Mortgage Crisis
Filed Under categories: Buying, Finance, News You Can Use, Real Estate News, Selling
posted by Raye on August 23rd, 2007
In case you haven’t heard, the media has a new darling. They have taken an issue, albeit a serious one, and transformed it to the status of Armageddon.
I’m not denying the current mortgage situation is creating financial havoc and confusion, but I am suggesting that it is a problem that can be solved and lessons will be learned. Some of those lessons should have been learned the last time by lenders who got sloppy in the underwriting department and consumers who got a little too excited and didn’t quite think things through and plan ahead wisely.
The point is that there was a last time and there will probably be a next time with slightly different circumstances and effects. But, last time was corrected and this time will correct, too.
The following article has some great information and explanation for the current problems most of us are facing in one way or another. Greg Wickstram, with First Capital Mortgage, has written an informative and helpful piece leaving out the hysteria and headline grabbing alarms. It is a factual and balanced piece and I think you will find it helpful. Please let me know your thoughts and comments.
Excerpt from Greg’s ‘Mortgage Market Crisis”
Current State of Mortgage Financing and What You Can Do
Anyone watching or reading the financial news over the last few weeks has seen a lot of angst and fear over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations recently. But why? What is happening, what does all this mean to you and most importantly… what should you be doing do right now to make sure you are protected?
How Did This Happen?
Over the last five years, with the global financial markets awash in money seeking any investment with a decent return, investment dollars flooded into the US financial markets. With the increase in available funds, loans were being issued with reduced requirements. This situation included lower credit scores, higher loan-to-value ratios, interest-only and even negatively amortizing loans. At the same time, the premiums required by investors to accept this risk, in the form of higher rates and fees, got skinnier and skinnier and eventually anyone with a pulse could qualify for a big loan with great terms and tiny payments.
These non-traditional or “non-conforming” loans, that do not fit within the traditional “box” for home loans are often called “Sub-Prime” or “Alt-A”. This meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of “non-conforming” home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be funded using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it’s called a “jumbo loan” - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie. The end result is that most non-conforming loan product rates have significantly increased.
Click here to read the entire article
This entry was posted on Thursday, August 23rd, 2007 at 10:01 am and is filed under Buying, Finance, News You Can Use, Real Estate News, Selling. You can follow any responses to this entry through the RSS 2.0 feed.
I read a variety of real estate blogs, and I’m suprised that more people haven’t been observing the way the media is covering this. Great job, and hopefully this will pick up some steam.
Thanks for the feedback. Since I wrote that piece it seems the steamroller of negativity has gained momentum and strength and is threatening to force a wider collapse and longer recovery. Hoping cooler heads will prevail and measured responses instead of knee-jerk reactions will be the long term solutions and lessons of this situation.
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