Its Not That Bad, Really

The press has created a panic that the housing market is crumbling and the sky is falling. Why they aren’t reporting on both sides of the issue is beyond me. Here is what I do know. Central Pennsylvania is a financially conservative area. The types of mortgages that caused the so called mortgage crisis were not a popular choice among Central Pennsylvanians. The type of mortgage that did the most damage was called a “Pay Option ARM.” A Pay Option Arm is mortgage that has payment options. The homeowner could choose a minimum payment (like a credit card), however if they paid the minimum the balance would go UP! They could choose an “Interest Only” payment, where they would only pay the interest (the balance would stay the same). They could pay a full payment based on a 15 year Term, or a full payment based on a 30 year term. The payments were only “fixed” for 6 months to 5 years depending on the product. These mortgages were designed for Executives, or people that received the bulk of their money large commissions once or twice a year. For example an Executive with a salary of $150,000, but gets a performance bonus of $200,000 every January could pay the minimum or interest only, then pay down the principle in January when he got his bonus. Instead these mortgages were sold to people with lower socioeconomic needs to get them a low payment. These people only paid the minimum or the interest only. When the values of their homes went down they owed more or the same as what they paid for them. They then could not refinance when the mortgage adjusted or “reset.”

Most Central Pennsylvanians chose to go with a “normal” 30 year fixed mortgage or 15 year fixed mortgage. Because of this we actually had positive appreciation in 2007, unlike some areas of the country that home values were stagnating or declining. If you have good credit, some savings, and a job that you report your income, now is an excellent time to remodel! Interest rates are low and the market will eventually rebound and your home will appreciate even more.

The areas of most concern for the government were Florida, California, Arizona, and Nevada. The reason for this is the aforementioned “Pay Option ARM” and that these are fantasy areas where people move chasing dreams of luxury, wealth, and sunlight that are not real. A mortgage broker in Florida told me that one in three homeowners in Florida live out of state and have other homes. You most likely are going to have your vacation home or investment property go into foreclosure then you are the main roof over your head.

In summary, Central Pennsylvania offers stable property values, stable sales, stable lending institutions and if you are on the fence, it is ALWAYS wise to remodel at the bottom of a market, than at the top of the market. The death of sub-prime has brought about renewed interest in programs that most people forgot about. Programs such as VA, USDA and Pennsylvania has its own PHFA. All programs that Velocity Financial Services offers. Please check out our newly designed web site at www.velocityfinancialservices.com.