What Are The Current Developments In The Mortgage Market?
It is obvious to anyone who has a home loan or who even just reads about the financial news, that drastic shifts have occurred in the housing 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 real estate market had was destined for a steep drop. But many homeowners who used these inflated values to borrow on easy credit terms, even with lousty credit ratings, were bound to be caught in a trap as the prices came down.
These so-called “sub-prime” home loans could not withstand the falling prices and increasing interest rates. Many borrowers with poor credit ratings could barely afford their home loans to begin with, and then when the values of their property started to fall as the rate on their mortgages adjusted upwards, the only option available would be to try to refinance. They could not refinance because there was little to no equity left in the home, and interest rates had increased. This created a cycle of failure.
As more foreclosures happened, the increasing inventory of homes for sale further reduced home values. The fact that only the worst of these mortgages were the guilty parties, causing 60% of the loans even though they only comprised 20% of the loan market, did not encourage banks to loosen. States such as Florida and California, which led the country in escalating real estate values, make up a full 36% of foreclosures.
But lenders felt compelled to tighten loan conditions on all home loans, and new borrowers no longer had the luxury of loose lending criteria or poor credit.
What is the ultimate meaning of all of this? It’s back to old fashioned lending. Of course, there are those who regret not getting the same chance to borrow with low down payments and a less than perfect credit rating.
In other words, banks will now require a good down payment (although 10% down payment loans can still be located), a reasonable credit score, and a justifiable assessment of the property value.
However, borrowers who can meet these new conditions have a great advantage, since there is a large inventory of properties at greatly reduced prices to choose from, if you can get a mortgage.
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