With home foreclosures hitting an all-time high some may think the American Dream is dead for the time being.

But it’s not, according to local bankers, who say they are still lending money to people who want to purchase a home.

Kathy Parris of Franklin obtained a home loan from Macon Bank and said, “It was really easy; everything fell right into place.”

Parris, who said she is “really excited” about her new home, didn’t let news of foreclosures and banks failing get her down, and, in fact, said now is an excellent time to purchase a home because prices are down and interest rates are low.

Gladys Miller, a Realtor at Century 21 in Franklin, agreed that now is a good time to purchase a home. “Price-wise you can buy more house for the money now,” she said.

But Frank Moffett, owner of Century 21 in Franklin, said still many people are not purchasing homes because the worldwide economy is in bad shape and consumers don’t want to invest money in a volatile market.

The real estate business is the worst Moffett says he has seen it in years, but he thinks by mid 2009 that consumer confidence will go up with a new president in place. In fact, he said he talked to some potential homebuyers last week who were more confident than they had been a week prior.

Parris considers herself in the lower income bracket and said she did not get into a home she couldn’t afford, unlike many Americans who have now been foreclosed on.

There have been 48,183 foreclosures filed in North Carolina in the first ten months of this year — up 6,825 from the same time last year. There were 49,696 foreclosures in all of last year, according to the state Administrative Office of the Courts in Raleigh.

Unlike larger banks, which Parris said “don’t care” whether people default on their mortgage, hometown banks like hers, “care and talk with you about the overall picture.”

Helping those facing foreclosure

Moffett said he would like to try and help some of the people who are getting foreclosed on by talking with them and seeing if they have spoken with their financial institutions to get their payment reduced. He said he would like to work with them to see if they can get more time before the foreclosure sales take place.

Moffett said he supports a 90-day freeze on all foreclosures “to give these homeowners time to realize what is happening to them. It’s devastating to lose your residence. It comes on so fast that people can’t believe what is happening to them, and they’re sitting out there with nowhere to live.”

Banks tighten up on lending

Old Town Bank Mortgage Specialist Karen Cioce said that banks are still offering loans but said guidelines have tightened up by requiring proof of income and better credit scores. She said a credit score of 620 used to be the low range but now it’s around 650.

“It should have been like that from the beginning instead of creative financing,” Cioce said.

There are several different types of loans available for first-time homebuyers, she said, including some from the Federal Housing Administration, which require a 3 percent down payment, and USDA, which requires nothing down, Cioce said.

She said negative press has made it seem that it is difficult to get a loan now. “There’s still a lot of money out there to lend,” she said, adding if people don’t qualify for a loan now because of poor credit there are programs, such as Consumer Credit Counseling, to help.

United Community Bank of Sylva President Becky Chastain said credit criteria required to get a loan has also tightened up at her bank and that credit scores and income have to be “just right.”

Prior to the economic problems with foreclosures and the federal government bailing out banks, Chastain said her bank was able to slightly “veer off” the criteria to work with people. “With the economic situation we are going straight down the road,” Chastain said.

Chastain said her bank is no longer doing any development loans for such things as new residential subdivisions and that “Right now banks are afraid to lend. There’s no way to say when it (economic problems) will end. We take it day by day.”

Housing speculators that poured money into building homes when the market was good are also in trouble, bank officials say.

Chastain said her bank has always been conservative in its lending, saying it didn’t engage in “stated income” lending, which involves borrowers not having to prove how much money they make.

Sylva SunTrust Vice President Richard Fulton added that there haven’t been as many people seeking loans lately because they are “a little afraid” to borrow money with the current conditions and people aren’t investing in second homes in the area like they once were.

He said his bank is continuing to make sure that people who get loans are qualified buyers, and “We’re making sure we’re not putting them in a home they can’t afford.”

He said borrowers dislike hearing that they don’t qualify for a loan, but it could be the best thing that ever happened to them, because it is better than going into foreclosure and having damaged credit. “It does no good to put someone in a house for a year,” Fulton said.

The national problem

Many of the foreclosures are a result of banks lending money to people without requiring proof of income. The practice is called sub-prime lending and is a result of the government not regulating banks.

Sub-prime lending made it so people who normally wouldn’t qualify for a loan would get one. Many of the sub-prime loans were given with an adjustable interest rate in which the borrowers started out with a low teaser rate to get them into a home, but when the rate adjusted their mortgage payment soared, sometimes doubling. When the housing bubble burst people were left paying more for homes than they were worth and foreclosures hit an all-time high.

Large financial institutions that had purchased bundles of loans from banks began going broke as home values started decreasing and homeowners began defaulting on their mortgages. This led to the federal government bailing out the financial institutions with $700 billion to free up the credit markets and get money flowing again.

Fulton at Sun Trust said the bailout has not begun to work because most of the money still has not been allocated. Fulton said the bailout will only be a short fix, and what is needed is fundamental change in how banks are regulated, or the country will be in the same situation again.

Fulton said he thinks the bailout had to be done, but it is yet to be seen if it will have the impact that was intended. He said some of the larger banks have already received some of the money and are using it to purchase other banks to strengthen their own position rather than get money flowing again.

Some say the culprits in the crisis are Congress for not regulating banking, the buyers for being greedy in purchasing a home that was beyond their means, and banks for being greedy in wanting to make money by selling loans, even if it meant selling them to people who could not afford to pay them back.

Learn more about the lending crisis

Discover how the mortgage crisis evolved during a special presentation Nov. 20, at Southwestern Community College’s Jackson Campus. SCC real estate instructor Bob Holt will present the program in Founder Hall Room 117 at 3 p.m. Holt will discuss traditional lending practices, revised lending practices and future projections.