Tight condo lending impairs low-cost housing

Some lenders in Durango look to offer creative financing

Since the housing market crashed, potential homebuyers are finding it difficult to obtain loans for condominiums, which puts a strain on the affordable housing market. One new loan program has helped a few people buy in-town properties at places like SOCO Condo’s on East 8th Avenue. Enlarge photo

SHAUN STANLEY/Durango Herald

Since the housing market crashed, potential homebuyers are finding it difficult to obtain loans for condominiums, which puts a strain on the affordable housing market. One new loan program has helped a few people buy in-town properties at places like SOCO Condo’s on East 8th Avenue.

More than one-third of La Plata County residents pay more than 30 percent of their income toward housing costs, according to a housing needs study published this month by the Regional Housing Alliance.

Peter Werwath, the organization’s interim executive director, doesn’t have high hopes that the affordable-housing picture will look any better a year from now.

“If there is no new building, we will see a big scarcity in low- to moderate-priced housing,” Werwath said. “We will see prices increase dramatically.”

Currently, demand is catching up to the extra supply left over from the housing bust in 2007 and builders are not keeping up with household growth in the county, according to the housing alliance’s report.

Yet another challenge is the difficulty in obtaining condo financing, Werwath said.

Since the housing market crashed, large numbers of mortgage lenders have decided to back away from the condo market. Their actions were justified as condominium owners were some of the likeliest to default on their mortgages when the housing bubble burst. The properties became a big hassle for banks because it meant dealing with condo associations and communal maintenance issues, said Mike Burns, regional president of Alpine Bank.

“Before, you had 20 lenders that were doing condos and now 75 percent of them got out of the business,” Burns said.

But the lack of accessible financing for condos meant a big chunk of the properties that many homebuyers realistically could afford in this area suddenly became out of reach, said Pam Moore, deputy director of the Regional Housing Alliance.

“It’s unfortunately the only inventory that is really affordable,” she said.

The exodus of lenders is compounded by the fact that many local condominium complexes don’t meet the requirements of the government-owned mortgage-finance giants Freddie Mac and Fannie Mae and the Federal Housing Administration. For a condo complex to meet those requirements, a majority of the units must be owner-occupied, no more than 20 percent of the complex can be nonresidential space and a single entity cannot own more than 10 percent of the properties.

Buyers interested in these nonwarrantable properties that do not meet Freddie Mac and Fannie Mae’s lending standards have even more limited financing options within what was already a small pool of options.

In response, some local lenders have started programs financing mortgages entirely in-house, but they aren’t as favorable as conventional mortgages because they typically have shorter terms and higher down payments, Moore said.

“If you have a nonwarrantable condo, the other option is a 20 or 30 percent down payment, and that’s a very small population of people who have that kind of cash,” she said.

Alpine Bank started an in-house mortgage portfolio program, for example, that offers homeowners a five-year fixed-rate loan with 20 percent down payment.

There aren’t many warrantable condo complexes in Durango because it’s a hassle for a complex’s association to apply for the designation and meet the requirements, said Moore and Lisa Reed, president of Southwest Mortgage.

The entire condo market has been affected, said Jarrod Nixon, a broker associate with Coldwell Banker Heritage House.

“It has stalled the condo market and driven down prices because most of the (eligible) buyers are cash buyers, which is a much smaller group,” Nixon said.

In the first quarter of 2013, for example, the median price for Durango mountain condos dropped 37 percent compared to the first three months of 2012.

Some in the industry see encouraging signs in local banks’ portfolio-lending programs, and Reed touted a new program rolled out by a California-based mortgage banker that underwrites conventional loans without backing from Fannie Mae or Freddie Mac.

For properties deemed eligible, the program offers a 30-year fixed-rate mortgage with a 5 percent down payment, both of which still are rarities in the condo market, Reed said.

Easier entry into the condo market would be a huge advantage for first-time homeowners, Moore said.

“(Condos) are really an entry-level product. It’s not the houses people are going to stay in forever, but it helps them create equity,” she said. “It’s like a stepping stone to the next spot.”

ecowan@durangoherald.com

Werwath Enlarge photo

Werwath