Bend, Ore.-area mortgage experts weigh in on tax credit for first-time buyers

Jul 28, 2008 (The Bulletin - McClatchy-Tribune News Service via COMTEX) -- FNM | Quote | Chart | News | PowerRating -- Jul. 28--A $7,500 federal tax credit for first-time homebuyers -- one of the carrots in the housing rescue bill -- is good, but it's practically worthless if prospective homebuyers can't secure a home loan because of stricter lending standards, said Rod Martino, a Bend mortgage broker with Trust Lending Corp.

"A tax credit means nothing if you can't qualify for a loan," said Martino. "I think the first-time homebuyer would be better served if Fannie Mae and Freddie Mac loosened up their lending standards."

One of several local real estate professionals asked for their take on portions of the bill that affect homeowners and prospective homeowners, Martino said his reaction is mixed. He likes the reverse mortgage reforms and the veterans' provisions regarding foreclosures, but he has doubts about the tax credit and the mortgage renegotiations.

Specifically, Martino believes the mortgage renegotiations package is unnecessary, as lenders are already able to renegotiate loans and do so without provisions to pay the government back, as called for in the housing rescue bill.

The bill makes it possible for people in bad loans to renegotiate their original loans with their lender -- provided that the lender agrees. If that's the case, borrowers will receive a new loan, backed by the Federal Housing Administration, but with an obligation to pay the feds back when they sell their home, to the tune of at least 50 percent of the home's appreciation when the home is sold.

"Even though it's intended to assist people (to) retain their home, I believe that there may be better ways of doing it, by letting the lenders holding those mortgages make those decisions and take those financial hits themselves, rather than the borrower having to incur this recapture," said Martino. "It may work, but only time will tell." Rob Ezell, a mortgage banker with Sunset Mortgage in Bend, isn't familiar with much of the bill's provisions, but he said the government should focus on the nation's banks.

"If (Congress) is going to save people, the government should pressure banks to adjust their loans to make them more affordable for people," said Ezell.

Ezell said that even with declining home prices, higher loan-to-value loans are still the only way many people can afford to purchase a home.

Loan-to-value is the amount of the outstanding balance of a mortgage divided by the value of the property. A home valued at $100,000 with a mortgage of $80,000 has an 80 percent LTV.

Valerie Hunter, who specializes in foreclosure sales as the principal broker of H & H Real Estate in Redmond, said the mortgage renegotiation package is well intentioned, but she wonders where lenders are going to find the manpower to process all the new loan requests.

Hunter said most short sales -- the sale of a home or property for less than the amount owed the lender, and which must be approved by the lender -- aren't going through because lenders don't have enough employees to handle the rush of short sales caused by the real estate downturn.

"I think (the mortgage renegotiation package) is great, but it's the government again telling us we've got a great program for you but no manpower," said Hunter. "Where's the manpower to work it?" The bill also makes permanent the Fannie Mae and Freddie Mac conforming loan limits recently upped by the federal stimulus package, from $417,000 to $447,500 in Deschutes County. Loans for more than that amount are considered jumbo loans, which carry greater interest costs.

"Making it permanent is a good thing, but it has a very limited effect on Central Oregon," said Dave Woodland, with Summit Mortgage in Bend.

Bend resident Elin Bullmann, author of the eBook "How to Survive Foreclosure or Avoid it Altogether," said the bill is a good thing, a needed government step to help families stay in their homes. Owners of second homes and investors are not eligible for the program. But Bullmann thinks the government might have to do more.

"You have to do something," Bullmann said. "I think they are going to have to do more than that. You look at all the people that took out home equity lines of credit ... there is a lot of debt."

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