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Sub-prime mortgage crisis has little effect on island Those figures list two Amelia Drive addresses, two on Austin Farm Drive and homes on South Shore Road, Fifth Way, Brock's Court, Helen's Drive, Hummock Pond Road, Liberty Street, Main Street, Mary Ann Drive, Old South Road, Prospect Street and South Cambridge Street but do not include a Union Street home scheduled for auction this month. Because Nantucket banks and mortgage brokers say they are careful to avoid what is termed predatory lending by not giving loans to those unable to afford payments or place them in a subprime loan with higher interest rates than they should pay, perhaps the biggest fallout from the crisis is the effect it has had on island real estate sales, said AtlanticEast co-owner Penny Dey. She stated that buyers are being influenced by the cautionary news reports which has resulted in a 50 percent dip in the number of transactions here since 2005 and has caused price reductions on 111 sales listings in the month of August alone. That represents 17 percent of the local property inventory now on the market, said Dey. "The only way I think it has affected us is a psychological impact with some buyers hearing the news becoming more cautious about primary home markets," said Dey. "We are not a primary home market but if you hear all the bad news you think 'I'm going to wait.' The number of sales have certainly been affected by cautionary buyers. The sub-prime market is not affecting Nantucket, in my opinion, where people have borrowed more than they should have and at adjustable rates." Denby Real Estate appraiser Rob Ranney has also seen a change, though not drastic, that he speculates may have nothing to do with the mortgage crisis. "Most properties here are over $2 million or $3 million and are not financed so those people are not so affected by the mortgage crisis. But requests for mortgage appraisals in the lower range have slowed down," said Ranney. "That may have something to do with tighter lending but it also may be that people in that range don't want to buy because they can't afford it. It's kind of like the price is out of reach anyway. "In 2004 and 2005 when the market was booming and values went up so quickly there was a sense that the appreciation on properties would overcome the balance of the loans and if someone began to have issues the property would be worth more and they could refinance," Ranney explained. "It's a combination of things, I'm sure, but generally the market has slowed and that doesn't have anything to do with the mortgage crisis. We're fairly insulated from that here." Dey said realtors are still waiting for third-quarter figures, but that in spite of a slower market than in recent years the outcome may indicate that 2007 ends as the third strongest year ever for sales. Regardless of the mortgage situation, people are still borrowing in order to buy, said Beth Ann Meehan, Senior Account Executive in the residential lending department of Pacific National Bank owned by Bank of America. Meehan said her bank has never been in the business of providing sub-prime loans and has not had a single foreclosure in the last 11 years. Sub-prime loans are usually given to people whose credit rating is low and who are without sufficient income and cash for a down payment that would make them a candidate for a prime loan with an interest rate generally one to two percent below that of a sub-prime loan granted to high risk borrowers. The high risk borrowers may be tempted by no income verification loans or 100 percent financing, but if they are unable to maintain monthly payments they will likely become a part of the national foreclosure situation. "The mortgage crisis hasn't affected us as it has the rest of the state and nation because we aren't sub-prime lenders. We don't target communities or borrowers through predatory lending that takes advantage of people who don't know what they can and can't afford," said Meehan. "The problem is not just sub-prime. Be sure you know the kind of loan you are in now and whether it is a fixed or adjustable rate. I've had several people this year who are filing with me for a fixed rate because they got a notice of a change of rate. "It's all buyer beware," she contin- ued. "Buyers need to know the timeframe when they will have an adjustment. Some change every month or every three months or yearly and up, and they need to know the formula that will make the new rate and what the cap is on the loan's interest rate." Meehan said if a borrower senses he or she is going to run into trouble making their loan payments they should investigate the options local banks offer for refinancing to pay off a brokered mortgage. She also lists the three lines of defense for borrowers as: being educated about their loan's components, working with a credible lender, be it a bank or a broker, and making sure the attorney handling the closing understands and clearly articulates the terms of the loan. "I give the local attorneys a lot of credit for protecting people from predatory lenders," said Meehan. That is a comment Quint Waters agrees with. Waters is Senior Vicepresident of Nantucket Bank and said his institution has only witnessed one foreclosure on a mortgage it made, and that occurred 11 years ago. "Traditional banks underwrite loans after seeing financial statements. Nantucket Bank underwrites loans as it always has and if somebody doesn't qualify they don't get the loan," said Waters. "I think there have been some people here who have gotten money from off-island lenders who didn't have the same underwriting guidelines as the banks. "The deferred interest, the no documentation and the no down payment loans are not traditional loans. There are some very qualified people who have those kinds of loans but for the people who can't afford those loans and with the drying up of the sub-prime market they have no place to get financing," Waters added. "I think most of the foreclosures here are by offisland lenders. I know our foreclosures are not nearly as bad as the rest of the state. We have had a few people who have come to us from other institutions because their adjustable rates are going up and they want to refinance and lock into a fixed rate." In transactions through mortgage brokers loans are sold to wholesale lenders, but Seth Gottlieb at Brant Point Mortgage said he is not aware of any loans brokered through his company that have gone into default that led to foreclosure. "I don't know of anybody who has fallen under those stories that are out there. I don't think [the crisis] has affected Nantucket because we've done a good job as brokers to educate borrowers about the loans that they're getting," said Gottlieb. Gottlieb explained that his company only gives sub-prime loans when a buyer has no other option, but that part of the underlying problem causing the crisis was with borrowers qualifying for prime loans then being sold subprime loans with the high interest rates. "We at Brant Point Mortgage don't operate that way," he said. Brant Point Mortgage does offer reverse mortgage loans and no income verification loans but Gottlieb said those programs require some scrutiny of the borrower. A reverse mortgage, which does not require monthly payments during the life of the loan, is generally targeted at retired people who have equity in their homes. While interest is charged on the amount, the loan is limited according to a person's age and their property's value. "It's like a standard mortgage," Gottlieb explained. "It's not risky for people and it's not a bail out loan for someone who has fallen under this mortgage crisis. It has no pertinance to the mortgage crisis." The no income verification loans Gottlieb deals with are geared toward the self-employed who have adequate earnings to repay their debt but which does not show on income tax documents to allow them to qualify for a standard loan. Still, these borrowers are fully educated on the guidelines of their loan based on information obtained through the application process indicating that they are capable of maintaining payments. "A big part of the crisis is that the borrowers were not educated on the loan terms they were getting," said Gottlieb. "We're here to help people out, not to put them in a position where they can't afford their mortgage payments." I |
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