If you haven't heard from your lender or mortgage broker, subprime loans at 100% LTV are a thing of the past . . . or they soon will be.
For years during the recent real estate and subsequent finance boom, brokers were able to help individuals with credit scores in the 500s purchase a home at 100% loan-to-value. What did that mean? It meant that a person who is either grossly overextended or who didn't have a good credit payment history could purchase a house without putting down any money.
According to the lender I refer clients to, as well as today's Wall Street Journal, the situation can best be summarized best by a line from a Countrywide email sent to brokers last week:
"Please get in any deals over 95 LTV [loan-to-value] today!"
Countrywide said in an email to its brokers, according to Reuters.
"Countrywide BC will no longer be offering any 100 LTV products" as of
today.
In the local Tucson market, that means that a person will have to qualify for a loan by being in one of the following situations:
1) Qualify for a non-sub loan, meaning having excellent credit above 680.
2) Have 5% to put down on a home. In the Tucson market, that means having $11,000 cash to put down on our median home price of around $220,000.
3) Have the seller carryback a second mortgage at 5%. This is not likely to happen, since the lender would have to be made aware of the carryback, and likely wouldn't approve the loan. Additionally, if the buyer doesn't have cash for a down, they probably don't have cash for closing costs, so the total LTV would be above 100% when all is said and done.
So why is this the right thing for lenders to do?
It is the right thing to do because it turns the purchase of a home into a significant event and milestone again.
Don't get me wrong. I firmly believe that affordable housing should be within the reach of all hardworking people. However, when an item becomes too easy to obtain, it quickly becomes a commodity. Selling homes and lending money to folks who are not financially responsible also puts the economy at large at greater risk.
(e.g. New Century)
So, now potential homebuyers will have to do one of 2 things: either pay their bills on time and be financially responsible enough to build up an excellent credit score, OR save enough money for a down payment.
In either case, they will value their home more. They will take the time to understand what is involved in home ownership, and they will find the right real estate and lending professionals to help them do so.
Or . . . I could only be 95% right.
Darren C. Douglas, REALTOR
Real Estate Consultant
The Douglas Team at Oxford Residential Advisors
phone 520-661-5885
email darren@oxfordra.com
web www.douglasrealtyteam.com
;)
;)
Good points Darren. I think you would appreciate with me though that much of why things have shifted the way they have is because of very poor lending habits that have become a trend in Arizona and other areas that experienced such heavy booms in the past 5 years.
As a lender I find myself sympathizing daily with people who this will affect dramatically, but I do understand why. Too many times I have seen lenders stuff people into loans that they can't afford and do so just to "get in the house". The person thinks they'll be able to refi right out of that horrid payment because the lender overpromised to get that month's commission.
You know the rest...
I don't like that this is happening the way it is, but I agree with it. I think the next thing that should happen is lenders being required to be licensed to operate. Appraisers need them, realtors need them, why not loan officers?