Article submitted by: 911 Foreclosure – Loan Modification Advice
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Social Media and the government fail to see the true crux in the foreclosure epidemic. The culprit of the Great Real Estate Depression is a drastic reversal that mortgage lending models have experienced.
The explosion of the housing market was fueled by easy money. Lenders were swimming in funds from insurance companies to Wall Street. These funds were available to anyone who asked; especially unqualified mortgage seekers. 100% financing? Not a problem, how about we cover your costs aswell? Can’t verify income, don’t worry we’ll just take your word for it. Fico score below 600? That’s ok, we KNOW your property will come back and you’ll be able to make the payments. O and if you can’t afford that, don’t worry we’ll let you pay less then interest.
Are you freaking Kidding me! Well I wish I could tell you this was just a fairy tale, however we offered them. Everyone in the industry did; it was the shape of the market in 2007-2008.
But in a quick reversal, today’s housing implosion was caused by lenders going to the other extreme. Today, you can’t get mortgage financing unless you have impeccable credit, sufficient and provable income, and verifiable assets. Some would say common sense underwriting, but not me. Today, lenders have effectively cut off half of the market.
Real estate harbors its own economy, just like anything else. So if you deduct half of the potential buyers from the equation, its only common sense that the prices will fall. It really is a simple equation: If you are in the process of selling your home, consider your current buyer options. Forget about those with a credit score below 620, and the self employed. Usually they cannot provide the income requirements to qualify for refinancing in the current market. So buyers then only have FHA, Freddie Mac and Fannie Mae as lender options. The problem with this is that these 3 lenders have similar underwriting requirements; so if you can’t qualify from them? That’s right, we’re sorry, but no loan for you. Well there still is Private Sector lending… but really, where does that take us?
But just wait. It gets worse. What about all those foreclosed properties that have been taken back by their lenders? These properties are being grossly mismanaged. Many of them don’t have for-sale signs. Very few of them are being maintained. Most potential home buyers have no desire to even look at these properties – they don’t want to rehab properties. And even investors that can afford the 20% – 25% down payments that are required today cannot get traditional financing because of the condition of these properties. So they sit on the market. And eventually, the banks lower their prices further depressing the value of surrounding properties.
And just to make matters even worse, these homes don’t qualify for FHA financing. In today’s market, FHA financing represents the most lenient financing available for home-buyers today. But FHA has fairly strict property standards – these “REO’s” (properties owned by lenders) typically fail to pass an FHA appraisal. With all the new regulations and with all the stimulus money being handed out, Mr. Obama, we need regulations requiring lenders to get their foreclosed properties in order. These properties need to be handled with care and attention. Additionally, lenders need to begin relaxing their absurd underwriting guidelines. I have been in the mortgage business since the early 80’s and never in all that time have underwriting guidelines been as strict as today.
What can we do? Reach out to your congressman. Tell him or her that we need regulations that will force lenders to start doing the right thing with their foreclosed properties. We need them to be more agreeable to modification requests. We need policies that will require lenders to modify loans when the numbers clearly indicate that a home can be saved with a temporary payment reduction.
I know that as much as I complain about the market, most people won’t take action. So I have decided to draft my own appeal to Washington to get our voices heard. If you agree with my views, take the time to join our causes at www.millionhomeownermarch.com. You can read my proposal there. Believe me if we don’t do something now, we may be looking at a even deeper economic depression.
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