Five Questions
Jill Tyrer
Some of the recent changes in mortgage banking as a result of the national credit crunch are unlike any Ed Erickson has experienced in his 21 years in the business. For the past 11 of those, he’s been with Fifth Third Bank. He moved about a year ago from Chicago to Southwest Florida, where he and his staff have been helping homeowners deal with the housing slump and credit crunch. The 46-year-old oversees mortgage loan originators across South Florida and helps them steer customers toward loan and refinancing options to suit their circumstances.

1. What kinds of questions and challenges are you hearing now that differ from those in past years?

More servicing requests: "I’d like to refinance but I don’t know what to do," or, "I know my house is now worth less than what I owe on the mortgage. Is there anything available to me?" For those people who are looking to refinance, we’re running into a lot of appraisal issues: Values are decreasing, and, in some cases, people are unable to refinance. There have been so many changes in the industry, from private mortgage insurance [to] Fannie Mae and Freddie Mac changing guidelines, so it’s a matter of helping [customers] work through issues [and] making sure they understand guidelines.

2. How have changes in the lending business affected the local real estate industry?

It’s impacted the "jumbo" market—loans typically above $417,000; however, we have seen some recent improvement on that. [Rates for] "conforming" loan amounts—loan amounts below $417,000—are much better than the jumbos. With the [federal economic] stimulus package, in Collier County in particular, Fannie and Freddie are having to temporarily increase the conforming loan limit to over $531,000 because of [Collier’s high] median prices. More homeowners can refinance and more purchase transactions can happen up to $531,000.

3. How have guidelines changed for private mortgage insurance and for Fannie and Freddie?

Many of our markets have been classified as declining markets. Being in a declining market requires [a larger down payment]. Many private mortgage insurance companies have also tightened up on their guidelines, such as minimum credit scores. Freddie and Fannie are changing their guidelines for nonowner-occupied [homes], restricting how many investment properties you can finance [as well as] property flipping. There are still nonowner-occupied loans available, but the days of no-money-down, stated-income, no-income [loans] are gone—with the exception of [Veterans Administration] loans and FHA, to an extent. [We’ve seen a] dramatic increase in our FHA business.

4. FHA loans are low-interest loans backed by the Federal Housing Administration, correct?

That is correct, [for] owner-occupied, one- to four-unit properties. It is a program that was created for times like these. [Of] the loans we have in process, 40 percent of them are FHA. It continues to grow, partly because there’s less available on the conforming side, and we’re educating more folks in the real estate community and builders that FHA can help you sell more homes 5. Have you seen this kind of market before?

5. Have you seen this kind of market before?

When I was in California, we definitely saw a downturn in the late ’80s, early ’90s. The difference between then and now is the [number] of innovative programs that were available over the last five years. Back then, there really weren’t any no-money-down programs, and [for] investment properties, the requirements were full documentation, no more than five properties, including your primary residence, [and] the minimum payment was 30 percent down. The big difference between then and now [is] we’ve got a lot more properties out there that people couldn’t afford or lenders shouldn’t have put them into. There [has been] a lot of flipping and investors in [this] market; there just wasn’t the same amount back then.