With all of the headlines regarding the mortgage market craziness, I thought I would keep you informed on what is really going on “in a nutshell”. Feel free to contact me at any time if you have any questions or if you would like to know what all this means to you personally. I’m happy to help!
The Truth About the Mortgage Market
Subprime mortgages have now been credited for bankrupting well over 110 lenders and seriously damaging operations at many major mortgage firms. They’ve reportedly wiped out 5 hedge funds, tens of thousands of jobs, and have led to millions of foreclosures with millions more on the way. And, as if that weren’t enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures, and real estate markets here in the US and around the globe.Some say losses in the mortgage securities market alone could reach hundreds of billions of dollars this year.
This means that, for any Americans looking to buy, sell, or refinance a home, they are confronting a very different market from the one that existed just 6-12 months ago.
How did this happen?
The recent real estate boom was fueled by a period of record home appreciation and historically low interest rates. Banks, in order to compete, loosened guidelines and began offering more funding to more borrowers through riskier, non-conforming or “exotic” mortgages.
These ideal lending conditions persisted for several years, supported by high demand, historical real estate data, home prices, and massive trading volume/profits on mortgage-backed securities and other financial instruments on Wall Street.
Then, in 2006, a slowdown in real estate led to a deterioration of home values, an increase in inventories, and ultimately to today’s tightening of credit guidelines, leaving many investors unable to sell or refinance out of their existing positions. Many Americans who had tapped into their equity were suddenly tapped-out and overextended as home values fell. Foreclosures followed in record numbers and a re-valuation of mortgage bonds and other financial instruments created the credit/liquidity domino effect we’re now experiencing.
Unfortunately, it’s going to get a lot worse before it gets better. According to the latest estimates, over 2 million subprime and Alt-A adjustable rate mortgage (ARM) holders will face payment increases of up to 30%-100% when their loans reset in the next 2 to 18 months. These loans make up less than 40% of the total mortgage market, but the negative effects, as we have seen, of increased foreclosure activity can have a ripple effect throughout the industry and around the globe.
What does this mean to you and your mortgage?
Sellers: If you’re planning on selling your home, be prepared for an even smaller pool of qualified buyers. While some experts predict a settling of this credit crisis over the coming year, tightened credit guidelines and diminishing mortgage products could knock out as many as 15%-30% of potential qualified buyers. Now is not the time to sit and wait for the best possible price. Have a serious talk with your real estate agent. Having experienced buying/selling transactions in your area, he or she can help you price your home accordingly. He or she can also help ensure that your buyers are pre-approved and stay pre-approved throughout the entire transaction.
Buyers: Get pre-approved by your mortgage professional. While there are a lot of great deals out there, getting credit is becoming tougher and tougher, and it’s taking longer and longer to complete a transaction. Remember, what you qualify for today could change tomorrow in a volatile market. For those looking to refinance, keep this in mind. There is no time to delay! Communicate with your lender. Don’t do anything that could negatively affect your credit, and make sure you get all your documentation in on time.
ARMs Borrowers: If your ARM is scheduled to reset in the next 2-18 months, you need to schedule an appointment with a mortgage professional right away. Whether your ARM is subprime, Alt-A, or even if you have a pre-payment penalty, don’t let a default or foreclosure situation sneak up on you. Did you know that your monthly payments can increase anywhere from 30% to 100% once your loan resets? At the very least, give yourself the peace of mind of knowing what your adjusted payment will be.
Borrowers with less-than-perfect credit: Each week it seems lenders are shedding more and more mortgage products. Many lenders have stopped offering No-Doc loans and are reducing all forms of Stated-Income loans. While it might be challenging, borrowers with credit issues need to see a loan expert. Often they have credit repair resources and other strategies to help you reach your financial goals.
Finally, there’s an important concept to embrace: all markets, while cyclical in nature, are self-correcting, be it credit, real estate, stocks, or bonds. For the last 6 or 7 years, real estate was booming and riding high. The correction we’re experiencing now – while it seems harsh and could get much worse – is, in a sense, “natural” and directly related to the extremely loose guidelines and perhaps overzealous lending and leveraging during the boom cycle.
3 responses so far ↓
1 Karen Marie Kline // Oct 3, 2007 at 10:07 pm
For me, the “mortgage meltdown” reflects what I experienced with Realtors and Brokers, that is, they were not very honest with me. To say the least.
I bought a condo from a developer who was also a broker, and at the very same time he was being awarded Realtor of the Year, I had to excavate the privy pit my condo had been built over, and he refused to make good in any way.
The problems that I have had because of his sale to me of an unsafe home have been gigantic and I really do not know how I am going to get through this.
