During the housing bubble, a wholesale mortgage company based in the Twin Cities offered Dave Ouradnik a new mortgage product to peddle to his customers. The loan product, called an option ARM, would have given Fargo-area homebuyers the choice of making their monthly house payments based on a 30-year-fixed, 15-year-fixed, interest-only, or negative amortization mortgage. If a homeowner were to choose negative amortization, which allows for the payment to be less than the monthly interest owed, unpaid interest would get tacked onto the balance of the loan.
“We refused,” Ouradnik recalls. “If you are going to offer that program, you better have homes that appreciate at a very rapid rate.” Today, that Minneapolis company is out of business, while Ouradnik’s Fargo-based company, Executive Mortgage, is thriving. “We’re mashed potatoes and gravy,” he says. “We don’t offer caviar.”
Ouradnik also hesitated to offer alt-A loans, which are a step above subprime products. These loans required homebuyers only to state their income, not actually verify it. Ouradnik says mortgage companies generously offered alt-A loans in Phoenix, Florida, Las Vegas, and elsewhere. The resale of both alt-A and subprime mortgages into the financial system has led to one of the deepest U.S. recessions since the Great Depression.
Neither product is available today. “I am glad they are gone,” Ouradnik says. “Alt-A loans are called liar loans.” He estimates that about 97 percent of the loans he has provided his customers over the past 15 years have been conventional mortgages, and that 90 to 95 percent of his clients have credit scores of 740 or better. “We kind of block and tackle,” he says. “We don’t do a whole lot of Hail Marys.”
Ouradnik’s type of conservatism is touted throughout North Dakota as one of the main reasons that the state had yet to officially enter a recession as of February. Nearly every economic indicator put North Dakota ahead of most states. It has a $1.2 billion budget surplus and a February unemployment rate of 5.1 percent (compared to Minnesota’s 6.9 percent and the nation’s 7.2 percent). North Dakota also had one of the lowest home foreclosure rates in 2008, at 1.2 per 1,000 households. That compares with 8.9 per 1,000 in Minnesota (and 72.9 per 1,000 in Nevada).
In terms of population, North Dakota is a small state—641,481 people in 2008, roughly as many as Minneapolis and St. Paul proper. “We are certainly feeling the pressures of the national economy,” says Shane Goettle, commissioner of the North Dakota Department of Commerce. “But [the state isn’t] making cuts. We aren’t under pressure to raise taxes. We aren’t laying off.” Goettle attributes his state’s strength to a strong farm economy, steady energy industry, conservative banking practices, and growing trade.
