The economic recession is dominating the news and area financial officers say there are misconceptions about getting mortgage, equity or auto loans.
Local banks have credited traditional lending practices and a relatively stable local economy with avoiding fallout from the downturn. The criteria for a loan has not changed, say area bankers, but there are no longer exceptions to the rules to qualify.
Michael Katrin, president of Border State Bank, said that nationally, high-interest rate loans to borrowers without good credit, and to mortgages at 100- to 125-percent of the home value have now been discontinued.
“We’ve never offered this type of credit to borrowers, so overall, we’ve experienced little change,” said Katrin.
Customers with good credit still qualify for the same long-term and fixed-rate home mortgage financing as they did prior to the downturn, he said. Border State Bank sells mortgages in the secondary market, where he said a “flurry of activity” is allowing customers to refinance and save with the recent drop in mortgage rates.
“Talk to your banker as you may be able to save some money on a home mortgage refinance,” he said.
Mike Turenne, retail manager at Bremer Bank, said the Falls banks are keeping to standard lending practices and not moving toward more stringent underwriting practices.
Lenders are sticking to the letter of the application, he said, and want to see good credit, ability to repay, and collateral equal to the loan.
“During these times, the banks may make sure to check loan applications more thoroughly to ensure verification of incomes and that type of thing, but also from the client perspective, we want to make sure that you will be able to afford loans for our sake and yours,” said Turenne.
Turenne said he encourages customers to apply for loans and notes that banks are willing to offer advice about applying.
Dale Johnson, president/CEO of TruStar Federal Credit Union, said that underwriting guidelines are strict about documentation, but should not be a problem for borrowers with good credit and a required down payment.
Local home values are not rising and even decreasing in some cases, said Johnson, making it more difficult to qualify for equity loans. A mortgage value that is higher than the true value of the home makes searching for secondary market loans difficult.
“Investors are not hungry for mortgage-backed securities anymore,” he said.
For the present, homeowners are often unable to sell one house to buy another, he said. However, he is seeing only a slightly less than normal amount of loan applications during the traditionally slower winter months.
The market deceleration and the absence of comparable sales has lenders requiring actual appraisals over property tax evaluation statements, adding a negative risk to the loan application and more dollars to the closing costs, said Johnson.
People are not willing to take on additional debt in this economy, especially when they know their house is devalued, he added.
Johnson said the market is bouncing back and he is concerned that people will turn to their credit cards to get though low cash times.
“This is showing up on credit reports, but over all, the Falls is doing good as a stable community for the most part,” he said. “We are seeing people being cautious about credit.”
It will be difficult to get a business start-up loan at present without a lot of cash or collateral, said Johnson. However, he said long-term operators that understand the cycles are purchasing equipment and upgrading for tax advantages and refinancing at rates much lower than they will be when the economy rebounds in a couple of years.
“I am seeing a steady and cautious growth by seasoned players,” he added. “The smart players know when to buy.”
Auto deals are very good and Johnson said the banks are very competitive with dealer financing. He said tough times for automakers mean better than usual December deals as they push out 2008 models for the new year.
“The rebates are steep and now is the time to buy if you are going to buy,” he said.
David Hebig, community banking president for Wells Fargo in International Falls, agreed that auto loans are not going through the same changes as mortgages. He said that with a 48 to 60 month or even a 72 month loan, it is an attractive time to buy with good deals, rebates and lower interest rates.
With mortgages, Hebig said that sound underwriting practices with debt-ratio models have proven to be in the best interest of customers and banks. Customers with income and the ability to repay a loan give the bank its competitive advantage as a sound lender, he said.
“This is a more volatile market today than it was two years ago, and determining that value is more difficult than in a steady market,” said Hebig.
Hebig noted that local mortgage market values have decreased to a two-year low, which impacts loans against the true value of a home. However, he said interest rates remain at historic lows for 15 and 30 year mortgages.
