Local Banks May Hold Recovery Key

By Mike Colpitts

The banks that didn’t get the U.S. into the financial crisis may be the avenue to help the housing market, according to the National local banks Association of Realtors president. Local community banks may hold the key to the nation’s future for home mortgage lending.

“Buyers may be able to find more favorable credit terms with community and small regional banks,” said NAR president Ron Phipps, broker of Phipps Realty in Warwick, Rhode Island . “And Realtors can often give buyers advice to help them overcome some of the financing obstacles.”

The NAR president has seen markets under duress in the current economy as millions of wannabe home buyers have been refused mortgage financing. “The biggest factors keeping home sales from a healthy recovery are mortgages being denied to creditworthy buyers, and appraised valuations below the negotiated price,” said Phipps.

“All year the relationship between home prices, mortgage interest rates and family income has been hovering at historic highs, meaning the best housing affordability conditions in a generation.”

local community bank

A recovery in the housing market is essential to an entire U.S. economic recovery. There has never been a U.S. economic recovery from a recession without first a recovery in real estate in U.S. history.

However, the nation’s five largest banks, which include Bank of America, JP Morgan Chase and CitiGroup do 60% of U.S. mortgage lending. A transition back to an increase in local bank lending could aid the housing market in making a recovery, but the change may take a number of years to develop.

Contract cancellations caused largely by declined mortgage applications from appraised values coming in below the negotiated price cause a high percentage of transactions from closing. NAR members reported 18% of failed transactions as a result of problems with appraisals in August, up from 16% in July.