By Joe Light
Flint, Mich., residents have a new concern on top of lead in
their drinking water: Some mortgage lenders say home buyers must
prove there is no contamination at a property or they won't make a
loan for its purchase.
Local real-estate agents and lenders worry the new restriction
could be another punch in the gut to the city's housing market,
which has long suffered from economic distress after the departure
of major auto industry employers.
"The tragedy is an already depressed community is now likely to
see housing values plummet not only because of the hazardous water,
but because folks cannot obtain financing," said Daniel Jacobs, an
executive with Michigan Mutual, which recently issued a notice to
its employees requiring that homes pass a water test before it will
make a loan.
Similar notices have been sent out by other lenders, while some
major banks, including Wells Fargo & Co. and Bank of America
Corp., said obtaining a loan could be difficult if a home doesn't
have potable water.
Flint's water troubles began when the city began using the Flint
River as a water source in April 2014. The river water corroded a
protective coating in pipes, which caused some pipes to release
lead. In October, residents were told not to drink tap water, and
the city has embarked on several efforts to improve the water
quality.
Doug Wolfe, a 67-year-old retiree, said he had a buyer pull out
of purchasing his Flint house last month. Mr. Wolfe, who has moved
from the area, had cut the listing price a couple of times after
putting up for sale in September. "I hope that when this clears up
we'll get back to where we were before the lead problem appeared,"
said Mr. Wolfe.
Chris Theodoroff, Mr. Wolfe's agent, said that the buyer pulled
out in part on the advice of his lawyer, who questioned why the
buyer would want to purchase a home while the water issues were
outstanding.
As a condition for making a mortgage against a property, lenders
often require that a home meet certain minimum standards of
livability, including potable water. Government agencies, which
back most U.S. home loans, also have such requirements.
As a result, several mortgage lenders over the past few weeks
notified loan officers that borrowers in Flint need either to prove
the home isn't on the city water supply or have a test done to
prove the water meets Environmental Protection Agency
standards.
The area's Realtors' association this week plans to meet with
local lenders to see how Flint's water troubles are affecting
mortgage availability.
"This thing is changing so quickly that honestly we're just
hanging on and trying to figure out how we are going to operate,"
said Mr. Theodoroff, president of the East Central Association of
Realtors in Michigan.
A Wells Fargo & Co. spokeswoman said it is reviewing
government lending guidelines. "Until [water] testing and
potability is affirmed, it will be difficult to lend," said the
spokeswoman, who said such difficulties would apply to all
lenders.
A Bank of America Corp. spokesman said it sometimes requires
appraisers in Flint and elsewhere to verify a property has potable
water. A J.P. Morgan spokeswoman said the bank is assessing the
situation to determine whether new requirements are needed.
At issue, lenders say, is how to interpret government mortgage
guidelines. The Federal Housing Administration, which backs loans
to less-creditworthy borrowers, states that a home must have "a
continuing and sufficient supply of safe and potable water."
An FHA spokesman said the agency plans to put out a document
soon to address lenders questions on the situation.
So far, Fannie Mae and Freddie Mac, the largest backers of
mortgages, haven't changed their loan requirements in Flint.
"As we learn more and as this situation evolves, we will work
with lenders to determine what policy changes, if any, may be
warranted," Fannie Mae said in a statement. "We feel for the
community impacted by the unfolding issues related to Flint,
Michigan-area water quality."
"This isn't a question of the lenders arbitrarily choosing not
to do loans in Flint," said David Stevens, president of the
Mortgage Bankers Association, a trade group. "It's a question of
whether lenders are allowed to originate those loans based on
government requirements."
It isn't uncommon for lenders to adjust requirements during or
after disasters such as fires, earthquakes or hurricanes. Some
advisories sent by lenders for the Flint crisis cited the
president's emergency declaration for Genesee County, Mich., as the
impetus for the change, although they stated the restrictions are
limited to Flint.
"There's no doubt this will have an impact" on the city's
housing market, said Marc Reneau, president of the Michigan
Mortgage Lenders Association. Mr. Reneau said the new restrictions
were the main topic of conversation on a monthly call with Michigan
mortgage lenders this week.
Write to Joe Light at joe.light@wsj.com
(END) Dow Jones Newswires
February 03, 2016 19:40 ET (00:40 GMT)
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