Lending problems not so bad for state

By Richard Mize

Published: November 15, 2007

State and national mortgage specialists said Wednesday that in housing and lending, right now, Oklahoma is more like a shining city on a hill than a dark, dangerous street, relatively — and literally — speaking.

All three — states, cities and neighborhoods — are still making sense of the "mortgage meltdown,” however.

Clear in presentations during a session of the Council of State Governments meeting this week in Oklahoma City were the disparities in problems facing housing and mortgage lending across the country.

Maxine Bell, a state representative from Idaho, put it like this: The housing and mortgage situation is downright Dickensian — "It was the best of times, it was the worst of times ...”

Whether this also is "the age of wisdom” or "the age of foolishness” — to continue Charles Dickens' famous line from "A Tale of Two Cities” — remains to be seen.

Bell said Idaho is in a housing boom verging on a bubble — now. But, other bubble markets, mostly in California and Florida, are suffering sales and price depreciation hangovers after white-hot growth in 2002-2005.

At the other extreme, Jim Davnie, a state representative from Minnesota, told of entire neighborhoods in the Twin Cities that are in decline, with streets of boarded-up houses. A representative from Indiana had a similar report from suburban Indianapolis.

Statistically, housing is hurting in the nation as a whole, said Frank Nothaft, chief economist for Freddie Mac — the Federal Home Mortgage Corp. — which buys mortgages from lenders and packages them for sale as investment securities.

"We're not at the trough yet for the housing industry. We could be a year away. House prices are going to come down in some markets,” Nothaft said.

But sales are way off, delinquency and foreclosures are up and home values are dropping mainly in California, Nevada, Arizona and Florida, where investors and speculators pushed prices higher than homes were fundamentally worth, and in Ohio, Michigan and Indiana, which have the highest unemployment in the nation, said Paul Richman, senior director of government affairs for the Mortgage Bankers Association in Washington, D.C.

"The increase in delinquencies and foreclosures is really not a national phenomenon but rather a story of seven states,” Richman said.

Oklahoma City banker David Feisal, senior vice president of Tulsa-based SpiritBank and immediate past president of the Oklahoma Mortgage Bankers Association, had numbers that might have had some out-of-state officials wishing they were Oklahomans.

•Oklahoma has 421,620 home loans outstanding and 92.9 percent are current.

•Oklahoma has just 56,235 subprime loans and 82 percent of them are current.

•Oklahoma has about 33,500 adjustable-rate loans, about 8 percent of the total, compared with about 14 percent nationally — and not all with the low-low teaser interest rates that now are resetting and sending people into default and foreclosure.

Such numbers mean nothing to the elderly couple in, say, Anadarko who took out an adjustable mortgage with a teaser rate, on their paid-for home, to get money to pay medical bills — and now have lost their home because on their limited income they couldn't make the higher payments when their interest rate spiked.

They mean nothing to one in Chickasha who has lost a job — and now a house. Or to one in Oklahoma City who tapped home equity in hopes of continued appreciation, only to see it flatten in a slower market, and now owes more than the house is worth.

Nothaft said in Oklahoma losing a job is still the biggest cause of home loan defaults, 36.3 percent last year; followed by illness or death in the family, 25 percent; and too much debt, 13.6 percent.

Other default triggers are marital difficulties, 6 percent; property problems or casualty loss, 2.8 percent; extreme hardship, 0.9 percent; inability to sell or rent the house, 1.4 percent; job or military transfer, 0.6 percent; and "all other,” 13.3 percent, Nothaft said.

In any case, defaults are the exception, not the rule, Feisal said.

"Oklahoma is in the middle of the pack with respect to foreclosures and delinquencies for the most part. Last month, Oklahoma was one of only five states that saw a reduction in foreclosure percentages year over year from September 2006. However, our subprime foreclosure rate is higher than most other state rates,” he said.

Oklahoma's "mortgage meltdown” came a generation ago, Feisal said. "It started on July 5, 1982. Penn Square Bank failed and the oil and gas industry (went bust),” he said, taking banking and real estate with it, and the state economy crashed. "Delinquency and foreclosure rates were much higher than now in Oklahoma. Many borrowers were faced with negative-amortization loans and declining home values combined with an economy losing net jobs. ...

"Today, Oklahoma's economy is much less dependent on the energy sector and our housing prices are appreciating reasonably. Oklahoma house prices are not appreciating at less sustainable double-digit appreciation rates like some areas of our country were and some perhaps still are. Rather like the tortoise in the race, our appreciation rates are steady, sustainable and suggest a healthy real estate environment.”

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