Mortgage crisis has local effect

The mortgage crisis that's affecting the nation is playing out here in the Shoals, as well, on a smaller level.

Kristy B. Blackburn, broker and president for Southern Mortgage Co., Russellville, said typically when financial forecasters warn that bad times are ahead, it doesn't affect northwest Alabama as strongly as other parts of the nation.

"For this area, what has happened is the lenders have tightened their guidelines so it's not as easy to get a loan," Blackburn said.

In the past few years, mortgage lenders were more lenient in their guidelines to qualify for a loan.

"The lenders are tightening their rules and requiring better credit," Blackburn said. "The biggest problem is it's a little harder to get a loan than years ago."

Interested home buyers who weren't having to pay a downpayment with a mortgage three months ago are now having to put about 3 percent down at the time of purchase, Blackburn said. This increase in tightened guidelines could affect a potential home buyer's qualification for a home loan.

"In the past, people who would normally not have been given home loans were allowed access to home loans (through adjustable-rate mortgage) loans. These loans are now expiring and people whose credit probably hasn't improved are having to pay higher interest rates, and those who can't pay the higher interest rates are having to foreclose," she said.

Leonard Zumpano, professor of finance at the University of Alabama, said no community is going to be immune from what's going on in the mortgage industry.

"The market in Alabama is relatively strong compared to other locations," Zumpano said. "You're going to see more foreclosures, and it does reflect the fact that someone got into a high-risk loan."

Samuel Addy, director of the Center for Business and Economic Research at the University of Alabama, said the chaos has a lot to do with an individual's out-of-control spending habits as well as the mortgage industry itself.

"It's caused by a myriad of factors - one, consumers not being very well educated on financial and money management issues, and two, on the mortgage industry and finance industry folks trying to make so much money they kept pushing crazy loans on people," Addy said.

Addy said a lot of the lending problems started by allowing borrowers large, adjustable-rate mortgages that had low, fixed-interest rates in the beginning but would increase dramatically.

"They couldn't see the risks they were taking on," he said.

This tightening of guidelines among mortgage companies has not only affected borrowers but also lenders.

"If they tighten guidelines, there's fewer people who will get a loan and less business to go around for everyone. I don't know if anyone will go out of business over it, though," Blackburn said. "There's several good lenders still out there and mostly the ones that have gone bankrupt are the subprime lenders."

Blackburn said she doesn't predict the local mortgage companies will be faced with lack of business.

"Since we have so many good job opportunities that are coming here, we'll have several good paying jobs and enough money to pay the loans," she said.

One key in preventing what many borrowers and lenders have experienced is education, Addy said.

"It's that kind of miseducation there which caused problems with foreclosures," Addy said. "It's both on individuals and the industry."

TimesDaily Staff Writer Kenda Williams can be reached at 740-5720 or kenda.williams@timesdaily.com.