Fifth Third Takes Active Lending Role

The bank last month began requiring brokers of its REO properties to apprise potential buyers of its financing options.
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Fifth Third Bancorp's

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stock may be at a 52-week low, but the bank is stepping up efforts to help solve the crisis in the U.S. housing market.

The Cincinnati-based financial institution, like other lenders, has a large inventory of foreclosed houses on its hands as the result of borrower defaults on mortgages. These homes, called REO (real estate owned), are ones that have gone back to bank ownership because they were not sold at foreclosure auctions.

What sets Fifth Third apart from other financial institutions with significant REO inventory is the aggressive way in which the bank is making mortgages available to buyers of these REO homes.

The readily available financing is allowing realtors to move homes more easily, especially in distressed markets such as Florida, where foreclosures are rampant.

"Other banks are not talking about mortgages," says Mike Morgan, a real estate broker and housing consultant who heads Morgan Florida. "Here is Fifth Third saying 'come to us for a mortgage.'"

"Other banks, when we talk to them about mortgages, we get a runaround," Morgan says.

Kitchen-to-Kitchen Marketing

Fifth Third has about 1,700 homes it owns through foreclosure across the U.S., with the bulk of the inventory in Florida, Ohio and Michigan. In May, the bank instituted a policy that began requiring realtors to put flyers in the kitchens of these homes, advertising the mortgage financing options it was willing to provide to homebuyers.

"We're trying to be proactive by offering this financing, and we have offered up to 97% loan-to-value to an owner-occupant who qualifies," says Michele McCoy, vice president of default servicing in the collections group at Fifth Third.

For owner-occupied homes up to the conforming limit of $417,000, the bank offers no minimum FICO score, and a variety of fixed and adjustable-rate options. For jumbo loans, the bank requires a higher down payment of at least 10%. Fifth Third is also offering conforming loans to investors looking to buy properties, but it requires a minimum 720 FICO score, and the bank will only finance one property per investor.

A Broker's Eye View on Loan Market

Morgan says Fifth Third's policies stand in contrast to banks such as


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Washington Mutual

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, which he says have not been proactive in offering financing for the foreclosed homes they are trying to sell.

Washington Mutual did not return a call seeking comment.

Don Vecchiarello, a Wachovia spokesperson, says the firm is not actively marketing its mortgage financing for its REO properties but said the bank does offer financing -- including 30-year fixed and adjustable-rate mortgages, and the "pick-a-payment" option ARMs.

Wachovia finances less than 10% of the foreclosed homes it sells, he says. The vast majority of the times, buyers already have a loan lined up, he says.

Morgan, the Florida broker, disputes the claim that banks besides Fifth Third are readily making such financing available.

"When you call them to get financing, they're reluctant to even talk to you," Morgan says.

Often times, buyers these days are turned away from mortgages because of more stringent income requirements. Lenders today are in a Catch 22 with regard to their REO home financing, Morgan explains.

"If they relax the mortgage requirements too much, they go back to giving mortgages to people who don't deserve them. If they don't relax a bit, then prices of these homes keep dropping because people can't get mortgages," Morgan says.

With inventories of houses already high in Florida, the ongoing flood of REO homes from banks only hurts the housing market further.

For now, Fifth Third stands apart as one of the good guys trying to alleviate this pain.