The recent era of easy mortgages for resort real estate is over, local bankers and mortgage brokers say, and the tighter money market is having a negative effect on the Aspen economy.
"People were able to get stated income loans," said Mike Taets, president of Timberline Bank of Aspen. "Those days are gone. Now you have to do more than put down on a piece of paper what you make."
While money for real estate is still available to borrow, lenders are looking for more documentation about income, assets and credit history than they were two or three years ago.
"Mortgages are harder to get," said Kurt Adam, a regional president of Community Banks of Colorado. "But are they out there? Yes."
The practice of issuing mortgages based on a borrower's stated income, or what some call "liar's loans," fed a frenzy of speculations on bundled mortgages. Some of the loans should never have been made, which lead to foreclosures and the ongoing downturn in the national financial sector.
In turn, new guidelines have made it harder for local banks to approve mortgages and construction loans, prompted regional banks to act more carefully, and taken some vacation real estate options, such as fractional units or condo hotels, off the table for some national lenders.
"I have a certain amount of funds available," Adam said. "We've got a number of spec construction loans that are still on our books. They are still good loans, but we're having to hold them."
Which makes it harder to approve new loans.
Consider the following pattern.
A contractor has taken out a construction loan from a local bank to build a spec house.
The loan is part of the bank's portfolio of loans and newly tightened guidelines won't allow the bank to issue any more loans until that loan is paid off.
But the spec house is not selling, perhaps due to the economic downturn and, ironically, because of the tighter supply of mortgages from both local and national banks.
"So many of our local banks are lent up right now," said Jimmy Brenner of Blue Sky Mortgage, who has decades of experience in finding mortgages for buyers in Vail, Aspen and Telluride.
And the money squeeze is coming as the national economic downturn has made vacation home buyers more cautious.
"There are a lot of buyers sitting on the sidelines now," Brenner said. "And those that are buying are finding that money is not as readily available as they thought."
Brenner, who has long-standing relationships with banks in the Midwest that understand the Vail and Aspen real estate markets, said that while those banks "still have some appetite" for resort real estate loans, they too are setting limits on how much money is available.
For local developers and real estate "flippers," that means money to fuel projects is harder to get from most banks, and that then pours cold water on the local real estate, construction and renovation economy.
"There are some developers that are probably teetering," said one local veteran mortgage lender, whose nervous boss would not allow the banker to be quoted by name.
For working locals who may be trying to buy their first home, the tight mortgage market means they are going to need to have a sizable down payment, a squeaky clean credit report, and solid household income in order to pull down a loan.
Those fundamentals apply to properties both in the free market and those that are deed restricted.
The ticket in the free market, where a $700,000 single-family home in Basalt is not unusual, is a down payment of least 10 percent.
But even Adam of Community Banks knows that is a hard nut to crack.
"For a young couple, living here with the high cost of living, it is hard to save enough money," he said. "And all of a sudden you are asking someone to have $70,000 saved up?"
For those looking to get a mortgage for a deed-restricted apartment in Pitkin County, the key word is "prequalify."
Pam Gabel, the sales manager for the Aspen Pitkin County Housing Authority, strongly recommends that people save, review their credit reports, and be prepared to provide proof of income.
And then arrange for their mortgage in advance of entering a housing lottery.
"My biggest suggestions to clients would be to obtain copies of their credit reports, and go through them with a fine-tooth comb, to correct any errors on their reports, and to know that making such changes might be a frustrating process that may take several weeks to a few months to actually show up on their credit reports," Gabel said.
She also recommend taking a homebuyer course like those offered by Valley Housing Partners and that potential buyers "save, save, save." Without a good-sized down payment, buyers of deed-restricted property will be forced to turn to a government-sponsored loan, which are taking longer than normal to process, Gable said.
Reflecting on the now bygone era of money being loaned with virtually no real proof that it could be paid back, Adam at Community Banks noted: "There is nothing wrong with people living within their means."
Unless, of course, your resort's economy was flourishing in part because people were not.
bgs@aspendailynews.com
