Bert Caldwell: Subprime woes not a big area worry

Trouble in the subprime lending industry rattled financial markets these last few weeks but, so far, the tremors have not reached the Spokane residential housing market.

Continued, if slowing, home price increases and job growth have kept foreclosures low. Loans remain available for most would-be home buyers, say local mortgage brokers, who add that traditionally conservative lending practices should prevent a meltdown like those occurring in California, Florida and other markets.

“Spokane has been remarkably unaffected,” says Jeff Berglund, owner of Morgan Mortgage Inc., which brokers mortgages in six states. Of those, he says, Washington has been the most resilient.

Subprime loans, made to those with marginal credit, represent about 20 percent of all mortgage loans.

Although only 10 percent of his business is subprime, Berglund says, “it’s significant because it’s a service we want to be able to offer.”

Berglund says he was working a week ago with a pair of lenders on three subprime loans. When one lender tried to change loan terms, he says Morgan placed the deal with another company that had been seeking his business. The terms were better than those offered by the first lender.

Berglund says some cautious buyers stepped back when some reports raised doubts about the area’s housing market.

Now, he says, “they’re saying, ‘I want my house.’”

And they’re getting them.

For the first two months of 2007, 808 homes were purchased in Spokane County, up almost 10 percent compared with 2006. Prices were up almost 5 percent. That’s off the pace of increases over the last two years — a cumulative 30 percent — but still better than the national average of 1.2 percent.

“I just think the residential market is going to be good here for awhile,” says Rob Higgins, executive director of the Spokane Association of Realtors.

“I don’t know that subprime was that big a thing in Spokane,” he adds.

Adam Stein is president of the Washington Association of Mortgage Brokers. New Century Financial was among his lenders. Now close to bankruptcy despite its size, the company has stopped making loans.

“New Century was a pretty big surprise,” says Stein, who is also president of Auburn-based American Mortgage LLC. American had two loan packages pending with New Century a week ago. One, approved Thursday, was funded. Funding for a loan approved Friday was withdrawn.

Deb Bortner, state director of Consumer Services, says New Century has been working with brokers and state officials to find alternative lenders. By week’s end, however, only one-third of the backlog of more than 600 loans in escrow or approved had been reassigned.

She and the brokers say lenders have greatly tightened credit in the last few weeks, particularly on second mortgages.

Six months ago, Stein says, a borrower whose income was fully verified could qualify for a no-down payment loan with a credit score as low as 580, on a scale from 300 to 850. The average score is 675.

It might take a credit score as high as 640 to get a loan today, Stein says, with few if any no-down products available. For self-employed borrowers, the required score could be 680.

He says it doesn’t take much to put a new loan out of reach. A distressed applicant for refinancing who has missed one monthly payment on the old mortgage might find out their credit score disqualifies them.

“There’s certainly going to be a certain amount of fallout,” he says.

Stein doubts there are major problems ahead in Western Washington, and points to a rate of new job creation double that for the nation as a whole as one reason. The same should hold true for strong markets in Eastern Washington, he says.

Bortner says the state can withstand potential damage from the known financial frailties among mortgage lenders. That assessment could change if the problems escalate to the level of the savings and loan crisis of the late 1980s, when institutions collectively worth more than $500 billion collapsed.

“We don’t know what’s to come,” she says.