| Lack Of Mortgage Money A Myth |
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Lack Of Mortgage Money A Myth By Morris Workman 11-18-2008 With the implosion of the real estate market, everyone knows better than to bother with trying to get a loan. After all, with the numerous bank collapses and the well documented “mortgage crisis,” only a well-heeled fool would attempt to seek a loan for the purchase of a house in Mesquite, right? Wrong. The truth is that there’s more than enough cash available for mortgages, according to those who are sitting on the piles. “There is plenty of money out there,” confirmed Judy Depew, a mortgage broker for AmericaOne Finance in Mesquite. “It’s not less money, but less options available.” Depew explained that traditional 30-year fixed mortgages are plentiful. It’s the creative financing, or “funny money” that has dried up. “Sub-prime mortgage lending is gone,” Depew said. “Stated income is gone.” According to experts across the industry, those two lending vehicles are what led to the collapse of the funding and real estate markets. Sub-prime lending provided loans to people who had poor credit or insufficient income to qualify for a traditional loan. Stated income loans allowed borrowers to obtain funding by simply “stating” their income, instead of “proving” their income with tax forms and pay stubs. Originally, stated income loans were intended for self-employed individuals whose incomes were harder to prove, since most do not give themselves pay stubs or W-2’s. During the real estate boom, the loans often wound up being used in scenarios that were almost as blatant as “How much money do I make? How much do you want me to SAY I make?” The other big culprit that actually triggered the crash was the misuse of Adjustable Rate Mortgages, or “Option ARMs.” These loans were made with very low rates, but those rates would “adjust” upward during the life of the mortgage. When the first wave of upward adjustments hit homeowners a year or two after taking out the loans, it sank many homeowners who were already struggling to make their house payments. The resultant foreclosures created a domino effect, as the glut of houses hitting the market drove down property values in a “supply and demand” economy. Those who used creative mortgages to purchase houses they intended to “flip” or sell quickly got caught holding the bag on big mortgages that were suddenly more than the houses were worth. Instead of continuing to make big payments on houses they were “stuck” with, those speculative investors simply abandoned ship and “gave” the houses back to the banks and mortgage companies, increasing the glut and driving property values down even further. With no more money to lend and too many houses to sell, several banks went under. This created the image that all banks were short of cash, and that there was no money left to lend. Untrue. The biggest thing that has changed is that common sense has returned to the lending industry. “It’s going back to what it used to be years ago, what it should be,” said Depew, who was not a big fan of the option ARMS and other creative financing programs. “They should have never, ever come out with those programs. Some lending institutions never lost that common sense, and are stronger than ever. “Our qualification standards haven’t changed,” said Dan Wright, vice president of the Bank of Nevada in Mesquite. “We never relaxed our qualifications, so there was nothing for us to tighten up. We still have money to lend.” In fact, according to Mesquite mortgage broker Kevin Bales, the actual debt-to-income ratios used for qualifying today are higher and easier to meet than they were 10 years ago. Depew, who has been in the mortgage business for 35 years, confirmed this. “If you have a sufficient credit score, and sufficient income, you don’t have any problem,” Depew said. “It may take a little bit longer to get a loan processed. Lenders are dotting the ‘I’s’ and crossing the ‘T’s’, where they were a lot more lax before.” It might be a little more difficult to get what is known as a “Jumbo Loan,” which is for houses valued at more than $417,000, but those have become rare. Besides, one of the silver linings to the real estate collapse is the fact that housing prices have returned to more reasonable levels. Where $400,000 houses used to be the norm in Mesquite, now they’re the exception. Another positive by-product of the collapse is historically low interest rates. “Rates are wonderful!” exclaimed Depew. She would know, as Depew was regularly processing loans in 1979 and 1980 for mortgages sporting 20% interest rates. As of last week, the going rate for a traditional 30-year fixed mortgage hovered around 6.25%. Those low rates, combined with the fact that there is plenty of money available for mortgages, mean that first time buyers and retirees flocking to Mesquite could be in for a welcome surprise when it comes time to buy a house. In fact, thanks to Mesquite’s continuing designation as “rural” by state and federal standards, buyers have another option that they can’t find in Las Vegas or St. George. According to local Realtor Chris Miller, the Rural Development program is a very attractive option. Because Mesquite’s census numbers show the population under 20,000, it means home buyers can qualify for Rural Development money. This is money which is backed by the U.S. Department of Agriculture, with programs which can provide up to 100% financing for a home. Depew also pointed out that FHA money is still plentiful, requiring as little as 3% down. The real estate industry still has some significant hurdles to overcome, including the shakeout from the government’s $700 billion bailout and the dam-bursting backlog of foreclosed properties banks and mortgage companies are sitting on that are yet to hit the market. In fact, some realtors have posted that more than a few banks are actually holding off on selling those properties at discounted rates in hopes that the government will come along and take the houses off their hands at near-full mortgaged value. But with the dollars that are available, at the rates being charged, it’s clear that home ownership is still within reach for those who continue to harbor the great American Dream. |
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