I explain much of the problem in my revised brief:
http://www.health-boundaries-bite.com/Revised-Brief.html
The brief results from my condo being foreclosed without a hearing, and a Realtor where I had it listed buying it at the auction I knew nothing about. What kind of integrity is that?
I wonder if you will publish this… or if the “truth” only goes so far…
Karen Kline
2 admin // Oct 3, 2007 at 11:58 pm
I’m sorry to hear about your troubles with the developer and then on top of it sounds like you had some financing problems as well. I think this is a good example why it’s so very important to choose who you work with carefully and never be pressured into a situation. It sounds like there were a lot of things that might have turned out differently if you had a separate Buyers Agent working for you in your best interest rather then purchasing directly from the developer. At least with your own representation you might have been able to investigate the property to a greater degree which could have potentially uncovered the problems you are facing. Since I don’t know the entire situation I can’t really comment on it but I do think many buyers face challenges with developers who are looking for ways to limit their liability as much as possible. Most of our laws in Washington State put the responsibility on the buyer to investigate thoroughly all aspects of a property and the seller is really only liable if they committed fraud with their representation of the property.
Rules in New Mexico are likely different then they are in Washington State but here Buyers are able to have their own representation (Buyers Agent) when purchasing although many buyers do choose to purchase directly from the developers it’s a much wiser choice to have your own agent.
You don’t mention why your condo was foreclosed upon so I don’t know the situation or why you weren’t informed it was being foreclosed upon, usually most people have some idea that they are behind in their payments and the bank is taking action. That’s a very emotional situation and I can understand why you are upset about the circumstances. I’m curious as to what kind of loan program you were in and did your loan officer explain the details to you about it?
You mention the integrity of the agent that bought your house at the foreclosure auction. Did this agent know you personally? I don’t think you can really find fault with the agent who purchased the home at the auction because that’s what a foreclosure auction is for and just like anyone, agents are also people looking for good deals which foreclosure auctions usually are. It’s unfortunate that most of the people who are foreclosed upon are not in financial situations to be able to regain their homes or buy them back and I certainly think the mortgage industry has some responsibility for that (getting people into loans that they really couldn’t handle) however it’s also the responsibility of the individual person to assess their financial situation and make sure they can make ends meet comfortably regardless of what they are told by a lender they can qualify for. As for the agent who purchased your home, unless it was YOUR agent you used to purchase the house with or you knew him personally I don’t think he’s done anything wrong with buying something he deemed to be a good deal as long as the auction was legitimate and all of the proper procedures were involved.
I can understand why you have a very negative opinion about real estate agents and lenders from your comments but I just want to point out that there are “bad” business people in every profession, not just real estate and I’m sure there are people with the exact opposite experience as you had.
3 Maryanne Coffman // Oct 4, 2007 at 11:01 pm
I am so sorry to hear about all of the troubles you have been through. I personally have never heard of such a problem. I would think the builder would have known what they were building on top of and I’m surprised that they didn’t take every step possible of ensuring that the privy pit didn’t leak toxins into your home. I’m not aware of all of the aspects of the case but it sounds like you have got a good case against your builder there and I hope it all works out for you in the end. Regarding your issue with your foreclosure…when you signed the Promissory Note for your mortgage you were promising that you will make your mortgage payments even if there are issues with the property itself. When the mortgage company processed your loan they most likely had an appraiser go out and appraise the property for value but it is not the appraiser’s job to make sure the home is structurally sound including the land it’s built on. It is the buyers responsibility to make sure that the necessary research is done by hiring a structural inspector. Your credit will certainly be damaged by a foreclosure, however, this has been a great expense for the mortgage holder as well. It is my understanding that it costs a lender approximately $60,000 to process a foreclosure in addition to any losses they incur for the remaining balance of the loan after the foreclosure auction purchase has happened. Also, assuming the problem with the condo has not been fixed, if the person who bought the property at the foreclosure auction was not aware of the structural and land issues then they purchased the condo then they’ve gotten themselves into a world of hurt as well. When you buy a property at a foreclosure auction (at least this is how it is in Washington State) you are not allowed to do a structural inspection first AND you have to pay ALL CASH for the property. On a positive note, most lenders will allow you to obtain a mortgage again in the future but you will probably need to wait 3-4 years. Be sure to document everything that has transpired and then when you are in the financial position to buy again you can submit a letter of explanation regarding the foreclosure with your application for a mortgage. Most loan underwriters will consider what has happend to you extenuating circumstances that were beyond your control. But, they will most likely want to see proof of what happened so be sure to keep all of your paperwork to show them. And, I highly recommend the next time you buy a home you do a lot of research regarding the property first. I wish you the best.
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