Banking & Finance

Mortgage Demand Rises with Economy

YOUNGSTOWN, Ohio — The growing demand for mortgages, especially among first-time buyers, and home-equity lines of credit reflect both increased consumer confidence and a healthier economy, bankers say.

“We are seeing an increase in first-time home buyers,” says John Lacy, Mahoning Valley sales manager for Huntington Bank. “Buyers are aggressive and plentiful.”

Home-equity loans at First Federal Home Savings & Loan Association of Niles “have been very lucrative this year,” says Ray Calcagni, who oversees its mortgage lending.

“Home equity lines of credit are a hot product for Middlefield Bank,” says its residential lending operations manager, Linda Zak. “In the first three months of this year, we almost reached all the business we did last year.”

The percentage of lenders’ mortgage business that consists of refinancing at lower rates is dropping as the number grows of those who seek to buy an existing house or build a new residence.

“The first part of the year, as rates dipped, we saw a high volume of refinancing,” says Mike Garmone, who heads mortgage operations at the Home Savings and Loan Co. “In April and May, we saw a return to normal levels, 20%, and that’s where we are today.”

The demand for “jumbo” mortgages – those $417,000 and higher – rebounded before the rest of the market, bankers say. “We see more in Canfield and Poland,” says Rocky Page, Cortland Banks vice president for retail mortgage lending.

Banks report that contractors have approached them about securing financing that would allow them to build residences on spec. Building on spec ended abruptly when the housing bubble burst, helping to trigger the Great Recession.

“We’ve had more requests for spec in the last year and a half,” Page says,” but we haven’t gone down that path.”

“The low level of inventory [houses on the market] drives construction,” Home Savings’ Garmone explains. Regardless, bankers prefer to lend to a borrower who has lined up a homebuilder. “We’re a lender that does construction of your new dream house,” he says, when a builder is lined up.

The growing use of mortgages that require less than a 20% down payment is also promoting demand. Through Fannie Mae and Freddie Mac, the Federal Housing Finance Agency has introduced mortgages that require only 3% down and originators can sell on the secondary market. (The Federal Housing Finance Agency seized Fannie Mae and Freddie Mac in September 2008.)

Use of the Federal Housing Administration program that requires only 3½% down is helping spur mortgage growth, bankers say. While veterans can use their benefits to secure their first mortgage with no down payment, bankers say that seldom happens. Most veterans have saved enough to make a down payment, they say.

The Welcome Home program of the Federal Home Loan Bank in Cincinnati offers grants of up to $5,000 that low- to moderate-income buyers can use in making their down payments. Bankers report the grants go quickly at the beginning of each year.

“The money [Huntington’s allocation] was gone about the time it landed,” Lacy says.

The LMIT program – for “low- to moderate-income tract” – at Huntington pays the closing costs of those buying houses in low-income census tracts. “It’s about the home, not the buyer,” Lacy says, and has proven popular in the Idora neighborhood of Youngstown.

Huntington “has eaten $600,000 companywide,” he says. In the Mahoning Valley, closing costs the bank has absorbed run $2,500 to $3,500 for each transaction. The program “really helps when closing costs exceed the down payment,” Lacy says.

Business is so good that some banks are looking to hire more mortgage officers. “We have been hiring more lenders,” Garmone says of Home Savings.

“We are going to be hiring more mortgage loan officers,” reports Joe Gerzina, chief lending officer and senior vice president of Farmers National Bank. “Our mortgage loan officers are busier and volume is up.”

Where most lenders will extend mortgages of less than 20% down, they require private mortgage insurance on such loans. Home Federal of Niles is an exception.

In good times and bad, “Our standard is 20% down,” Calcagni says, and it holds all of the mortgages in its portfolio.

That Home Federal charges a higher rate hasn’t deterred borrowers, Calcagni says. Purchases of existing houses “have been the bulk of our loans [with] a handful of new construction,” he reports.

The mortgages it extends, all fixed-rate, have ranged from $50,000 to $200,000.

The average mortgage Cortland Banks originates is $160,000, says Stan Feret, its chief lending officer, while at Home Savings it’s $175,000, Garmone says, but in the neighborhood of $140,000 in the Mahoning Valley. Gerzina says the average amount financed at Farmers is $135,000.

The low-interest environment has prompted most buyers to apply for fixed-rates, bankers agree, because adjustable-rate mortgages would not be much lower. The uncertainty over when the Federal Open Markets Committee will raise rates has encouraged many who have been wavering to apply this spring.

Because of the banks’ presence on the Internet, it’s easy for would-be buyers to visit their sites and learn the upper limit of the mortgage they qualify for. Bankers note that real estate agents instruct those who are interested in buying a residence to “pre-qualify” before they’ll show them houses.

“You see realtors sending them to us before they’ll show them what’s available,” Farmers’ Gerzina says.

Huntington has enjoyed success in helping residents in low-income tracts finance not only a house but the amount needed to restore or make needed repairs as well, Lacy says.

The bank’s Homestyle Renovator program provides the purchaser with “the ability to buy a home and make improvements as part of the purchase price,” he explains. That’s contingent on obtaining an appraisal for the entire amount.

It works especially well with houses in foreclosure, Lacy explains, because “normally we cannot do that.” Say a house is listed at $50,000 and needs $35,000 in repairs. Under HLB section 203, if it’s appraised at $85,000, Huntington would finance the entire amount.

In supporting organizations such as Youngstown Neighborhood Development Corp. and Trumbull Neighborhood Partnership, banks contribute money and sometimes their mortgage officers to counsel those who want to buy their first house.

Empty-nesters and other older people find they have no choice but to construct a residence – usually a smaller one – because what they want isn’t on the market, bankers say. “These are the people constructing,” Farmers’ Gerzina says.

And they have no trouble coming up with 20% down. Middlefield Bank’s Zak tells of a buyer who put 40% down.

Published by The Business Journal, Youngstown, Ohio.