We have all seen, ad nauseum, why we are in the predicament we are. We've read it in newspapers, magazines and on line. We have seen it on CNBC, MSNBC and every other station- "subprime", "credit default swaps", "securitization", "liar loans", "foreclosure". I could go on on and on. My goal is to give you an insider's view of the mortgage market from someone who has been on the frontline for the last 10 years. Let's start with where we are and finish with where will will be.
Currently, the mortgage market is a tough one to navigate. The majority of conforming loans are bought by Fannie and Freddie and we all know what shape they are in. Because of that, banks are scared to death that any loan they originate will have to be bought back from the GSEs. Thus, they are nitpicking EVERY single aspect of the loans. That, along with tougher credit guidelines and dropping property values have made things very difficult. Don't get me wrong though. For those out there that have good credit and a steady income, you can get a loan. Its just a tougher task now. Everything must be documented to the enth degree. All large deposits in bank accounts have to be excplained. Credit inquiries on a credit report need to be explained. In many instances, bonus income must be consistent over a 2 year period. If your loan is non jumbo, cross your T's and dot your I's, folks. Otherwise, you are in for a very bumpy ride.
On a more positive front, many of the savings bank/portfolio lenders (those that do not sell to Fannie and Freddie) have actually loosened up some of their guidelines. Why? There are several reasons but in my mind, one of the major reasons is out of necessity due to a lack of loans. You see, many portfolio lenders have weathered the storm very well simply because their historically conservative approach to writing loans insulated them from many of the Fannie and Freddie pitfalls. That very conservative approach has now bitten them in the rear. For example, let's assume the lender would only allow 70% financing before the credit crisis hit. With a precipitous drop in values of homes, that 70% financing has turned into 50%. How many people out there have that? Not many. They have had to loosen up in order to increase loan volume.
That's a synopsis of where we are. I can go on, but why bore you with more disappointing facts. Let's now talk about where we will be in a few years. of course, this is only a predicition, an educated guess. From a timing stanpoint, I do not see a general alleviation for several years. The foreclosure market needs to shake itself out and so do the majority of loans closed that might turn sour within the next few years. I harken back to George Bush's words about "draining the swamp". We need to do that and let nature take its course. Here are some other tid bits that I believe will come to fruition:
1. The conforming loan limit will drop and that will allow porfolio lender to have more power and have a bigger impact on the mortgage market. That will be good for the mortgage brokers that have survived.
2. Fannie and Freddie will be minimalized more and more through a conserted effort on the part of the government.
3. Within a few years, anything more than 80% financing will be weeded out. Back to the old days.
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