Southwest Florida Home Loan Expert Predicts Strong Market; Increase In Fixed-Rate Loans

Yes, prices are stabilizing and demand is cooling down. But what does the future hold for housing in Charlotte, Lee, Manatee and Collier Counties? The Sarasota Herald-Tribune recently traded emails with Anthony Dimauro, senior regional sales manager for Fifth Third Bank in Manatee County. Dimauro (pictured) offered his assessment of the Southwest Florida real estate and mortgage markets.

~~~~~~~~~~~~~~~~~~~~~~~~~~

HERALD-TRIBUNE: What has happened to the real estate market over the past few months? How has the slowdown in sales impacted mortgage brokers?

DIMAURO: It seems that from Thanksgiving through the New Year we saw a reduction in sales compared to 2004. It’s not abnormal to see slow sales over the holidays, especially this year with all the media attention, but in the previous year we had an uncharacteristically busy market. It has probably forced brokers to take a look at ways to differentiate themselves from the competition.

HERALD-TRIBUNE: Do you think activity will pick up again this year, or are we headed for a prolonged slump?

DIMAURO: I think activity is picking up in this region already and we are expecting it to continue to get busier. We may not see the level of activity that we saw last year, but it should still be a strong market.
HERALD-TRIBUNE: Can you explain interest-only loans and negative amortization mortgages, and why they might be dangerous for certain borrowers?

DIMAURO: Interest-only mortgages are Florida home loans that don’t have a principal payment along with the interest payment. The payment made is only for interest, therefore your principal wouldn’t be reduced unless you made a special payment.

A mortgage that allows for negative amortization is one where your payment isn’t enough to pay for the interest and the shortfall is applied to the principal. The principal amount of the loan continues to grow over the life of the loan because your payments are too small.

One of the obvious dangers with these non-traditional loans is that you risk going “upside down,” which means that you may end up owing more than the property is worth. While the appreciations in our area make the chance of that happening minimal, the real danger is when the initial terms begin to change and the rates start to adjust in accordance with their index.

In many cases you can end up with a higher interest rate than what standard fixed rates are, and there may be a prepayment penalty if you refinance.

HERALD-TRIBUNE: Have bankers been originating an increasing number of these exotic loans? Why? When will interest rates on these Florida home loans start going up? Will that mean an increase in foreclosures, and an economy at risk?

DIMAURO: Many lenders have added these products to their portfolios due to demand. The popularity of these mortgages has increased since they are an efficient way for someone who aggressively manages their finances to reduce a monthly payment and defer debt.

Many banks don’t offer negative amortization options due to the high amount of risk. Many of these products started to become popular during the “refinance boom” a few years back, so if they originated with an initial fixed three-year period, we would expect to see them start adjusting this year — and increasingly more over the next few years.

It may mean an increased number of foreclosures in other areas of the country, but where there has been substantial appreciation (like here) most people should be able to refinance out of them and secure relatively stable loan products. With the demand expected from the projected growth over the next 5-10 years, Florida should not have a problem.

HERALD-TRIBUNE: Are banks beginning to tighten their lending requirements? Is that because regulators are forcing them to tighten? What impact could this have on real estate sales?

DIMAURO: Financial institutions have more ways to provide financing to more borrowers than ever before. We continue to develop new products to fit every type of home buyer. Regulators are always concerned that lenders maintain fair lending practices and do not engage in predatory lending, but I am not aware of any federal regulations getting tighter.

When there is a slowdown, lenders will look for more innovative ways to win business from the competition, and as a result, some would say it is easier to get financing; potentially a positive influence on the Florida home loan market as far as buyers are concerned.

~~~~~~~~~~~~~~~~~~~~~~~~~~

If the demand for Florida real estate slows and lenders are forced to compete for business by offering better incentives, that could mean good news for prospective buyers. We have seen one Florida home loan increase after another in recent weeks, but historically, rates are still low. See if you can finagle yourself a good deal with lenders clamoring for your business.