Mortgage Market - What’s going on…???

As many of you know, lenders are changing their rules and lending criteria.  The foreclosures and mortgage defaults have definitely set them on edge.  They are now understanding where they went wrong and how to avoid those issues in the future.  Many of the loan programs that were once available are near history including stated income, stated asset and no money down loans.  For the most part that is a good thing, but it will hurt some of those borrower’s that relied on those programs such as self-employed individuals like myself.  Right now no one knows where the dust will settle exactly; however, I submit the following: Lenders are hurting because they had no stops as to the type of lending they would do.  It was a long running joke that if a borrower had a pulse and could sign their name (not spell it correctly ), anyone could get a loan.  Surprisingly, a limited number of those borrowers have defaulted.  Current numbers are showing that less than 10% of all mortgages have defaulted.  That is still a large number, but far less than what the media would have you believe.  My thoughts are this, lenders are in the business to loan money.  They have made some bad decisions in the recent past.  Many of them have sunk as a result, but the fact remains that our country, the State of Indiana and the City of Indianapolis is filled with buyers that are ready, willing and able to buy homes.  Lenders know this and will continue to make loans.  Sure the lending criteria will be tighter and all borrowers will be scrutinized moreso than in the past, but lenders are in the business to loan money.  As long as there are buyers that want to buy a house, there will be lenders that will make a loan if those borrowers meet the higher lending requirements.  Considering that the high risk type loans make up around 8% of the entire mortgage market, I don’t see a need to worry.  In fact, it was recently announced that the mortgage mainstream is back.  Lenders have been forced to go back to sound underwriting and pricing practices.  They have increased their lending criteria by making high risk loans (100% LTV, Stated Income) to only the most creditworthy borrowers.  Not to fear for the rest of you though.  Fannie Mae and Freddie Mac (our government dollars at work) are exercising expanded authority they received in the fall to buy non-conventional loans for their own portfolios and Congress is breathing new life into FHA reforms.  The current credit crunch could all but be decimated if the proposed higher loan limits and more flexible downpayment requirements for FHA are enacted.  Overall, the housing market is the back bone of our economy.  All government officials, lenders and banks know that fact.  They want to get the stream flowing again more than anyone and I suspect it will be sooner than later. 

Stay tuned. 

Posted by Clayton January 2008

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