Tom Ross/Steamboat Homefinder

11-12-2010

Karen Mayfield, Thurs­day’s keynote speaker at Colorado Group Realty’s fourth annual Real Estate Roundup and Expo, all but promised her audience that she wouldn’t cheer them up.

“I’m probably not going to make you happy, but if I can offer a ray of hope and get you to understand what we’re dealing with, it will help you to set the right customer expectations,” Mayfield told more than 200 Realtors gathered at The Steamboat Grand. “It’s very important for you to understand the national economy because until it improves, banks are not going to loosen up credit lines.”

Mayfield is the senior vice president and national sales manager of the Mortgage Banking Division at Bank of the West in San Francisco. And before she launched into the bad news, she offered that ray of hope: The national median home price was down just 0.2 percent in the third quarter, and Steamboat out-performed that trend.



However, when it came to the outlook for financing second investment homes and condo-tels, the news was fairly bleak.

Banks are circumspect in their approach to lending for second homes simply because national data suggest those property owners are more apt to walk away when they find themselves in a difficult financial situation.

Nationally, 30 to 35 percent of second investment homes are in foreclosure, Mayfield said, and in Aspen, the rate is closer to 60 percent.

When owners are in a jam, Mayfield said, they are much more likely to pull back and try to save their primary residence.

When it comes to the condominium/hotel hybrid that played a significant role in Steamboat’s mid-decade real estate boom, Mayfield said banks are hesitant to lend on a project that is masquerading as residential.

“Quite frankly, (condo-tels are) really commercial,” Mayfield said. “It isn’t really residential.”

Adding to the risk for banks, Mayfield said, is the likelihood that the homeowners associations in those projects may own entirely different businesses in the form of on-site restaurants or spas, for example. And condo-tels have a national track record of dismal loan performance, she said.

Realtors probably feel tormented by bank underwriters who repeatedly check on the health of condominium homeowners associations with each sale in a development, Mayfield acknowledged. But there’s a reason for their diligence: They are protecting their assets. Real estate assets are diminished when the HOA cannot afford upkeep, she pointed out. And the health of an HOA can be dramatically affected when two or three owners are chronically late with their fees.

Mayfield said she was aware that properties in Steamboat get tagged with condo-tel labels by banks because of websites that offer nightly and weekly rentals.

“I know for you it’s normal,” she said. “It’s how you live. But it does scream commercial. It makes us nervous. It scares us. My only suggestion is to take off those (Web) ads.”

Mayfield had better news for Steamboat’s high-end single-family home market.

“The jumbo (loan) market — it’s absolutely coming back,” she said. “At Bank of the West, we’ll do jumbos up to $4 million, and we’ll loan up to $2 million with 50 percent debt-to-income ratio.”

A significant number of prospective luxury-home owners assume that they’ll be slapped with much higher interest rates, May­field said, but the rate spread between conforming loans and jumbos now is three-quarters of a point.

“Why is jumbo back?” she asked rhetorically. Banks “are in better shape now.”

Finally, Mayfield had some counsel for Realtors with clients who are encountering financial hardship. She urged them to remind their acquaintances and business contacts that banks do not begin foreclosure proceedings until the homeowner is at least 90 days behind on payments, and even then, people should not jump to the conclusion that as soon as they receive a foreclosure notice, their only option is to move out of their home. More typically, she said, banks will allow people to stay in their homes far longer, even when they aren’t making payments. She said that’s partly because the asset is more apt to remain in good condition if someone lives in the home.

“If you know people who are in hardship, until that banker comes and takes them out of their homes, they might as well stay,” she said. “Vacant properties just bring down values in the neighborhood.”