Loan Think

Richard Martin, a consultant based in the Montreal area, comments "Unless you've been on Mars lately, or you're a troglodyte, you may have noticed that the whole world has been going through a major financial crisis. People are, rightly or wrongly, worried about their livelihoods and their futures.

Private lenders have extended nine mortgages to residents of the San Felipe pueblo in New Mexico. While that may not sound like a lot for a village of 3600 people, it's a start. It's a lot harder lending in San Felipe than it would be in most rural villages of its size. That's because San Felipe is Indian Country, one of 19 such pueblo (village) tribes in New Mexico. So it has complicated land issues even before the issues of poverty and credit and federal bureaucracy and perhaps some deep background racism are factored in. It's a long process to get private lenders on a reservation, but San Felipe has made a start with nine mortgage loans through Bank of Albuquerque, Wells Fargo, Gem Mortgage, and Aztec Mortgage. Others are pending the tedious lease approval process at BIA. "That number needs to increase dramatically," said Isaac Perez, executive director of San Felipe Pueblo Housing, a "TDHE" or tribally-designated housing entity. The pueblo, halfway between Albuquerque and Santa Fe, has also done some housing-related loans through the state housing finance agency, the New Mexico Mortgage Finance Authority, which runs a "Primero" loan program for affordable housing loans. The tribe is leveraging HUD Rural Housing and Economic Development money through NMMFA on 17 rehabs and 18 single-family homes being done on the reservation. The rehabs combine a $6000 RHED grant with a 4.5% mortgage of $23,500 through NMMFA's Primero loan program. The single-family homes are financed with a $6000 RHED grant (provided through NMMFA's Revive program) and money the tribe gets from the Indian Community Development Block Grant program and the Native American Housing Assistance and Self Determination Act. According to Eric Schmieder, NMMFA's Native American housing consultant, 13 of the rehabs are done, as well as ten of the single-family homes, with another five under construction. Perez said the pueblo receives between $480,000 and $550,000 a year in federal ICDBG and NAHASDA funds, enough to finance 20-25 rehabs a year. The tribe has used this annual money to leverage another $5 to $8 million in funds. "We're out there as much as we can, trying to get money," Perez said. His goal is "to provide every tribal member some housing assistance regardless of income, status or anything else," he said. His agency, has also constructed 25 stick-built houses since 2003, and done another 11 constructions through the Bureau of Indian Affairs' Home Improvement Program. The tribe has also built ten houses for emergency housing for families that have suffered a fire or some other emergency. The TDHE has also done construction for tribal non-housing projects, such as San Felipe's new Administration building. In addition, it is planning a $7-$10 million housing development that will build more than 100 homes to put a dent in the "huge" housing need on the tribal homeland. It likely will partner with the NMMFA on homeownership counseling and downpayment assistance to support the ambitious project. The tribe and the NMMFA are currently partnering on projects to build or rehab 35 houses on the reservation, with more than 20 already completed. Perez said more than 150 families are on the SFPH new home waiting list, and another 50 are waiting for rehabs. The 104 home project (28 of which will be modular) will be located south of the pueblo's elementary school on a 100 acre site, and 80% of the project is planned to be built in-house. Perez said the project may be done in three phases. The bulk of the financing would come from the Department of Housing and Urban Development, in the form of section 184 or Title VI loans, and HUD's RHED program. The NMMFA Revive program has leveraged RHED money in several other New Mexico tribes, Schmieder said, including the Mescalero Apache, the Alamo chapter of the Navajo Nation, and the Tesuque and Laguna pueblos. Fourteen rehabs have been financed at Mescalero, 8 at Zuni, and 12 new homes at Alamo, he said. Eleven are being done at Laguna through RHED and NMMFA's Housing Trust Fund. Revive has also been used for rehabs at Tesuque and San Idlefonso pueblos. According to NMMFA, "the Revive program is designed to be as flexible as possible to meet the housing challenges in New Mexico Indian Country." That means that Revive "is a process for combining various federal, state, tribal and MFA resources to address housing needs on reservations in New Mexico." The program seeks to increase capacity for TDHEs and non-profits working on New Mexico tribal land, give tribal members greater access to credit and financial literacy training, and providing more housing money for tribal members. "With Revive, the housing partners gain skills in loan qualifying and processing, homebuyer and financial literacy skills are enhanced on the reservation and additional housing repair funds are provided to the tribal members."

Paul Muolo is on vacation this week. We're running this story in place of his usual column.

A friend forwarded me an article in Financial Times magazine that struck a chord with me. I have to reflect on it here because there’s an important message to get out. The article talked about how recent rate cuts have resulted in increased volume, but lenders can’t handle it so some are staffing up again. Do they ever learn?

Rising foreclosure rates threaten to overwhelm the U.S. real estate market; a record one in 10 loans were delinquent or in foreclosure at the end of September 2008, and a total of 2.2 million homes are expected to have entered the foreclosure process by the end of 2008 with the foreclosure outlook for 2009 to be significantly worse, according to data compiled by the Mortgage Bankers Association. Will these market conditions finally bring true innovation to servicing or will current technology just be applied to deal with the problem at hand?

Do you have one, two, five referral sources sending you business? A level of business that you were comfortable with a few months ago, but that now is producing less and less? But, still, a business of business that has kept you from putting on your boots, taking out the machete, the bug spray and the pith helmet and wading back into the underbrush to find more referral sources?

If it weren't for the dire financial straits of the big three automakers, would the nation be on its way to a financial recovery? Christmas is less than a week away and why not look for a glimmer of hope in the dark tunnel of our nation's economy? This past week the Federal Reserve cut short-term rates to just 25 basis points, which means money is dirt cheap right now. Heck, it's so cheap that even the subprime industry might stage a comeback. Actually, I'm kidding on that last point. The subprime industry of the past few years is gone and never coming back. The only hope for truly credit impaired Americans rests with hard-money lenders, which offer mortgages at sky right rates - and only if there's equity in a home. But back to the recovery. Yes, we're seeing mortgage applications spike. And why shouldn't we? Some lenders are offering 5% loans. NAMB chief Marc Savitt who runs a brokerage in West Virginia told us applications are up threefold at his shop compared to November. Consumers are opting out of ARMs (no surprise there) but also are switching from 30-year loans to 15s. But the key to any true recovery will be the job market. I've said it before and I'll say it again: we need real job creation before seeing a boost in home buying activity. It boils down to this: people without jobs, and consumers who fear layoffs will NOT buy a home no matter how low rates go. Stay tuned...

On December 1, 2008, the National Bureau of Economic Research announced that the United States had officially entered a recession beginning in December 2007. A variety of factors have contributed to this situation, including rising unemployment, a general downturn in economic growth, the subprime mortgage crisis and the precarious state of major financial institutions. During recessionary times in the past, companies have made mistakes in dealing with a slowing economy.

Some people think they know it all, but none of us do. There’s value in gathering as a community and discussing problems and solutions with peers. And let’s face it, these days the mortgage industry has its share of problems. So, let’s get together and solve these problems. You and me.

THIS JUST IN: The Mortgage Bankers Association has formed a new task force to address concerns about a possible bust in the warehouse lending arena. (In case you're wondering, there are still plenty of non-banks left that need financing for their pipelines, 90% of which include loans backed by Fannie Mae, Freddie Mac and the FHA.) The trade group wants a pow-wow with the Treasury Department on the issue, especially with a refi boom on the horizon. For the full story, complete with details, see the Monday edition of National Mortgage News. Don't subscribe? Call (800) 221-1809...