The mortgage money crunch is forcing conventional lenders out of the market in areas with 11 percent usury ceilings - such as the District - but is producing a home finance boomlet for well-connected mortgage brokers and their customers.
Home buyers and sellers searching the metropolitan area for loans should become familiar with the money importers and exporters of the residential field - mortgage bankers. Some of them currently are able to offer loans on properties in the District, Maryland and Virginia that are 1/2 to 3/4 percentage points below the rates quoted by savings and loan associations, credit unions and banks. Others offer no significant rate breaks, but are simply in the market, loaning out money in large quantities, while S&Ls have shut their windows.
A case in point is the current credit situation prevailing in the District. Many area S&Ls have either restricted their loans on houses in the District or have gone out of the market. Independence Federal Savings and Loan, for example, which normally seeks to put as much of its capital into city loans as feasible, withdrew from the District market early this week. A spokesman for the S&L said that not only have deposits been weak recently, but the District's 11 percent usury lid "makes it impossible for us to sell any new loans" to secondary market investors, who demand yields of 11 percent or more for themselves.
S&Ls who are still in the local mortgage market, like American Federal, quote rates at or very close to the 11 percent usury ceiling.
"We're just barely in there," said American's president, William Sinclair, "but we can't do much business under these conditions and things may sell get worse later this spring."
Contrast this with rates quoted for District properties by mortgage banking firms working with capital raised outside the Washington Area.
Suburban Coastal Corp., for instance, offers 80 percent loans of up to $120,000 on detached properties in the District and Virginia at 10 3/8 percent with one point to the seller and one to the buyer. (A point is equal to 1 percent of the mortgage principal, payable at or before settlement to the lender. An 80 percent loan requires a 20 percent down payment to the buyer.)
Mortgages on detached $120,000 to $200,000 properties in the District are quoted at 10 1/2 percent, with one point each to the buyer and seller. The same firm has 90 percent loans available up to $100,000 at a slight rate premium. Equivalent rates, but without points, are quoted for Maryland houses.
Suburban Coastal, with offices in Rockville and Springfield, is virtually unknown to home buyers and sellers here, yet has a pipeline to capital at costs well below this area's prevailing rate levels, in all jurisdictions. Suburban is a wholly-owned subsidiary of a Wayne, N.J. S&L - Suburban Savings and Loan Association. Like other mortgage banking companies, it moves capitali from low demand, low-yield areas (such as the northeastern cities) to high demand, high return areas such as this one. Large-scale investors - insurance companies, pension funds or other institutions - are able to sink their capital into prime, owner-occupied real estate far from their own markets via mortgage banking companies like Suburban Coastal.
Nearly 50 mortgage brokerage firms are active in this area, although they are not always readily identifiable as lenders from their listings in the phone book. The yellow pages carry the majority of them under "Mortgages;" the most aggressive companies stay in touch regularly with major realty brokers.
Next week: How to shop for mortgage money in a crunch.
Kenneth R. Harney is executive editor of Housing and Development Reporter, published by BNA, Inc., and author of Beating Inflation With Real Estate, published by Random House.