Steamboat Springs Mortgage lenders in Steamboat Springs are working like it's 2007 all over again this month. But at the same time that they hustle to help clients refinance their home loans, they are finding it increasingly difficult to secure mortgages for the purchase of resort condominiums.
"Depending on the lender, it's getting harder and harder to get a condo loan," said Kathryn Pedersen, vice president/mortgage officer at Yampa Valley Bank. "There are some where there's no way."
Local mortgage lenders trace at least part of the difficulty to the way federally sponsored Fannie Mae and Freddie Mac are classifying condominiums in resort markets such as Steamboat, where many condominiums are rented on a nightly basis.
The two mortgage giants were created by the government to make it easier for Americans to own homes. They historically have purchased large numbers of mortgages from institutional banks.
In the wake of last year's mortgage meltdown, Fannie and Freddie, stung by loan defaults in markets such as Florida and California, have taken a fresh look at condos. Pointing out that they were chartered to help with residential real estate lending, not commercial lending, Fannie and Freddie have become reluctant to back loans for condo purchases in projects where nightly rentals take place, even if the condo being purchased has historically been off the nightly market and used exclusively as a residence.
Paul Clavadetscher, branch president of Millennium Bank in Steamboat Springs, said Fannie and Freddie originally became wary of condo-tels with front desk check-in services like hotels. It's not entirely surprising, he said, that they began to ask themselves, "When you have a check-in facility, is this really a primary residence, or is it an investment property?"
It used to be that Fannie and Freddie's guidelines were based on the percentage of the units in a given condo complex that were rented nightly and the number used as homes.
With changes in underwriting since the mortgage crisis, Fannie and Freddie are reluctant to back mortgages in any resort condominiums regardless of the use, and that nervousness has spread to the institutional lenders, or secondary markets, that work with local mortgage companies in cities such as Steamboat Springs.
"Now, with the new guidelines, you can hardly get a deal done; you can't get a deal if there's a check-in," Clavadetscher said.
The investment banks are worried that Fannie or Freddie will ask them to purchase their loans back from them, Pedersen said.
Holly Rogers, of Capital Mortgage Advisors in Steamboat Springs, said she has encountered resistance from some of her investment banking partners even in the case of lending for condo purchases at Steamboat projects that lack the trappings of condo-tels.
"I experienced this firsthand with two owner-occupied properties I recently financed," Rogers said.
She is concerned enough about the situation that she recently spelled out her issues in a letter to state Sen. Al White, R-Hayden.
"I am concerned about some changes that Fannie Mae and Freddie Mac have made that I feel will greatly affect our Colorado resort communities," she wrote to her state legislator.
Rogers told White that she was rejected on behalf of her clients by three large institutional banks. One client was seeking to purchase a Shadow Run condominium, and the other sought a unit in the Villas at Walton Creek.
She eventually found a mortgage lender for both deals, but it was so difficult that she wouldn't divulge the identity of the lender.
All of the banks denying the loans did so solely on the resort condominium criteria, Rogers said.
"These properties had no front desk, no shuttle service, no housekeeping service and no hotel amenities," she added.
Rogers pointed out that projects such as Shadow Run provide much-needed housing stock for working people in Steamboat.
"The only place for locals to live right now that is under $300,000 are condominiums," Rogers wrote to White. "Both of my loans were 50 percent loan-to-value with lots of equity. One borrower was an elementary school teacher, and the other was middle management at the ski area. Both were well-qualified, and both had very good credit."
The unwillingness of Fannie and Freddie to back condominium loans in markets such as Steamboat also will hinder prospective buyers seeking to exchange their equity in small condos into a larger home, Rogers said. Rogers, whose place of employment will shift to Yampa Valley Bank this week, said buyers should not be precluded from obtaining financing simply because a neighbor happens to rent his unit to vacationers.
Clavadetscher said the availability of loans for all types of mortgages has been impacted by consolidation in the financial industry in the wake of the economic crisis. Companies such as Wachovia and Washington Mutual that previously purchased mortgage debt have been absorbed into Bank of America, for example. And Bank of America has said it won't get into the business of buying loans.
Considering the $2.3 billion in real estate sales that were made in Steamboat in 2007 and 2008 combined, and then considering the entire country, it's easy to grasp the trillions of dollars in home loans on the market, Clavadetscher said.
"Somebody has to buy those mortgages," Clavadetscher said. "But nobody trusts the credit rating agencies any longer. There isn't the capacity to purchase these mortgages that there once was."
Real estate is such a large part of the U.S. economy, as well as Steamboat's economy, Clavadetscher said, that it's imperative the secondary markets find a middle ground between the loose policies of the real estate run-up and the tight constraints being imposed at the start of 2009.
"It's going to take a little while to get that figured out," Clavadetscher said.
In the meantime, he said, mortgage shoppers should plan on waiting a month for the loan to close.