Impact of credit crunch in Montgomery minimal
By Bob Gambacurta
Just as it was several months ago, when parts of the nation became swept up in the emerging home mortgage meltdown, the impact was no where near as critical in Alabama and Montgomery in particular, as it was in South Florida, Atlanta, Las Vegas, Arizona and California. For the most part, Alabama banks chose not to participate in making unsound, subprime mortgages.
So too is it today in the wake of the credit crisis which has devastated Wall Street and forced Congress to pass emergency relief legislation. Montgomery and most of Alabama has escaped, not totally unscathed but certainly better off than what we read in the newspaper and see on television. Locally, bankers decry the national media coverage as excessive doom and gloom.
Alabama banks have money to lend for home mortgages, car loans, business loans and the full range of consumer lending. Loan demand has declined, not for lack of money or because of more restrictive qualifications, but more likely from reduced consumer confidence and the impact of the slowing economy on income and employment.
"We never stopped making mortgages," says John Herzog, vice president and regional manager of New South Federal Savings Bank. "We always have conforming mortgage money. Non-conforming is gone completely. You've got to qualify now.
"But car loans, business to business loans, short term sort of stuff, that really dried up. Bank to bank loans, 90-day notes, all those things that businesses use to buy inventory and then sell it, short term borrowings is what dried up and so cash flow is difficult for small business right now," Herzog says.
The impact on small business is temporary, Herzog emphasizes. He predicts those types of lending instruments will be back to normal in two to three weeks.
Steve Kermish, president of Residential Mortgage Corporation, says the media is putting out wrong information.
"After listening to the national media, the misinformed are disseminating information to the uninformed. Comments like there's no money for mortgage loans and you need to have a 720 credit score to get a mortgage, it's just rubbish. I wish we could just get the facts out there.
"The truth of the matter is there's plenty of mortgage money out there. Not only is it out there, it's out there at a darn good rate, below 6 percent. You can get a 30-year fixed rate loan for less than 6 percent," says Kermish and you don't need perfect credit to qualify.
"On FHA and VA (mortgages) you can go all the way down to a 580 credit score. You sure don't need a 720. On a conventional loan you need about a 620. That's a long way from perfect credit," Kermish says.
Kermish says mortgages do not require a greater down payment today than before the credit crisis. VA loans are zero down. FHA loans require a down payment of 3 percent and conventional loans five percent. He says reports that homebuyers need to have 20 percent to put down are not true. As a matter of fact, he says, there are programs available with 100 percent financing.
Vicki Williams, president of Anchor Mortgage, concurs. "I still have three or four different type programs that I can do 100 percent financing. I can go as low as a 580 credit score. Your perception may be different that mine, but that's not what I'm reading in the paper, that you've got to have a 740 score and twenty percent down.
"I've got people I'm doing loans for now and they tell me, 'oh I read the paper, are we out of money?' I tell them no. They don't have the funky loans anymore, the loans where you don't have to have any income and you have bad credit and no down payment. They kind of decided those weren't the best idea after all," Williams says.
Williams blames the Clinton administration for relaxing home mortgage requirements in 1999 in order to allow low and moderate income people to buy their own homes. Some people received loans who never should have.
Williams says her business was off about ten percent last month, making about $9 million in loans as compared to $10 million to $11 million in previous months. The decline is not for lack of money to lend.
"It's only because people are scared that there's no money or that the rates are high. Our rates are five-and-7-eights," she says. That's lower than the average mortgage loan rates in 2007 and 2006 and comparable to mortgage rates in 2005.
Other aspects of consumer borrowing in Alabama also appear to be relatively unfazed by the national credit crisis. New South Federal's Herzog thinks Alabama banks, with one exception, are weathering the crisis pretty well.
"Our regional banks are fair. Wachovia was the one regional that was way too heavy real estate oriented.
"The smaller community banks are making out like bandits right now. They're getting everybody's customers who want new credit lines. They're making hay while the sun is shining on them. They're doing pretty well," Herzog says.
Dick Morris, area marketing director for Regions Bank, is not aware of any significant decline in Region's consumer loan business.
"In general, there continue to be credit requests. Our business is taking deposits and making loans and we continue to do that. Absolutely, we have money to lend.
"Regions has always been a well-funded, conservative bank. We have not tightened our loan requirements. We just continue to make good loans to good customers," Morris says.
River Bank and Trust is one of the area's newer community banks with locations in Montgomery, Prattville and Wetumpka. Jimmy Stubbs, the bank's president and CEO, doesn't believe credit has become tighter for his customers.
"We're a community bank, owned by people right here. It's become an alternative to big holding company banking. Our loan demand has either been steady or improved. The only area we've seen a decline is in residential construction and acquisition and development of property for residential development.
"From our perspective, it's not a lack of money but anytime you go through a down cycle in the economy, banks tend to be a little more conservative in their evaluation of businesses and individuals who are applying for credit. Typically, if times get tougher for businesses and/or individuals, they're not going to have as much money or cash flow to service their debt.
"We've got money available to lend. What gets tighter right now is the money businesses and individuals have available to service debt. That's what really begins to change," Stubbs says.
While the national credit crisis has had some minimal impact on business and banking in Alabama, it is no where near as dire as national media reports indicate. Banker Herzog believes that whatever the impact is, it's short term.
"The fix is in. All you've got to do is gain a little traction, got to grease the skids and we've got to get money moving again," Herzog says. "The only fix now is time and consumer confidence."