Secondary Market Makes a Mess of Florida Mortgage Market
A weakening of the secondary market for Florida mortgages is putting further pressure on a slowing real estate market.
With fewer buyers for loans, Florida mortgage lenders are pulling back on the loans they make.
“We had a borrower prequalify for a program Friday and the lender said they no longer offer that program” the following Monday, said Ben Bishop, president of Bishop Lending Group LLC in Jacksonville Beach. “We’re dealing with that every day.”
Bishop said his brokerage firm offers only about 10 percent of the programs that were available to bad credit borrowers last year.
“If you have a credit score below 620, your choices of mortgage financing are probably reduced by 75 percent,” he said. “Hopefully, they will keep making their payments. The other choice of selling is not necessarily a viable alternative.”
Lenders have scaled back or left the mortgage business altogether as defaults of nonprime loans have surged. Subprime and Alt-A loans have created the greatest concern. Subprime mortgages are extended to borrowers with below average credit scores and Alt-A loans do not require documented verification of income.
Many nonprime programs offered interest rates that have now adjusted upward to a point that borrowers can no longer afford.
Loans and leases that were 90 days or more past due increased nearly 11 percent from the first quarter to almost $67 billion during the second quarter this year for banks and thrift institutions insured by the Federal Deposit Insurance Corp. They were up 36.2 percent from a year ago.
Noncurrent residential mortgages represented almost half that increase, according to the FDIC’s Quarterly Banking Profile report released Aug. 22. The noncurrent rate of 0.9 percent was the highest in three years.
“Financial institutions and mortgage companies just got too lenient,” in their lending requirements, said Mac Holley, president and CEO of Florida Capital Bank of Northeast Florida.
Many banks, including Florida Capital, sell most of their Florida mortgage loans to the secondary market.
“You can’t sell [the loan] to the government, so you have to go to the investors,” he said. “And there’s fewer out there and they charge more.”
Banks have tightened underwriting policies to assuage investors’ concerns.
Lenders who used to extend loans to borrowers with credit scores as low as 600 are demanding much better scores, Holley said. “Now, if you don’t have a minimum of a 680 credit score, you can’t get a mortgage anymore.”
Local Florida mortgage broker Lashonda Williams has continued to get loans for nonprime borrowers through Fannie Mae’s My Community Mortgage, an affordable housing program that is not based on credit history. But closings at Rise High Mortgage have dropped to five a month on average from more than 10 last year, said Williams, the brokerage firm’s owner.
Brokers and bankers expect the mortgage market to worsen.
Many lenders are still trying to grasp the situation and the mortgage industry will have to disclose its problems, Bishop said. “All of the secrets have to be out.”
