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HIGHLY QUALIFIED: Mortgage numbers are down across the Valley, but the good news is that it's a sign of stability

Friday, September 13, 2019   /   by Juan Grimaldo

HIGHLY QUALIFIED: Mortgage numbers are down across the Valley, but the good news is that it's a sign of stability

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At the height of the foreclosure and mortgage crisis a decade ago, Susan Salamone added an unexpected new role to her job as a real estate agent. 

“I was like a counselor,” said Salamone, who has been in Valley real estate since the 1990s. Losing their home or having to go through the foreclosure process devastated people, she said. 

“People blamed themselves,” Salamone said. “I would hold people as they would sob. It was terrible.” 

In the years since Salamone’s inadvertent dalliance into real estate counseling, the mortgage and housing markets have recovered as the region’s economy continues to hum along. 

“Roughly 10 years after the housing bubble and the recession, I think the market’s all but rebounded,” said Laurie McDonnell, designated broker with HomeSmart International. “Unemployment is low, we have a strong job market. The economy’s pretty strong.” 

Yet the overall drop in the number of mortgages being written has been noticeable. It’s produced a market that did about $3 billion in mortgages for Maricopa County during 2018, the latest complete year available. In 2009, one bank — Wells Fargo & Co. — did that itself. 

The challenge with the measurement is some of the largest banks, including Bank of America and JPMorgan Chase & Co., have refused to release information on their lending activity locally, despite at least Chase doing so a decade ago. 

The drop, however, was the result of increasingly tougher standards instituted by regulators and banks following the Great Recession to keep another housing bubble from forming. Of course, even with a hot economy and strong market, the fundamentals are drastically different from today’s market compared with a decade ago, experts say, particularly with securing a mortgage to buy a home. 

‘Fog a mirror, get a loan’ 

In the run-up to the recession and housing bubble popping, lenders handed out mortgages seemingly like candy, giving them to people without much thought or effort toward determining whether borrowers really could afford it. 

“There was an old joke, ‘If you can fog a mirror, you can get a loan,’” said Andy Warren, president of Scottsdale-based Maracay Homes. “There wasn’t real rigorous underwriting at all [and] all kinds of crazy, interest-only [loan] programs.” 

Lenders didn’t bother to collect documents from borrowers to check things like income or employment status, Salamone said. 

“Back then, the market was changing so quickly and the banks didn’t care,” Salamone said. “All they did was pull your credit. If you had good credit, they believed anything you said.” 


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(Image source: Phoenix Business Journal)


‘Fog a mirror, get a loan’ 

In the run-up to the recession and housing bubble popping, lenders handed out mortgages seemingly like candy, giving them to people without much thought or effort toward determining whether borrowers really could afford it. 

“There was an old joke, ‘If you can fog a mirror, you can get a loan,’” said Andy Warren, president of Scottsdale-based Maracay Homes. “There wasn’t real rigorous underwriting at all [and] all kinds of crazy, interest-only [loan] programs.” 

Lenders didn’t bother to collect documents from borrowers to check things like income or employment status, Salamone said. 

“Back then, the market was changing so quickly and the banks didn’t care,” Salamone said. “All they did was pull your credit. If you had good credit, they believed anything you said.” 

Some lenders even offered negative amortization loans, Salamone recalled, that offered buyers 1% interest rates on their mortgages. 

“I didn’t have one buyer do that,” she said. “But I had clients call me about it. I had to explain to them: Banks are not giving money away, trust me. That’s a negative amortization plan.” 

Those plans would take owed interest and add it to the principal of the loan. That meant borrowers would end up paying more in interest to the bank at the end of their loan periods, or if they sold their homes the negative amortization portion would be deducted from their sale proceeds. 

Indeed, the speculative nature of the pre-recession market fueled a lot of the cavalier behavior in the mortgage and banking industries, said Eric Murrietta, a branch manager with Scottsdale-based Homeowners Financial Group. 

“[People were] betting the housing market [was] going to continue to increase,” he said, “which is what was happening leading up to recession.” 


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Today, the market has, for all intents and purposes, fully recovered from the devastating days of the foreclosure crisis when people chose to walk away from homes they couldn’t sell or afford. 

“Our housing market here in Phoenix, I would say it’s rebounded for sure,” McDonnell said. “We’re a stronger housing market than we were 10 years ago.” 

Mortgages and credit, which dried up in the aftermath of the crash, also have loosened, though borrowers must provide much more documentation than before to qualify. 

“The last two years, it’s been pretty much easy to get financing,” Salamone said. “If people have good credit, it’s just like it was before. People have to qualify.” 

‘Vanilla-type mortgages’ 

During the recession, federal government housing programs tried to spur buyers into the market, specifically first-time buyers, Murrietta said, which led to a lot of the mortgages being issued during that time through the feds. But that has changed. 

“Government-backed loans were huge just because that’s what was out there to spur and bring people in,” he said. “Now, there are more and more opportunities for people to do conventional loans.” 

Much of the reason for that, Murrietta said, is because you have people who bought homes during the recession who have equity and want to move up to something new. 

Would-be buyers, mainly young professionals who came of age when the market crashed in 2008, also are smarter today, he said. 

“Millennials get a bad rap, but millennials are smart,” Murrietta said. “They ask a lot of questions and want to do things right.” That includes researching mortgages and houses online. They watched their parents go through the housing crash and don’t want to live the same thing. 

Today’s buyers also are saving more before buying a home, McDonnell said, rather than rely on low to no money down mortgages, which cost more and come with private mortgage insurance. 

“People are saving up and putting more money down,” she said. “They want to be more prepared for owning a home now.” 

Following the extreme pendulum swing after the housing crash that saw more rigorous underwriting criteria and overall tighter credit, the market has become far more predictable, Maracay’s Warren said. 

“It’s more similar to what it was when I first got into the business in the ‘80s and early ‘90s,” he said. “There are a lot more vanilla-type mortgages.” 


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Affordability in focus 

Even as the market has regained some swagger, potential issues remain. 

“What we’ve been struggling with is affordability,” said Joel Kan, associate vice president of economic and industry forecasting with the Mortgage Bankers Association. 

Demand has grown, but there just aren’t as many homes available, Kan said. This is something evident in Phoenix, with its strong economy and population growth pushing up demand and prices for homes. 

Salamone said a recent check of the Arizona Multiple Listing Service showed only 18,000 properties on the market in Maricopa County. 

“That’s still low from where we should be for the amount of people we have here,” she said. “Twenty-four [thousand] to 28,000 is a more even-keeled market. And we are not there.” 

 

 

Keller Williams Realty Professional Partners - The Grimaldo Group
Juan Grimaldo
7025 West Bell Road #10
Glendale, AZ 85308
480-365-8346

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