Oklahoma tornadoes: Tight credit will keep victims from new home loans

Oklahomans who bought homes with easy credit during the housing boom will be out of luck trying to borrow to buy or rebuild under the tightened credit standards and lending practices put in place in response to the housing crash.
by Richard Mize Published: June 29, 2013

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.

Uneasy credit

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.

Loans denied

“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.”

Dampened recovery?

With so many houses destroyed — 1,307 between May 18 and June 2, according to the Oklahoma Department of Emergency Management — the blocks to borrowing could dampen what most people probably assumed would be robust reconstruction and recovery and the usual bittersweet boost to home construction and sales.

Housing here boomed after the May 3, 1999, tornado, but credit, while not as easy as it would be five years later, was not nearly as tight as it is in 2013.

It's too early for any tornado-related uptick in sales or construction to show up in housing statistics.

Realtors handled the sale of 1,820 houses in May, a 2-percent increase from May 2012, according to the Oklahoma City Metro Association of Realtors.

The median price of $148,775 was a 5.5 percent increase from May a year ago. Houses changed hands in 66 days on average, about two weeks faster than a year ago.

Construction strong

Construction, gauged by the number of building permits issued was up 11 percent through May across Oklahoma City, Edmond, Midwest City, Moore and Norman, according to the Central Oklahoma Home Builders Association.

Permits were up 9.6 percent in Oklahoma City, 11 percent in Norman, 13 percent in Edmond and 30.4 percent in Moore.

The lack of credit extended to those who lost houses won't stop rebuilding. Although with cleanup still underway, about all builders can do in the damaged area is get ready, said Mustang developer Robert Crout, president of the homebuilders group.

Even where houses were flattened, the market is alive: Somebody looking for houses to buy propped up a hand-drawn sign on SW 164 west of Santa Fe Avenue Friday, just west of the Moore city limits.

“It's going to start picking up. If there are lots available in Moore, those lots of are going to be taken,” Crout said. “Moore is going to go through a (coordinated) redevelopment effort. (City government is) looking at this as an opportunity. But you're going to have to give them the rest of the year to get their feet back on the ground.”

by Richard Mize
Real Estate Editor
Real estate editor Richard Mize has edited The Oklahoman's weekly residential real estate section and covered housing, commercial real estate, construction, development, finance and related business since 1999. From 1989 to 1999, he worked...
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