Mortgage reform and tight credit will keep many people who lost homes in the May tornadoes from rebuilding or even buying a new place to live, a leading Oklahoma City lender reminded colleagues this week.
Even with a large insurance settlement, many would-be borrowers won't be getting loans, Kent Carter, president of the Oklahoma Mortgage Bankers Association, said in an e-newsletter to members.
“It is an additional tragedy for these neighbors,” said Carter, president of Citywide Mortgage, 9400 S Interstate 35 Service Road.
Recipients forwarded, tweeted and retweeted Carter's message, causing dismay among some people not familiar with changes in mortgage banking since the 2006-2008 housing crash.
Nationally, lending practices and stricter credit standards put in place in response to the meltdown have been keeping people with money for a down payment, but no or little income, for example — such as retirees — from being able to borrow for some time.
While Oklahoma City's resilient economy and continued mostly strong housing market kept many people here from noticing, the May tornadoes brought the post-bust credit reality home.
People likely to be rebuffed by lenders are those whose destroyed houses were purchased with the easier credit that prevailed during the housing boom, Carter said in an email sent in response to reactions to the e-newsletter.
“We had program descriptions like ‘fast & easy' that used stated income and other types of qualifying criteria. Some of the recent tornado victims were approved for their current mortgages based on income that was not and cannot be verified,” he said. “They have gone through life changes like health issues with large unpaid medical bills and divorce, which adversely affected the credit worthiness of these borrowers.”
Now, he said, the new underwriting standards will keep them from qualifying for a mortgage.
“Although they have or will receive settlement checks from the insurance companies, which may leave substantial funds available after paying off their old mortgage,” Carter said, “they may not be able to rebuild or buy a new home when applying for a new permanent mortgage.
“In speaking to a large builder group (Thursday), I suggested they get commitment letters from those with whom they were negotiating to rebuild or sell another house. I could see the color draining from some of their faces as I imagined they may have signed contracts and started the process with some of these potential unqualified buyers.”