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Heating up the home market

Sat., April 4, 2009

Sterling Savings Bank and Banner Bank are offering mortgages at interest rates below 4 percent in a pair of programs designed to help their contractor customers move unoccupied homes – and show that the banks are putting federal bailout money to work in Northwest communities.

The low rates benefit buyers and builders, bank officials said this week, and Banner and Sterling get to work down contractor loans that have damaged their balance sheets.

Sterling received $303 million in money under the Troubled Asset Relief Program, or TARP. Banner collected $124 million.

Sterling has dedicated $25 million to its program, most of it through Golf Savings Bank, its mortgage lending subsidiary, said Golf Executive Vice President Donn Costa.

He said customers have the option of taking a 30-year mortgage at 3.875 percent, or a 3 percent lender contribution – up to $20,000. Buyers can use the lender contributions for closing and other related costs.

They must buy a home built by a Sterling-financed contractor, and the deal must close by May 31, Costa said, although an extension is possible in markets where not enough homes sell. As of Dec. 31, Sterling had $1.5 billion in contractor loans on its books, he said.

Walla Walla-based Banner is offering mortgages as low as 3.875 percent under its “Great Northwest Home Rush,” which the “CBS Morning News” featured in its Monday broadcast.

Banner Vice President Doug Bayne said the program has already moved about 60 of the 250 Portland-area homes Banner contractors had been unable to sell. The success prompted the bank to expand “Home Rush” into Spokane, Idaho and the Puget Sound area, he said.

“We have been very pleased with what we’ve done so far,” said Bayne, who noted most borrowers must come in with a 20 percent down payment.

Costa said the rate is so low customers think there must be a trick.

“This is real money,” he said. “There’s no tricks.”

The rate is also so good that the homes available will be less expensive than building the equivalent new, Costa said.

Most buyers will have to put up a 10 percent down payment, he said, adding that Realtors can point them to homes qualified for the program.

Costa said Golf and Sterling have about $75 million in loans closed or pending over the past two months. He did not want to disclose what share of those were TARP-funded.

Not only does the program reduce the inventory of unoccupied homes, he said, it helps firm up prices in markets where sales activity has been so thin values were difficult to peg.

Banner has posted information about the available homes on its Web site,

Spokane contractor Gordon Finch has several homes on the Banner list.

Finch said two of the three homes he sold in February got a boost from Banner. They were the first spec homes, all at prices more than $500,000, he had sold in more than six months, he said.

Even with incentives like $10,000 worth of free landscaping, houses priced above $400,000 have been difficult to move because the contractors are competing against efforts by the banks to dispose of foreclosed homes, Finch said.

Sub-4 percent mortgages level the playing field, he said.

“It makes a lot of sense to us to use the TARP money for this,” Finch said.

Costa said Sterling is selling the loans into the secondary market, so the negative spread between the 5 percent interest charged by the Treasury and the sub-4 percent offered homebuyers does not squeeze the bank. Fannie Mae can package those loans to investors looking for a return above the 2 percent rate on Treasury securities, he said, adding that Sterling pays points to make the loans more attractive.

Having the TARP money available enables Golf to do 10 times the loan volume possible without those funds, he said.

Bayne said Banner is holding the loans in its own portfolio. Even with TARP funds at 5 percent, he said, there are other resources available to the bank that make the low rates workable. But not forever.

“There’s a time to buy, and that time is now,” Bayne said.

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