Sunday, November 18, 2007
Much has been written about the turmoil in the subprime mortgage market, and consumers may understandably be worried about what it means to them. Will prospective homebuyers be able to get a loan? Can those with adjustable rate mortgages refinance before the interest rates reset? Is my bank affected by the market correction? Will the subprime market send the economy into a recession?
Consider the big picture. In the entire housing market, 35 percent of homeowners own their homes free and clear. Of those with mortgages, 94 percent are paying on time. That's good news.
In the subprime market - which constitutes about 14 percent of the total housing market - 85 percent are paying their loans on time now. As many adjustable rate mortgages reset in the next several months, delinquencies may increase, causing this number to slip.
That's not so great news, but it does reveal something important. The majority of subprime loans are performing. That suggests most subprime borrowers have good loans that they are capable of repaying. It also shows that a subprime loan is not inherently "bad" or "predatory" - it's just less than Grade A.
But what about all those subprime foreclosures we've been reading about? How do those fit in? For the most part, these are the result of risky loans made and supported by unregulated participants in the mortgage market - such as mortgage brokers and investors who purchased the loans on the secondary market.
Highly regulated commercial banks and savings institutions have simply refused to make the sorts of risky loans that are at the heart of the issue. These rock-solid financial institutions adhere to the fundamentals of safety and soundness, sound underwriting standards, due diligence and capital standards.
Although their loan portfolios are mostly unaffected by the current subprime mortgage mess, federally insured banks and savings institutions are able and willing to be part of the subprime solution. They are well-capitalized and have a diverse source of funds, including deposits and Federal Home Loan Bank advances. They are in a solid position to keep mortgage dollars flowing to credit-worthy borrowers and communities, and in doing so, prevent today's market turmoil from becoming a housing crisis.
So, whether you are a first-time homebuyer or a borrower who hopes to refinance an expensive loan, you will be served well if you start your loan search at a local bank.
Routt County banks are interested in long-term customer relationships, so we won't try to sell you a loan you cannot afford. We'll make a loan that's right for you and the bank, and by doing so, we'll be doing what's right for the community and economy at large.
Waller is president and CEO of First National Bank of the Rockies.