The financial meltdown has come down hard on the nation’s housing finance agencies, which provide tens of thousands of mortgages to first-time low and moderate-income homebuyers.
State housing finance agencies helped finance 119,920 mortgages in 2006. But across the country, many state housing finance agencies have stopped selling bonds to finance loan programs because interest rates have increased to reflect higher risks.
“The current credit market crisis has created significantly fewer investors for mortgage revenue bonds as well as higher risk premiums on those bonds,” said Blair Bingham, chief financial officer, Mississippi Home Corporation (MHC). “As a result, the rates MHC would have to pay on its mortgage revenue bonds would translate into above-market rates for mortgage loans.”
MHC’s main program is a first-time buyer mortgage revenue bond program. Taxes and bonds are issued to investors generating funds to buy mortgages. With investors wanting higher interest rates, MHC is not currently in the market as far as being more competitive than private lending sources, said Dr. Ben Mokry, senior vice president of research and development at MHC.
“We are challenged now to meet the need,” Mokry said.
MHC’s total mortgages originated in single-family programs has dropped from a state total of nearly $120 million in the second quarter of 2007 to a total of approximately $41 million in the second quarter of 2008.
But all is not lost. Lenders are making loans at decent rates, and more volume is being seen. And Mokry said the MHC is seeing an increase in other programs it offers such as down payment loans that are taken out as a second mortgage.
“It does reduce out-of-pocket expenses and lets the home buyer keep some of cash for emergencies as opposed to draining their bank account,” he said. “We are seeing more loans coming into that program. Another program is the mortgage credit certificate (MCC) program. That allows the buyer to reduce their federal taxes. It is a like a childcare tax credit in that it is a dollar-for-dollar reduction in federal tax liability.”
The MCC will allow the borrower to take a tax credit equal to 25 percent of the annual interest paid on the mortgage loan for a single-family conventional residence and 40 percent on a manufactured single-family home. The remainder (75 percent conventional, 60 percent manufactured home) of the mortgage interest continues to qualify as an itemized tax deduction.
Lenders can combine the mortgage certificate with a down payment loan and a first mortgage they originate.
“We are seeing more demand on that side,” Mokry said. “To some degree the market is working. It is tougher, but there are still some combinations of funds that are available for families.”
To put things in context, the volume of the MHC loans is far less than in 2006 and 2007 when loans were at record levels due to the great need for Katrina rebuilding and special programs that aided with that.
Mokry said the credit problems have really put a crimp into the efforts to help people achieve the American dream of owning a home.
“But it will come back around,” he said. “Home buying is not at a level we would like, but there are options. People might not be able to buy as big a house as they want, and they might have to come up with more money. I wouldn’t say it is easy, but it isn’t totally impossible right now to buy a first home.”
There has been some blame for the nation’s high mortgage foreclosure rates placed on the Community Reinvestment Act (CRA) passed in 1977. Some people have charged the CRA, which encouraged banks to make loans in low-income, underserved areas, led banks to make loans to people who weren’t creditworthy. But Mokry said if you look at the data, a lot of the loans were by investors. In markets where prices were escalating rapidly, people were purchasing homes and then “flipping” them to make a profit. When prices started going down, people were stuck with mortgages higher than what the homes were worth.
“My gut feeling is the problems are not primarily because of CRA on the low end,” Mokry said. “I know how careful lenders are in making CRA loans to begin with. Our loans are solid, conventional, bread-and-butter 30-year loans. I didn’t see banks going way overboard with risky CRA loans to the extent it would have produced the financial crisis we have right now.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.