GOSHEN -- The number of homes flooding the market and the buyers having a difficult time getting financing all evoke deja vu in Dan Miller, president of Miller Brothers Construction.
Specifically, the current housing marketing reminds the builder of the late 1970s, a time when high inflation and rising unemployment slowed the housing market to the point where Miller Brothers was forced to sell equipment and trucks to pay its bills and still almost went out of business.
The lessons the company learned in those days, it is applying these days. It has not built as many spec homes and it is especially sensitive when working with buyers.
"I don't want to talk them into something they can't afford," Miller explained.
Until recently, potential home buyers all over the country were not only buying homes they could not afford but often doing so without making a down payment and without verifying their income. Now the bursting of the housing bubble, rising foreclosures and delinquencies, and some once-high-flying mortgage lenders either laying off thousands of employees or locking their doors completely, have caused all bankers and brokers to look more carefully at the clients who ask for a mortgage.
"The buyers are still out there and real estate is still moving," said Phil Atkins, owner of Synergy Mortgage Group in Elkhart. "We're just having to work harder to get them approved."
Even as little as three months ago, some who are now turned down for loans could have gotten approval.
The risky or exotic loan products, as described by Ray Yarber, senior vice president of consumer and mortgage lending at 1st Source Bank, were born from consumer demands for user-friendly loans and market pressure to move houses. Also, some companies saw the opportunity to make money by taking advantage of those with credit challenges.
In northern Indiana the situation was similar to the rest of the country, Yarber said. Those with credit problems, lack of self-control and lack of patience to save for a down payment were able to secure a loan before being financially ready.
"In defense of the consumer, there is so much ground clutter in the market it does take some time to determine what is in their best interest," he said.
Yarber, Atkins and several local banks are quick to point out they did not offer the risky loan products such as adjustable-rate mortgages. They did not want to make their customers vulnerable to financial disaster.
Craig Twiford did offer subprime products to his clients. The certified lender with Verus Financial and Realtor with Century 21 Abbey Realty in Elkhart emphasized he administered the loans properly.
People who had good reasons for having blemished credit records or making late payments were good candidates for subprime mortgages, Twiford said. Divorce, job loss and medical expenses are things that can put a hiccup into an otherwise clean picture of financial health.
Calling adjustable-rate mortgages a "Band-Aid fix," Twiford said individuals securing those types of loans could get into a home with little or no money down and then work during the two-year period that the monthly payments stayed low to repair their credit. Right before the rates were due to increase, the homeowner could switch to a fixed-rate mortgage.
"That's the way it's supposed to be done," Twiford said. "People deserve a chance or a second chance based on what their history shows. If you approach it in that light, (ARMs) can be a good deal. I have had very, very few foreclosures."
Even though a number of residents in northern Indiana have adjustable-rate mortgages, David Findlay, executive vice president of administration and chief financial officer of Lake City Bank, maintains the increases coming in October and expected to come in 2008 and 2009 will not have the impact locally that they will have in other parts of the country.
As much as he would love to attribute the softer blow to the Midwestern value of paying what is owed, Findlay said the primary reason is that housing prices in this area of the country did not grow as dramatically as they did in the West and on both coasts.
Like Miller, as the housing market changes and access to credit tightens, Atkins said the current conditions feel like those when he first entered the lending business. But while 100 percent financing is still available, fewer qualify and some are surprised to learn that the loan they could have gotten six months ago, they can't get now.
"I think definitely we're having to adjust expectations when they come in the door," he said. "For the most part, the general public is not fully aware how it's going to affect them personally."