Florida Mortgage Lender Stops Offering Condo Loans
In a blow to an already weak housing market, Option One Mortgage will no longer provide Florida mortgages to buy condos, a decision industry watchers warn other lenders could copy.
Option One’s move comes as the once-hot market for condominiums in Florida has become glutted with thousands of unsold units, threatening the prospects of developers like WCI Communities that are under pressure to round up scarce buyers. Compounding the problems for mortgage lenders, investors are refusing to fund loans they think look risky, producing a credit crunch that has roiled the housing market and forced dozens of lenders out of business.
Option One wouldn’t discuss what led to the move in the state, which in the first four months of the year was its second-largest source of mortgage originations. Florida mortgage brokers in the state say they expect other lenders to follow suit.
Warned Alex Barron, an analyst with Agency Trading Group: ”It’s got a pretty broad implication.” If other lenders follow, ‘you’re going to find a lot of very desperate buyers’ who won’t be able to close even if they wanted to.”
California-based Option One, a unit of H&R Block, is a mid-size mortgage player that originated $27 billion in mortgages for the year ended April 30. But Option One has been losing money, prompting H&R Block to sell it to a private equity firm.
The news comes at a dark time for the Sunshine State, which has found itself in a condo glut.
In Miami-Dade County, there’s a 31-month supply of existing condos, and the pace of sales has dropped nearly 40 percent year over year, according to McCabe Research & Consulting in Deerfield Beach.
”I think the worst thing you want to do in this market is be a condo seller,” said Jim Gillis, broker/manager of Palm Shores Realty in Miami. “It’s almost like a disease that is going to be very difficult to get rid of.”
Industry watchers also predict falling prices, meaning Florida mortgage lenders could end up having made loans for much more than properties are worth.
Some observers wondered why Option One didn’t just raise rates for condo borrowers or try to weed out the riskier areas, such as Miami. ”The condominium market in Florida should not be viewed as a monolith,” said Joe Falk, legislative chairman of the National Association of Mortgage Brokers.
Optimists point out that buyers still have other options. But as more homeowners can’t pay their Florida mortgages and foreclosures spike, choices are either becoming harder to secure or drying up.
Lenders nationwide have either shuttered or put themselves up for sale. Like Option One, the remaining players are tightening standards, even for people with good credit. This comes as rates for jumbo loans of more than $417,000 are rising, making big loans more expensive.
Countrywide Financial, the largest U.S. home lender, highlighted the liquidity problems facing the mortgage industry when it drew down a credit line and said it would retreat almost entirely to making loans that comply with standards set by government-sponsored entities Fannie Mae and Freddie Mac.
Those standards rule out jumbo loans and others with once-popular terms that made it easier for borrowers to buy homes but which now seem too risky.
In addition to the ban on Florida mortgage loans to fund purchases of Florida condos, Option One nationwide has stopped underwriting loans that lack full income documentation and isn’t making loans secured by a second home or an investment property.
SOURCE: The Miami Herald
