Community banks busy as big banks shy away from mortgage loans

Bob Bossar, real estate agent for W.W. Reed and Son, and Steve Boyles, manager of Century 21 – both located in Kent – said the housing market in Kent isn’t as bad as it is in other places. They’ve seen some improvement with sales in the last few months.

July and August are big months for real estate in Kent with new faculty and staff moving in, said Bossar, who sells houses throughout Portage County, Stow and Hudson.

“I think the worst of it is behind us,” he said. Both buyers and sellers are more reasonable now. Buyers can get a better price on a home, and therefore they’re being more particular in what they want.

Bossar said one couple he worked with looked at 40 homes. He also said sellers realize they may not get as much for their home as they expected.

Boyles noticed the same thing at his business, which sells homes within a 20-mile radius of its South Water Street office. In the last few months, he has seen more informed buyers and sellers, an increase in the average sale price and lower interest rates. Kent isn’t the only place seeing improvements. Last month, the Commerce Department reported July home sales nationwide were almost 10 percent higher than the previous month.

Two steps forward, one step back

The housing market, however, is far from fixed. Although home sales increased in July, sales were still down 13.4 percent from a year ago. As of June 30, almost 10 percent of Ohio homeowners were at least a month behind in their mortgages, according to the Mortgage Bankers Association. About 4.5 percent of residential mortgages were in some stage of foreclosure, making Ohio the eighth worst state for delinquencies and the seventh worst for foreclosures.

Although sales at Century 21 have remained steady – it averages one sale a day – Boyles said half of the firm’s total sales are in foreclosed properties. He said Century 21 did more foreclosures earlier in the year.

“It got bad in Ohio before it got bad in the rest of the country,” said Robin Dubin, the associate dean of graduate and professional programs at Case Western Reserve University’s Weatherhead School of Management. Dubin attributes the housing crisis to the local economy and fraud within the market.

“One person would buy several homes even though they had no money at all. Somebody would say they had lent them the money, but they hadn’t. Then they would get a loan from another bank based off the fake loan,” Dubin said. “The banks relied on local assessors – who may not have been honest – to give them an appraisal of the house. They didn’t check.”

Dubin said this could have been avoided if banks had verified factors like proof of income and tightened their requirements.

“They (banks) weren’t doing any checking at all,” she said. “That’s the other thing that was happening. People didn’t have to put any money down because they were making 100 percent loans.”

“Community banks are a good place to be right now”

Kent is full of national banks from Chase to Huntington, but those looking to buy a home may be better off at Portage Community Bank, which has done fairly well since the housing market began to deteriorate.

“We’ve gotten a lot of business because a lot of the big banks don’t want to be in the lending business it seems like,” said Adam Rubin, vice president of mortgage lending at Portage Community Bank. “I don’t know for sure, but I’ve gotten that attitude from other customers who visited the larger banks and came over here because they’re not offering the programs, or their internal policies are a lot stricter because they’re dealing with a much larger base of foreclosures where we’ve got such a localized market being in Portage County.”

Rubin said the bank avoided many problems because it didn’t get involved in riskier mortgages, and its employees are able to work individually with buyers. Portage Community Bank also changed its lending process. A year ago the bank only required a 5 percent down payment for its loans, but now it requires 20 percent.

The bank is also doing more Federal Housing Authority loans, which are government-insured loans designed for first-time home buyers. The loans only require a 3.5 percent down payment. Rubin said FHA loans made up 80 percent of the bank’s business in the past year. The $8,000 government tax credit for first-time home buyers also brought in more customers, he added.

Still, Portage Community Bank hasn’t escaped all the effects of the housing crisis.

“The biggest problem we’re having is good loans. People lose their jobs and can’t afford to pay now. So now, because property values have gone down, that’s been our biggest problem,” Rubin said, citing an example. “When we did the loan, the house was worth $120,000, and they owed us $100,000. Now, we go back, and we have to go through the foreclosure process, and we’re finding out the house is only worth $90,000, but they still owe us $100,000.”

Banks are eager to get rid of foreclosed properties, but putting them up for sale at once would depress the market, Dubin said. Instead, she thinks banks will gradually put foreclosures on the market. Eventually, housing prices will reach equilibrium, and there will be fewer vacant houses, she said.

“There was too much inventory before,” Rubin said. “We’re starting to reduce that inventory, and people are selling them for less than what they would like to get, but at least they’re moving on.”

Contact public affairs reporter Brittany Moseley at [email protected]