SAN DIEGO–This seaside city has long been the bell cow for California real estate market, which may be good news.
The San Diego area was the first to see a large spike in prices early last decade, and then was the first to suffer a downturn in 2006. Today, reports Jeff Stone, chief credit officer for $1.1-billion North Island Credit Union, “A bit of a housing shortage is developing, and the lack of inventory is allowing prices to move up a little and stabilize the market.”
North Island CU booked $11 million in mortgages in October, with approximately 93% of the activity being refinances. Stone said mortgage volume has been building all year, but last month was up sharply from the $5 million or $6 million per month previously.
“We brought in some temporary help for the call center so we could get loans turned around more quickly,” he said. “With the Fed keeping interest rates low people realize they need to refinance in the next year or two. Pending some major blow-up in Europe or another outside force, the market is good. Values are coming back, and once we get through the overleveraged homes things will really get better and people will have a chance to buy that move-up home.”
The 'Big Difference’
Stone noted there is a “big difference” between homeowners who have equity and those who do not, adding the market cannot be called “normal” until more homeowners have equity.
“Today there still are a number of people who are upside down. As long as those crazy products that blew up the market don’t come back, things should continue to get better.”
Borrower quality is improving, Stone assessed, based on the fact 39% of its declines are due to values, not credit scores, and in some cases that’s due to owners who refinanced at the height of the market.
North Island CU has “always been fairly consistent” on its underwriting standards, Stone said, although he acknowledged its requirements for debt-to-income ratio have gotten “a little tougher.”
“When people talk about how tough it is to get a loan it is just because things have gotten back to where they were before the crisis,” he said. “The other thing that is happening is 100% financing is no longer available–people have to have a downpayment.”
Competition for mortgages in San Diego typically is from the big banks, which Stone said have pricing advantages of selling directly to Fannie and Freddie. Wells Fargo, Bank of America and Chase are “very active, and they have benefits of volume as well as pricing. Maybe they are not as friendly to their borrowers as they could be. They don’t give a loan at the absolute lowest rate they can sell to Fannie or Freddie, they charge a little higher rate because they get a rate premium. We pass along the best rate we can to our members.”
Easier To Get Appraisals
Getting accurate appraisals has become slightly easier in the past two years, he said, because there are more short sales than foreclosures, and short sales are not depressing prices to the extent foreclosures do.
North Island CU is selling the 30-year, fixed-rate loans it books, keeping the shorter-term loans in portfolio. Stone said the percentage changes month to month.
“For most of the year it was 43% sold, 57% portfolio. Because we had so much activity in October and more of that was 30-year fixed loans that we sold, the percentage is now up to 50%/50%.”
