Hunter Palmer

More hopeful signs of a recovery in the housing market could be seen this week as Monday’s report on existing home sales figures showed a surprise jump of 5% for February and new home sales also surprised with a jump of 5%. For Bay County the increase for existing home sales was 29%. Statewide the increase in condo sales was also up 15%. This follows a 21% jump in mortgage applications last week and a surprise increase in housing starts and permits last week. Also, the Mortgage Bankers of America reported Thursday that mortgage rates stood at their lowest levels in fifty two years.

On Monday, the Treasury Department announced its long-awaited plan to purchase toxic debt off of banks’ books, including mortgage backed securities. Wall Street cheered the plan with the biggest one day gain in the Dow since November. The real test will be how well private equity participates with the government in buying the bad debt. Right now we are seeing a delicate balancing act of the Federal government attempting to push mortgage rates lower while issuing new debt to buy bad debt which tends to drive rates higher. So far they are doing a remarkable job. Hopefully, this will all translate into borrowers being more willing to step into the housing market and more banks willing to lend to them.

At the adjournment of their meeting on Wednesday, the Federal Reserve's Open Market Committee announced that the Fed would purchase some $300 billion in long-term Treasury bonds and an additional $750 billion in mortgage-backed security debt. Left with fewer arrows in its quiver as the Federal Funds rate sits between zero and a quarter percent, the Fed used another tactic at its disposal designed to lower long-term rates by driving up demand for longer term debt. The move was greeted with a rally in stock prices and a 50 basis point drop in the yield on the ten-year Treasury note - the biggest one day drop since 1987.

Because interest rates on fixed rate mortgages are closely tied to the yield on the ten-year Treasury note, the Fed's actions are sure to drive mortgage rates down below 5% for thirty-year fixed rates and below 4.5% for fifteen year fixed. The result should be, as is the Fed's intention, to create demand in the housing market by making interest rates so attractive to potential homebuyers that they will be pushed off the fence. The Fed's ultimate goal, and what I have been saying all along is key to solving the financial crisis, is to stabilize home prices, reversing the decline and driving property values upward. The combination of affordable home prices, historically low interest rates and a first-time homebuyer tax credit should be the perfect recipe for the housing market's recovery.

I can remember back sixteen years ago when thirty-year mortgage rates fell below 7% sparking a flood of refinances. I also remember 2003 when rates dipped again and another "refi boom" ensued. So with thirty year mortgage rates now at their lowest levels in history, why are we not seeing the kind of refi hysteria we have seen in past? Ironically, the cheap mortgage money of the past that helped drive up homeownership rates and property values has left us between a rock and a hard place. Despite historically low rates, much tighter underwriting guidelines coupled with the crash in home values leaves few borrowers in a position to refinance.

The Mortgage Bankers Association reported on Wednesday that the national average interest rate for thirty-year, fixed-rate mortgages stood at 4.89% at the end of last week, down from 5.07% a week earlier and down from 6.50% in October. Much, if not all, of the decline in interest rates can be credited to the Federal Reserve's program of buying up to $500 billion in mortgage-backed securities from Fannie Mae and Freddie Mac which started on January 5th. This has narrowed the risk premiums associated with mortgage yields leading to the unprecedented drop in long-term rates. But according to Doug Duncan, chief economist for Fannie Mae, only a third of outstanding mortgage debt is eligible for refinancing. "Nearly 70% don't make the cut," he said " because theri credit isn't good enough or they owe more than the current values of their homes." Another set of homeowners locked out of the refinance opportunity are "jumbo" loan holders who loan amounts exceed the Fannie Mae and Freddie Mac maximum. Rates on "jumbo" loans have failed to follow the downward trend of conforming loan rates and have stayed stubbornly around the 7% mark.

Mortgage lenders are reporting that while refinance activity is up, only 50% of applicants end up closing due to credit or appraisal issues. In Florida, where home values have fallen sharply, only 25% of refinance applicants make it to the closing table. While Fannie Mae is looking into the possibility of allowing borrowers to refinance up to 120% of the current property value to help more "upside down" borrowers refinance, there is still no viable program in place. So while refinance "booms" of the past allowed a majority of homewowners to benefit from lower rates and monthly payments, along with the relatively cheap access to their home's equity through cash-out, the only ones benefiting this time around seem to be those who need it least. Borrowers who have been in their homes for a number of years and have substantial equity along with excellent credit are taking advantage of the lowest rates in history while those struggling in "upside down" mortgages are stuck with their higher rates. A silver lining would be if the rates stay low enough for long enough, borrowers may begin to choose to move up rather than sit tight in their homes. It will be that slow incease in demand that, ultimately, will stabilize home prices and spread the opportunity of lower rates to more homeowners.

As regional and national banks eagerly rush to accept government bailout loans in the face of frozen credit markets, local community banks are quickly becoming the go-to source for mortgage loans in Florida. Despite tighter underwriting guidelines from Freddie Mac and Fannie Mae and a secondary mortgage market with little appetite for Florida real estate, local community banks are still stepping in with loans designed to accommodate the local real estate market. Vision Bank, in particular, has studied the specific needs of our local market and is offering loans tailored to the unique needs of Bay and surrounding counties.

One example is Panama City Beach. On the beach, the vast majority of properties listed for sale are condominiums which sprouted up all along the coast in the boom years of the first half of the decade. The flurry of condo development was due, in part, to the easy flow of credit and lax underwriting and property standards so prevalent at the time. Now, as investors paint all of Florida with the same broad brush, Beach condos are left with the same stigma as South Florida and labeled as “condo-tels” – a name coined by Fannie Mae and Freddie Mac to describe a hybrid between a condo and a hotel with resort-like facilities and daily rental desks. Though Fannie and Freddie didn’t seem to draw a distinction between condos and condo-tels in the past, they certainly do now. Financing for these properties has all but evaporated leaving many prospective second-home buyers with no options. Enter Vision Bank.

With deep roots all along the Florida Panhandle, Vision Bank understands our unique market and has a vested interest in its success. With a sincere belief in the viability of the Beach condo market, Vision Bank is lending its own money by developing portfolio products designed to provide affordable options for the local real estate market and the out of state second-home buyers so crucial to its resurgence. Vision Bank, while adhering to sound lending practices and diligent underwriting, is offering bank-held, fully amortizing mortgage products with no pre-payment penalties and no hidden fees designed specifically for the condo-tel market. Vision knows this market and knows that more condo sales will help stabilize prices and draw even more potential buyers back to the Beach and all of Bay County. That’s a community bank investing back in the community.