. For consumers, forgiveness could mean a way out of debt. He said a little forgiveness on loan payments doesn’t mean developing a “gimme program.”

“We’ve had eight years of the no-brainer type of lending,” Scott said. “All of a sudden now we’re finding out that the other shoe has dropped and now the payments have increased beyond their capability and they’re now stuck.”