INDIAN RIVER COUNTY – Five years ago, all it took to get a mortgage was a pulse.
That lending environment led to the real estate collapse from which the country is still reeling – and has in turn created a damaging reaction of overly-strict lending standards and verification guidelines that exclude qualified buyers and artificially depress the housing market, according to local bankers and real estate brokers. “If you have someone who wants a conventional loan, the Fannie Mae-, Freddie Mac-type mortgage, we are definitely seeing difficulties and push-backs and frustrations for many people,” said Michael Thorpe, co-owner of Sotheby’s Treasure Coast. “The pendulum has swung completely the other way from the overly-liberal lending standards a few years back and become very conservative.”
Chic Acosta, who has been in the mortgage business since 1972 and is currently the residential mortgage manager for Seacoast National Bank, said today’s climate of hyper-verification is keeping legitimate buyers from getting loans and discouraging others from even attempting to take out a mortgage.
“Today we must obtain income information from the IRS and match it against the income information provided by every borrower on conventional loans,” Acosta said. “This costs us time and money, which means additional costs the borrower must bear. Immediately before closing, but after the initial underwriting approval, we must order an updated credit report and verbally confirm the borrowers’ employment. The smallest changes can require another underwriting and sometimes kill the deal.”
Christine McLaughlin, of Shamrock Real Estate, said 95 percent of buyers she represents pay cash, largely because they don’t want to deal with the difficult process of obtaining a mortgage loan.
“The act of buying a home, which used to be a happy event, has become a tiresome exercise in near futility,” she said.
The lending logjam is centered in the secondary mortgage market, which consists primarily of the Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Mortgage Corporation, known as Freddie Mac.
Banks don’t want long-term loans on their books because they could lose money if interest rates go up. Consequently, they can only make loans that meet the requirements of the loan buyers in the secondary market.
“Any non-jumbo loan that any lender is doing today is resold to Fannie Mae and Freddie Mac,” said Bank of America Vice President and Loan Officer Jim Stanley. “They are dictating the underwriting guidelines, and their guidelines keep getting more and more rigid.”
In an effort to protect themselves from the kind of junk loans that caused them to fail and be taken over by the federal government in September 2008, Fannie Mae and Freddie Mac have imposed stringent buyer qualifications and verification processes that have banks jumping hoops.
“There is no commonsense left in secondary market,” said Clay Collins, a loan officer with CenterState Bank. “There are only guidelines. Underwriters used to look at compensating factors – if an application was weak in one area but strong in all others, the loan could still be made. Not anymore. If there are 100 boxes on the application, you better check every box.”
Thorpe of Sotheby’s Treasure Coast and his partner Kimberly Hardin said deals are still getting done on the Barrier Island despite the restrictive lending climate.
Hardin said there are still some bankers who are willing to work with buyers to secure mortgages.
“If we get someone with sufficient means, we can usually get them financed somehow, some way.” Thorpe said. “We educate the buyers and give them options. We let them know that if they put another 10 percent down, a mortgage will be easier to get, or suggest a different lender.”