By Molly Parker
mparker@scbiznews.com

With the subprime market under lock and key, people are turning back to a seasoned lender with Great Depression-roots: the Federal Housing Administration.

The U.S. loan insurance agency that stems from the New Deal era is an option of last resort for people without a 20% down payment and blemished — though not ruined — credit.

The number of FHA loans issued in the Lowcountry has increased fivefold in the first three quarters of the year compared with the same time last year, according to the Charleston Trident Association of Realtors’ Multiple Listing Service.

Still, these loans account for only a small fraction of the area’s shrinking mortgage pie.

The number of mortgages issued in the Lowcountry through September is almost half of what lenders issued during the same time in 2005, MLS data shows. There were about 13,336 in 2005, compared to 6,963 this year. Through the same time in 2007, there were 10,089; and in 2006, 12,734.

The majority of those mortgages were conventional loans, though the MLS data does not differentiate subprime products from the more commonly used definition of “conventional” where a buyer would put down at least 20% and finance with a 30-year, fixed-rate mortgage. All loans in this category have been shrinking considerably since 2005.

“I’m just hoping and praying that when the economy gets a little more confidence in itself, it will come back,” said Kirk Amerson, president of the S.C. Mortgage Brokers Association and branch manager with South Point Financial Services in Charleston.

It may not shock the socks off you to learn that attendance was down at during this month’s Mortgage Brokers Association’s semi-annual meeting in Greenville.

“There are still some out there lending money, but they are not there like they used to be,” Amerson said.

It is unclear how many people are lending money in South Carolina because the state is only one of a few in the country that does not require one have a license to practice. The only exception is if a lender is writing a second mortgage with an interest rate above 12%, said Charleston Knight, staff attorney for the S.C. Department of Consumer Affairs.

Brokers, however, do require licenses, and it appears there will be a significant drop this year compared to last. In 2007, 537 mortgage brokers renewed their license, compared to about 375 in mid-October, Knight said. The renewal period lasts until the end of the month.

This spring, Knight said, the department will push for legislation that will require all lenders to secure a license, which will require the completion of educational training and a test. This move is mandated by a measure President Bush signed into law this summer.

“We have until July 30, 2009, to get this in place,” Knight said. “If we don’t, then the U.S. Department of Housing and Urban Development will take over the licensing section for the state. It’s an interesting dilemma we are in.”

Despite the industry clampdown, Amerson said there still is money out there for homebuyers. The products have just shifted.

“The government has stepped in with FHA,” he said.

The local mortgage scene reflects a national trend that has emerged this year in the wake of a new set of FHA rules that opened up the program to a wider range of homebuyers. Before the spring, FHA loans were capped at $254,000 in the Charleston market. Now an FHA loan can be used to buy a single-family home priced up to $335,000.

The housing industry is optimistic the restructuring of the FHA loan program will help buoy sales.

“It is certainly replacing the vacuum resulting from the disappearance of subprime,” said Walter Molony, senior public affairs specialist with the National Association of Realtors. “If it had been beefed up and modernized 10 years ago, we might not have seen this problem we have now.”

In 2000, FHA loans accounted for nearly 17% of mortgages, but that number had slipped to 3% by 2006 as the housing market boomed and subprime tools helped get homes for people with blemished credit and not enough income to support payments over the long haul.

This year, FHA loans are expected to make up about 9% of the market nationally, a number housing experts predict will double in 2009. In this area, the number of FHA loans issued has skyrocketed, up some 459 % through September, compared with the same time last year.

In the first three quarters of 2008, mortgage brokers wrote 626 FHA loans on behalf of Lowcountry homeowners, compared with the 112 FHA loans issued in 2007. The numbers were similar in 2005 and 2006, at 152 and 116, respectively.

Reach Molly Parker at 843-849-3144.