Mortgage shake-up tightens lending terms
Posted: August 9th, 2007
Category: Real Estate News
Based on the following article from the AJC, the lending terms that Realtors and Homebuyers have becomed accustomed to are vastly changing. Now, more than ever, it is important for Realtors and homebuyers to work together in the process of pre-qualification, home selection, contracts, and the closing process. As I look at the number of foreclosures on the market today and the growing number of homes on the market, I am beginning to wonder if all of the FSBO’s and other discount real estate transactions have had some input on the current situation. In the end, are consumers getting what they pay for and are they really saving money in the long run?
As a Realtor, I do take my responsibilities very seriously and I can say that I would loose sleep selling a home that was overpriced for the market. Even worse would be the feeling that I would have knowing that a client of mine got into a mortgage situation with a teaser rate or reverse-amortization. Just my thoughts…..feel free to comment.
Here is the article:
Dream of owning a home wakes up to reality
Mortgage shake-up tightens lending terms
By BILL TORPY
Published on: 08/09/07
Not long ago, financially strapped consumers with low credit scores — of, say, 600 — could obtain mortgages and call themselves "home owners."
But with the industry in turmoil, particularly for credit-troubled borrowers, local mortgage broker Brooks Campbell now has another name for them: "I think we’ll be calling them ‘renters.’ "
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Subprime mortgages to risky borrowers, 100 percent financing and interest-only loans have gotten a slew of consumers and lenders in trouble. And with funds drying up, Campbell, a senior vice president of Vanguard Mortgage Corp. in Atlanta, said conditions are returning to fixed-rate mortgages and down payments.
"It’s going back to where it used to be," Campbell said. "It won’t have a big effect on the average, normal, first-time buyer, as long as you have decent credit — 680 and above (680 is an average credit score and 850 is the highest). But the customer with credit issues, and who can’t verify income, will have an issue."
Such customers may not get a loan at all.
The turmoil in the industry hit home Tuesday when Atlanta-based HomeBanc Corp. announced it was closing its mortgage loan business and selling some assets. That came on the heels of a Monday announcement that American Home Mortgage Investment Corp. of Melville, N.Y., the nation’s 10th-largest mortgage lender, filed for bankruptcy protection.
Signs of the spreading trouble in the industry are evident in various ways.
Graveyard humor in the industry is rampant as brokers each day click onto mortgageimplode.com, a Web site that now lists 114 "imploded" lenders (HomeBanc was 112).
The implosion is seen on the borrowing side, too. Suzanne Boas, president of Consumer Credit Counseling Service of Atlanta, said that in 2005 her organization had four counselors dedicated to foreclosure prevention. Today it has 36.
"And it’s not enough," she said.
Borrowers have been wowed by loans that allowed them to pay interest only or not all of the interest, and by adjustable-rate products that ballooned to market rates after two years. That strategy may have worked for borrowers when home prices were appreciating strongly a few years ago. Just about anyone could get into the game — and did.
"If you had a 580 credit score and a pulse, you could get financing," said Steve Smith, a broker for Wisdom Financial in Oak Lawn, Ill. He said some lenders got themselves into trouble with "stated income" programs that allowed borrowers access to money without showing a W-2 form.
But flat or falling home prices and adjustable mortgages that reset to higher rates over time have caused foreclosures to soar.
The epidemic has caused many investors in mortgages, as well as the lenders they fund, to re-evaluate their actions. Said Smith, "It’s going to come back to reality."
Consumer advocate and radio host Clark Howard agreed, saying the mortgage business is getting more rational.
"The tremendous competition for the borrower is gone," he said. "For a while, we had the best circumstances we ever had. Ever. … But a lot of people got into homes they shouldn’t have. No one did them a favor, putting them into homes they couldn’t afford. We don’t have an automatic right to the American Dream. You earn the American Dream.
"Back to the basics is what works. If you can qualify with a traditional 30-year loan, you can afford the home."
Boas from Consumer Credit Counseling said there is a silver lining: The market has more homes at affordable prices for those looking to buy a first home.
That glimmer, however, has been largely blocked out by the grim news. Last January, her office launched a foreclosure hotline (888-995-HOPE) and expected to get 5,000 calls from Georgia and conduct 2,000 counseling sessions in the first year. They got 8,200 calls and conducted 2,200 counseling sessions in the first six months.
Nationally, 13.77 percent of the nation’s subprime mortgages were past due in the first quarter, according to the Mortgage Bankers Association. Georgia posted a delinquency rate of 15.14 percent — eighth in the nation.
Mary Moore of the Center for Responsible Lending in Durham, N.C., said the turmoil should serve as a "wake-up call" for both lenders and borrowers.
"Beware of a lender that says credit doesn’t matter," Moore said. "You’re credit does matter."
She said 100 percent financing loans can be disastrous in a period of flat or decreasing home prices.
"You can be upside-down in your loan real quick."
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Enjoyed your blog and website - especially the videoshow in the beginning - I am a new RET blogger and wanted to stop by and say “hi” - Cyndee Haydon
Hey to you Cyndee. Thanks for the compliments on our website and blog. I’ll be sure to check yours out as well!
–Mike