Looking for a good deal on a new home? You might want to check with your local bank.
Since the start of the credit crisis last year, bankers have been cutting deals to sell homes they’ve foreclosed on, as they try to whittle down the “bank-owned property” line-items that weigh down their balance sheets. Go to any bank’s Web site and you’ll find a list of these properties.
But wait. It gets better.
In the past few quarters, a new trend has emerged: banks working with builders who’ve borrowed heavily from them, to help them sell their properties before they default on those loans.
“There’s a lot more collaboration between builders and the banks,” said Sara Hasan, a banking analyst with McAdams Wright Ragen in Seattle. “Banks are definitely taking a more active role.”
Cascade Bank in Everett is one of them. Since the first of the year, the bank has offered a special mortgage financing package to people who buy homes from builders who have borrowed from Cascade.
Depending on the builders and the property, interest rates on the packages range from 3.75 percent to 4.75 percent on a 30-year-fixed loan. Home buyers have to put 3 percent down, but Cascade doesn’t charge them a mortgage insurance fee — the “PMI” many first-time buyers end up having added to their monthly payments.
You’ve got to have good credit to qualify, said Cascade Bank president Carol Nelson. “They’re full-doc (fully documented),” she said. “There’s no sub-prime stuff going on here.”
But the lower rates can cut a buyer’s monthly payment significantly. The difference is more than $400 on the mortgage for a $300,000 home, Nelson said. That’s a loan payment of roughly $1,390, vs. $1,820 with a standard 30-year-fixed mortgage at 6.25 percent. That can make a new home much more affordable.
The goal is “helping people get into these homes and getting them off the books of our builders,” Nelson said.
From a banker’s perspective, it’s better to have the builder sell the property, she said. “I don’t own it yet, but I could end up owning it, and I’d rather help someone else buy it.”
This kind of thing is happening more often around the Northwest, as community bankers try to keep their balance sheets in order and keep their borrowers in business, Hasan said. “There’s more discussion back and forth.”
Banks have several incentives to do this, she said. For starters, if a bank gets stuck with too-many “nonperforming” loans on its books — loans that are in default — that raises red flags with banking regulators, who at the least can require the bank to set aside more money to cover potential losses — and in extreme cases can shut the bank down, as regulators have done with community banks in Vancouver, Wash., and Bremerton since the first of the year.
“If you can move a house, even if you have to sell it with a lower interest rate, at least it’s a performing loan,” Hasan said.
If a bank does end up owning a house or condo, then it has to hire someone to sell the property, and to maintain it until it sells, Hasan continued: “Someone to go out and mow the lawn and make sure that the shingles aren’t blowing off.”
Finally, there’s a bit of a shelf life when it comes to newly built homes. Right now, granite countertops and stainless steel kitchen appliances are all the rage, and buyers will pay a little extra for that. But that could change, Hasan said, and “you don’t want to be a bank stuck with a house that’s clearly from 2007 out there in 2010.”
In some cases, this combination of forces has resulted in banks taking very active interest in sales prospects for individual properties, Hasan said. Some banks are sending around people to check on whether builders are keeping up the landscaping on their for-sale houses, and going to open houses to check whether they look good inside and are attractively “staged” for sale. Builders who don’t keep up appearances get phone calls.
But the biggest thing banks are doing is offering cut-rate loans, she said. “You see great rates on new construction.”
In Cascade’s case, this means buyers have a chance to strike good deals on a variety of newly built homes across Puget Sound, from single-story town homes in north Tacoma to three-bedroom houses in Anacortes with views of Rosario Strait, according to the bank’s Web site, where it has a list of builders it’s working with and details on specific loan packages. In Snohomish County, Cascade is working with builders to sell condos and houses in new developments in Lynnwood, Bothell, Snohomish and Edmonds.
The program is catching on, Nelson said. During the first three months of the year, Cascade wrote three loans for homes in the program, totaling $900,000. That total jumped to eight for both April and May, and Nelson said she expects to close June with 19 more such loans on the books, for a total of nearly $15 million worth of loans for the second quarter.
“Banks today need to be a little bit creative,” Nelson said. In this case, lower rates are “helpful for our consumers and it’s helping our builders.”
They’re also helping the bank, she acknowledged. “The dirt doesn’t pay you back.”
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
