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Arkansas mostly sheltered from national mortgage crisis, officials say Wednesday, Dec 5, 2007 By Jason Wiest Arkansas News Bureau LITTLE ROCK - The national mortgage crisis that could cause some Americans to lose their homes because of rising interest rates might not be such a dilemma in Arkansas, experts said Tuesday. Bankers and economists say they have seen little evidence that many Arkansans took out subprime mortgages, loans offered to borrowers with spotty credit histories, some of which have interest rates that are set to increase by the end of 2008. "I've talked to the state bank commissioner about the housing market and have been assured that Arkansas bankers, lenders and consumers have been more responsible than those in some other parts of the country," Gov. Mike Beebe said Tuesday. Joel Cheetham, manager of mortgage banking for Pine Bluff-based Simmons First National Bank, said he knew of just two people affected by the resets of interest rates on their subprime mortgages who had asked for help. In some parts of the country, especially areas where housing prices boomed a few years ago, some consumers turned to subprime mortgages. Many were also adjustable rate mortgages, meaning the interest rate was locked in at a lower rate for a certain time period, after which they would rise periodically. As rates have risen, many consumers have struggled to make payments, banks have foreclosed on their homes and investors who purchased the debt from lenders have lost. An estimated 2 million subprime mortgages are scheduled to reset to higher levels by then end of next year. The problem has become so widespread that U.S. Treasury officials and major players in the mortgage industry have been working on an agreement that would temporarily freeze the introductory interest rates and keep them from rising for a certain amount of time. But Arkansans generally have not been heavily affected by the crisis, officials said. RealtyTrac, an online marketplace for foreclosure properties, ranked Arkansas 17th nationally in foreclosures in October, about the same as during the real estate boom two or three years ago. "While Arkansas may not lead the nation in the number of foreclosures, the national mortgage crisis is expected to worsen in 2008 and have direct implications on our economy," U.S. Sen. Blanche Lincoln, D-Ark., said. "Therefore, it is imperative that we devise a plan to meet this problem head-on." Lincoln said she met Tuesday with Treasury Secretary Henry Paulson to discuss the issue. Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas in Fayetteville, said one of the primary reasons foreclosures have not increased dramatically in Arkansas is because "housing prices didn't get out of whack with income growth in the same way that they did in some of the real estate boom markets" like California, Florida and Washington, D.C. Falling home prices would be another indication of a mortgage crisis, she said, explaining that when banks foreclose on numerous homes, there is downward pressure on the market. Housing prices would also fall if people could not get mortgages, she said. Home prices in Arkansas have not fallen like they have in areas hit hard by the mortgage crisis, Deck said. In general, prices have flattened out in the state, while in other parts of the nation, prices have dropped by more than 5 percent in some cases. Home prices are down in Northwest Arkansas, but "more a result of the overbuilding than the lack of the availability of credit," Deck said. Any resolution the federal government works out to help those struggling to make payments would slight those who more carefully evaluated the risks of subprime mortgages, Deck said. "It would unduly punish people who didn't take advantage of the low rates because they weren't willing to accept the risk of rates going up," she said. But freezing interest rates also could have tangible negative affects for investors who bought the debt, and the risk of not being repaid, from lenders, Deck said. To freeze the rates would mean the debt was initially mispriced, she said. "The folks who bought the securities thought, 'Maybe we're lending to people who don't have great credit, but we're going to compensate for that by charging a little higher interest rate,'" Deck said. If the government were to freeze rates, holders of the securities would not get what they were promised, she said, which could spawn lawsuits. "To now come back and say we're going to change the terms of the contract midway is ... problematic for a financial system that works like ours does on the soundness of contracts," Deck said. It appears some securities holders may be willing to renegotiate some of the loans, however. "It's better for them to get some stream of payments rather than no stream," Deck said. "Everyone wants to prevent default where they can." |
