[Posted Nov. 9, 2007]

Housing Slump And Sub Prime Loans Go Hand In Hand

By Rosaland Tyler
Associate Editor
New Journal and Guide

      More and more “For Sale” signs are springing up and then lingering in front of unsold homes in Hampton Roads, as more homeowners default at near record levels nationwide. Yet, there are still many positive lessons for African American home buyers or home owners during the current housing slump.
      “Up or down, it’s just the way you ride it,” said Madeline Hadaway, property manager at Independence Realty in Virginia Beach. “We educate our sellers to be more patient. Offers are not rolling in during this period and many lenders are stricter but we’re still selling homes. If you price the home right it’s going to happen.”

Madeline Hadaway

      To ride out the worst housing slump in 16 years, which includes an inventory of unsold homes that amounted to of 4.4 million units in September, aim to improve your credit score, experts advise.
     “Right now there is a huge credit crunch in America with the implementation of the new vantage scoring system,” said Dr. Terrel Alexander, founder and CEO of Credit USA Inc. “As a result, millions of American consumers will be dramatically affected and will have to raise their credit scores significantly to qualify for everything from homes to health insurance.”
       So to ride out the slump, tighten your belt. Then, tighten it again, experts advise. Since many African American homeowners disproportionately carry sub prime loans, and in some cases have already extracted equity of up to 60 percent—which has already been spent on items that depreciate such as household deb—there has been a reduction in wealth in the black community.
        Why? The home buying surge led to the lending craze. Now, some thrifts and banks have less to lend. So cash-strapped homeowners with sub prime loans, who cannot sell, are more likely to default, say experts such as Dr. Wold Zemedkun, professor of finance at Norfolk State University.
       “In a sub prime lending situation, it’s a time bomb situation,” said Zemedkun, a professor of finance at NSU for the past 21 years. “The minority community is disproportionately tied into sub prime loans.

      “The demand (for houses) will be fiercely reduced for around six or eight months or a year. Some homeowners will be unable to pay, and there will be foreclosures.”
       Still the African American housing market is an emerging market. “It wasn’t there before,” Zemedkun noted. So although more African Americans are homeowners—they are new to the game. But, this too shall pass—right?
      “It’s a wave,” Hadaway explained. “We’re still in the game. We’re still leasing rentals and selling properties, providing full service.” The rule of thumb is to make sure you have enough to last for three to six months during a downturn.
      Clearly this is a downturn. Records show that the median price—the point at which half the homes sold for more and half for less—fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.
       Meanwhile, property taxes have increased by 20 to 30 percent. “The bottom is just falling out,” said Bill Hampel, chief economist of Credit Union National Association. “Next month will be about as bad as this month.”
      “But this creativity will not die,” Zemedkun predicted, pointing to the positive side of sub prime loans. Aimed at segments of the population which would not have otherwise qualified for home loans, they are called SIV, structured investment vehicles (SIV). Translated, SIV means high risk in loan circles. Still, such loans will reemerge in new forms, Zemedkun predicts.
       Like a mutant with big heads in a sci-fi thriller, sub prime loans are becoming nightmarish for some homeowners, who are staring wide-eyed from rising interest rates, to depressed home sales.
But some experts say the housing nightmare is just a weeding out process. “Borrowers and lenders are working their way through current rising delinquency pressures,” said George Wallace, executive director of the Center for Statistical Research, whose company examined sub prime loans’ impact on credit availability last May.
“We have seen many reports in the press that our country is headed for a foreclosure disaster, but the empirical evidence on actual foreclosure levels today does not support this,“ Wallace said. “Foreclosures are trending upward, but so far they are within historical ranges.”
       The down side of the disaster, Zemedkun added, is that “it will be harder for people to qualify in even a sub prime market. There will be tight money.”
       “But this creativity will not die completely,” he said. “There will be tight money for awhile. By next summer, things should move on as normal.”
Sellers who are newcomers can survive the roller-coaster, Hadaway said, by simply being patient and prudent. “If you’re new to the game, make sure you have enough to last six to 12 months.”
       “It’s a wave and you could have six or seven listings one month and then two the next month,” said Hadaway, a former scheduler at Norfolk Community Hospital for five years who turned to real estate sales. “If you have something in reserve you can ride the wave.”
  

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