HOW IS PITTSBURGH DOING IN THIS HOME MORTGAGE CRISIS?

By Jack Etzel

We’ve been reading and hearing of massive home foreclosures around the country that are blamed on ‘sub-prime mortgages.’ Who better to answer the above title question than the president of the Realtors Association for Metropolitan Pittsburgh (RAMP), Anthony Mete? Mr. Mete, who prefers to be called Tony, is a former mathematics and consumer education teacher in the Pittsburgh Public School System.

Mete’s real estate career began in 1974. He is a founding developer of the Nevillewood golf community and has served RAMP as a director, treasurer, strategic planning chairman and currently, as president

North Hills Monthly Magazine: At the start, Tony, let’s tap into your earlier role as an educator. Perhaps you can teach us exactly what a sub-prime mortgage is. How would you define it?

Tony Mete: Sub-prime mortgages are traditionally issued to borrowers whose credit history bars them from receiving the lowest interest rates on the money lent to them. In exchange for receiving higher interest payments, some lenders are willing to accept the added risk of loaning money to individuals whose credit history might include late payments, default, high debt-to-income ratios and other relevant factors. Although there is a potential for abuse, sub-prime mortgages can also be helpful to a large number of homeowners. To cite just one example, a young couple with little credit history might be unable to buy a home without turning to alternative mortgage products. So, sub-prime is not bad in itself, but the term suggests higher interest rates, possible balloon payments, and other financial consequences that a borrower should be made acutely aware of in advance.

NHMM: The very people getting a sub-prime adjustable rate mortgage – those with less income and/or poor credit – would be likely to have the least vision of seeing this impending train wreck coming. What’s the excuse of the lenders and the mortgage companies? Who’s to blame?

Mete: At times, some lenders have failed to meet their obligation of disclosing the financial burdens that can be associated with sub-prime loans. Additionally, some borrowers have knowingly saddled themselves with excessive debt and aren’t willing to accept the responsibility for their own poor decisions. There are really no excuses. A lender who has failed to make clear the terms of a loan may have violated the law, and he or she certainly has violated any standard of professional decency.

NHMM: Even given that, shouldn’t there be more responsibility on behalf of the borrowers not to get in over their heads?

Mete: Let me address that this way. Borrowers who were presented with the risk scenarios and chose to act anyway realized—or should have—that rate adjustments were possible. Keep in mind that the very factor that makes some mortgages sub-prime is the risk to both parties. Ideally, the lender and borrower will make prudent decisions to account for it. In a society that values freedom and consumer choice, a lender should provide all of the information necessary for borrowers to make an informed decision. From that point, however, we all have the freedom to choose the products and risk levels with which we’re comfortable.

NHMM: The premise of this Perspective was to find out how the Pittsburgh area weathered this storm, and if we did, was it luck or smarts?

Mete: Compared to the rest of the nation, the greater Pittsburgh area weathered this storm very well. Foreclosure activities did increase somewhat. Because most lenders are national, we did see limited consequences from the closure of some brokerages and the curtailment of loans at others. This storm really began in markets like California and Florida, though; it barely skirted our region. The reason was intelligent choices on the part of our consumers. Pittsburgh has always been a very stable market with low consumer tolerance for exotic mortgage products. Most buyers here made financial decisions that made sense for their situations.

NHMM: In spite of us missing the bullet in most cases, there has been so much local and national news on the subject, it would seem that in the wake of this, a reader still might be reluctant to buy a home at this time. What advice would you offer a potential homebuyer?

Mete: Readers in our region shouldn’t be reluctant to buy. In fact, this is one of the most favorable buyer climates in years. There are more homes to choose from, and interest rates for qualified buyers are at or near historic lows. Traditional mortgage products remain readily available from banks and reputable brokerages. Perhaps most importantly, the value of homes in the Pittsburgh area continues to appreciate, even while elsewhere in the nation they have dropped by double digits.

NHMM: Is there a reason why this market is so fortunate?

Mete: We have a pattern of slow, steady growth. Every quarter, PMIC (the Private Mortgage Insurance Company) looks at hundreds of metro areas across the country to assess the risk level for a drop in home values. For several times in a row, Pittsburgh has ranked as the least risky housing market in the nation. Homes here have always been a solid investment, and that doesn’t appear likely to change.

Note: For an impartial overview of mortgage options, you can visit the RAMP Web site at www.realtorspgh.com. If you click on Consumer Guide, you will find extensive links to publications that outline the pros and cons of many mortgage products.