March 22, 2007

Manchester Publisher's Note: Mortgage comes due
By Jody Reese

A few weeks ago the state of New Hampshire closed down New Century, one of the county’s largest mortgage companies, following allegations that the company was out of money.

New Century is sometimes called a subprime mortgage lender, meaning they lend money to buy property at a relatively high interest rate to people who have bad or no credit. In metro southern New Hampshire this has allowed people who wouldn’t normally have the credit to buy homes and multi-families.

In many ways it has been great for our local economy. As the price of property doubled in the last seven years, more people bought homes and were able to take equity out of those homes to start businesses, buy things and fix up their homes and multi-family properties. In many poorer neighborhoods in Manchester, Nashua and Concord, new siding started showing up on older multi-families. By lending money to people with lower credit scores, companies such as New Century effectively increased the number of people who were able to buy homes and therefore able to profit from a soaring real estate market.

Unfortunately, all good things end and real estate in this area is no different. Foreclosures have spiked as interest rates have risen. Property values have leveled off. People who were using that equity to help pay the mortgage were cut off. The numbers aren’t staggering, but the consequences of this tightening of the mortgage market might be.

Especially for the cities of Manchester and Nashua that have larger neighborhoods of three-families in poorer areas, the extra equity and availability of loans from New Century and companies like it meant that homeowners could invest in their properties. It also meant a lot of absentee landlords were replaced with on-site owners who rented out the other units to help pay the mortgage.

Without access to low-credit mortgages many of the new homeowners might be forced into foreclosure or forced to bleed their property of every drop of rent available now, leaving needed repairs undone. Most unfortunate is that in many of these neighborhoods the improvements were just beginning as the mortgage market started falling apart.

My greatest fear is that the collapse of the low-end mortgage market will extend to the entire mortgage industry and reduce lending across the board. This in turn will hurt small businesses and people starting businesses. People need access to credit. Worse still, the credit crunch at the bottom could cause an even more widespread reduction in bank loans to businesses. This would hurt employment and business suppliers, such as computer makers, cleaning companies — and, yes, the advertising market.

While banking and taking mortgages with local banks won’t solve this problem it might help to blunt it. True, local banks in most cases sell their mortgages to the market, but smaller local banks are more likely to respond to local pressure to keep the money flowing than a larger bank.