subject: Things Have Changed In The Mortgage Market Today [print this page] You would have to have been totally out of touch with the real world not to know that some big changes have been occurring in the mortgage market.
Between stricter credit requirements, higher interest rates and home prices that continue to fall, it is a wonder that anyone wants to buy a home today.
It should have been foreseeable that any market that had the run up that the housing market had was destined for a sharp drop. Unfortunately, it came to an end right after many borrowers had financed or refinanced their property on very liberal credit terms, such as low or no down payments, adjustable interest and low credit ratings.
These so-called "sub-prime" home loans could not withstand the falling prices and increasing interest rates. The loose credit policies of the early 21st Century encouraged a lot of people into homeownership who probably should not have been there, and falling home values and increasing interest rates sent them over the edge. They could not refinance because there was little to no equity left in the property, and interest rates had increased. A real domino effect took over.
As more foreclosures happened, the increasing inventory of homes for sale further pushed down home values. The fact that only the worst of the loans were the guilty parties, responsible for 60% of the loans even though they only made up 20% of the loan market, did not encourage lenders to loosen. States such as Florida and California, which led the country in escalating real estate values, make up a full 36% of foreclosures.
Nevertheless, banks have pulled in the reins on lending across the board the country, and potential borrowers are not able to get liberal terms or borrow with poor credit ratings any more.
What does this mean? It's back to old fashioned lending. (However, if you are one of the mortgage holders who were never able to get a mortgage when stricter rules for down payments and credit standing were enforced, you may consider them the bad old days.)
Banks now want their borrowers to put up a decent down payment (at least 10%, and in most cases more), have a credit rating of 700 or more, and they are lending on lower home values.
The good news for potential homeowners who can raise both the necessary cash and their credit score, is that mortgage rates are still low historically, and there is a lot of very good real estate inventory to choose from at depressed prices.
