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What is the Mortgage Market Meltdown?

Mortgage and Lending with Keller Williams Tri-County Properties

What is the Mortgage Market Meltdown?

This refers to a culmination of factors that has led to massive tightening in credit standards among lenders. This tightening is due to an excessive number of mortgages that are both delinquent and in default. As a result of tighter credit standards and the devaluation of mortgage-backed securities, global investors are shying away from purchasing additional pools of loans, causing over 100 lenders to close and leaving many homebuyers and homeowners unable to locate financing alternatives.


Why should a real estate SELLER be concerned?

The pool of potential buyers will shrink as many individuals find it difficult, if not impossible, to obtain mortgage financing. Experts have speculated that the number of potential buyers will contract anywhere from 15%-30%. Sellers should also be aware that increased foreclosures can depress community values and result in a glut of local inventories, which could further drive down home prices.


So how many foreclosures are there?

According to www.foreclosures.com, there are currently 1,447,451 homes in pre-foreclosure; 832,281 homes are currently set to go to auction; and 1,217,885 homes have already been taken back by the lender. The number of homes in the foreclosure process as of July 2007 is double what it was as of July 2006.


What types of loans have been most impacted by credit tightening?

Subprime and Alt-A have suffered the greatest setback because these borrowers are at greater risk for defaulting. Subprime loans are those loans which have typically been taken by borrowers with poor credit. Alt-A type loans are for borrowers that typically have good or excellent credit but are unable or unwilling to provide documentation for income and/or assets.


What is the impact on the real estate market?

The National Association of Realtors estimates that home sales nationally will decline by nearly 13% in 2007. Median home prices nationally are projected to fall by 1.2% in 2007. According to the PMI Group, Inc., however, many local markets are experiencing price declines well in excess of that, up to a high of 11.44% in Miami. States that have experienced and will continue to face the greatest declines are California, Florida, Arizona and Nevada.


What should sellers and buyers do now?

Sellers should be realistic about home prices - the high prices of 2004 and 2005 are a distant memory. Home prices have taken a fall, and for those with houses currently available for sale, reductions may be in order to generate activity and offers. Sellers should demand that any offer from a buyer be accompanied by a pre-approval from a local mortgage professional.


Buyers need to be pre-approved - and frequently - as mortgage availability can change drastically, in some cases even daily. This is particularly true for those borrowers who have poor credit or are unable to provide income and/or asset documentation. Buyers should meet with a mortgage professional today to seek a pre-approval. They should be prepared to provide income and asset information including: two years of tax returns, including all schedules, W-2s, 1099s, up to three month's worth of liquid asset statements, and their most recent pay stubs.

Nicole Kraus
Signature Realty Associates - Dover, FL
Great info...I am going to copy the blog to share with those stubburn sellers.  Thanks for the tool!
Aug 15, 2007 02:50 AM
Karl Schott
Aviara - Agoura Hills, CA

Any news in your area about the difficulty of funding in the jumbo market? All I have heard on CNBC this morning is that even with squeeky clean credit and an over 700 score it it very difficult to get funded.


Aug 15, 2007 03:00 AM
Jason Romrell
Business Attorney and Success Advisor - Los Angeles, CA
Good information, but as the optimistic always say, the market won't ever die.  In fact there will be millions of transactions this year even with the market meltdown and the continuous stream of bad news.  The best of the best will still make a lot of money in this business as they find ways to provide even greater service to their clients (and a reality check is a good service to provide).
Aug 15, 2007 03:01 AM
Claudia Berner
RE/MAX Capital Group REALTORS - Tallahassee, FL
Thank you for the information.  I am unfortunately in one of the highly effected states. 
Aug 15, 2007 03:22 AM