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Create A BlogA Return to Lending Sanity |
Posted at Los Gatos, California by Chris Morris
Oct. 9, 2008
A Return to Lending Sanity
Well, most of the marketplace is returning to sane lending practices. We are going back to 20% down being a requirement with 10% being an exception for well qualified buyers with good credit, provided that the second 10% is not from the first lender. If that seems harsh to you then you haven’t been around for the last thirty or so years.
These are normal lending practices. Every time we go too far away from these we have problems, first with the S&L crisis of the late 80’s and now with the current meltdown. The last two times we have gone away from good lending practices the American public has had to bail out our financial sector. Maybe we will learn something this time and enforce good lending practices from the federal level.
Money is still available in the marketplace for qualified buyers. Even with Fannie Mae and Freddy Mac out of the market there are lenders using their own money to make loans to good buyers. For qualified buyers with a lower down payment there are FHA loans available. The Federal Housing Administration did not shut down. However, they did raise their down payment by a half point to 3.5% and add to the cost for the mutual mortgage insurance.
With banks charging in the mid 5 ½ % range on loans, money is cheap. Since the 10 year bond is running at about 3 ½% the margin is good for a bank to make money lending to qualified buyers. Look to the solvent major banks like JP Morgan, Wells Fargo or Bank of America as well as the U.S. subsidiaries of the more conservative foreign banks and you can find loans available.
Of course all of these lenders are going to require full documentation. For those who are new to this, that means tax returns, pay stubs, verification of employment and deposits. These are all of the things banks required for years. No more no documentation or limited documentation loans for the foreseeable future! “Liar loans” are a thing of the past.
Look at the bright side! When we get over the hangover of this unregulated free for all we can get back to a normal market with sane loan requirements and rules that make sense. What will hurt some homeowners is that the unreal gains in value caused by unqualified buyers bidding up prices in some areas will have to adjust. Time will level prices out in these neighborhoods. It always has.
Investors with money are already moving back into the market because there are opportunities out there. Speculators are gone because many of them were badly burned by the recent drop in values. Too bad! This is a good market for qualified buyers. Money is cheap and there are some good deals available.
Chris Morris
Broker Associate
Alain Pinel Realtors
408.357.8783
cmorris@apr.com
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