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Mike Benbow, Business Editor benbow@heraldnet.com

Less of a mess locally

Experts say a healthy economy helps shelter the area's real estate market from some of the subprime mortgage woes other states are experiencing.

By Debra Smith
Herald Writer

Home foreclosures may be at record highs nationally, but local experts say Snohomish County largely has been insulated from the subprime mortgage crisis.

In the county, fewer homes are selling and homes aren't appreciating as fast as the past several years, but that's a return to a healthy market, not signs of a meltdown, said Nathan Gorton, executive officer of the Snohomish County-Camano Association of Realtors.

The county has about a four-month supply of homes, and that's a typical inventory for this area historically, Gorton said. Although more homes are available, prices are still increasing, just not at the double-digit rates they were in recent years.

The median price of a single-family home in the county is $375,000, 4.5 percent more than last year at the same time, according to the Northwest Multiple Listing Service.

The subprime mortgage meltdown happened because some lenders, gambling on the strength of the housing market, began offering riskier loans to consumers with less-than-stellar credit or other risk factors, said Rich Sweum, a senior mortgage planner and branch manager for Homestead Mortgage in Everett.

When values began to fall, investors no longer wanted to finance riskier loans, Sweum said. Lenders had to sell them at a loss or store them on their own credit lines. Even if a lender weathered those losses, they might not have been able to handle investors' demands that they pay down the balances on their credit lines. Lenders subject to demands had less money to pay for new loans, which made the situation worse.

Locally, some mortgage brokers have gone under. The largest, Mortgage Investment Lending Associates Inc. in Mountlake Terrace, closed abruptly in April, citing the downturn in subprime mortgages.

Buyers with less than average credit scores are the people most affected, Sweum said. Lenders have tightened restrictions. Fewer loans are available, and lenders are requiring more documentation.

Buyers with average or better credit should have no problem finding traditional fixed-rate home loans, he said. They also can still find loans that require no money down. Buyers who need jumbo loans, those with loan amounts higher than $417,000, can still get them as long as their credit is solid.

The strength of the local economy is one of the primary reasons the real estate market here is faring so well, said Dean Dardzinski, the Pacific Northwest sales manager for Mortgage Guaranty Insurance Corp.

Fewer people here bought homes as investments and that's also kept foreclosure rates lower than other parts of the country, he said.

The state ranks near the bottom, 47th, nationally for mortgage delinquencies and 49th in foreclosures, according to the Mortgage Bankers Association. The association defines delinquencies as loans with payments that are at least 30 days late.

Nationally, borrowers with adjustable-rate mortgages, particularly those who had little or no down payments, are now finding it difficult to refinance into fixed-rate products after their housing values fell. These are the loans that are driving the national delinquency and foreclosure rates.

More loans are entering foreclosure all over, but four large states are driving the numbers: California, Florida, Nevada and Arizona, said Doug Duncan, the association's chief economist.

The four states have more than one-third of the nation's subprime adjusted rate mortgages, more than one-third of the foreclosure starts on subprime ARMs and are responsible for most of the nationwide increase in foreclosure actions, said Duncan in a prepared statement.

A glut of new homes for sale in these areas, coupled with a disproportionately high share of loans to investors, contributed to the problem, he said.

The responsibility doesn't rest solely on the mortgage industry, said Greg Rielly, a certified mortgage planner at Mortgage Advisory Group in Everett. Many borrowers defaulted on loans because their spending increased after they applied for a loan. In some cases, borrowers didn't save and then encountered unforeseen pitfalls such as divorces or job losses.

"If they go out after the home loan and buy Wave Runners, boats, cars and other unnecessary items, their debt to income ratio changes. When they come in to refinance, their credit profile has changed," Rielly said. "There needs to be some sense of personal responsibility on the part of the consumer here."

Rielly doesn't anticipate a sudden drop in housing prices in this region. The good economy will likely keep home prices appreciating, albeit at a slower rate than in the past. Even so, Rielly said real estate is still one of the best investments.

"The economy here is stable, and we have a lot of jobs," he said.

Sweum predicted a grimmer future. He said the Puget Sound is lagging behind the national economy and the area may experience more problems in the coming months. If those problems do materialize, he said homes further from urban centers will be more susceptible to price devaluations.

He suggested homeowners wait to sell, and if they can't, they should use an experienced local real estate agent who can price the home appropriately and market it aggressively.

Those with less than average credit can also consult a mortgage professional for credit repair. Sweum said about half of borrowers have errors in their credit reports. A professional can help identify and correct errors as well as suggest measures borrowers can take to improve credit scores. He also said some people should consider renting.

"If people don't have money for a down payment, rent for awhile and save some money."

Reporter Debra Smith: 425-339-3197 or dsmith@heraldnet.com