There is alot of doom and gloom in the real estate and financial world right now, at least if you listen to the news. Just a moment ago I read another article about banks closing their lending division. Here is a link if you want to see it the exact article. http://biz.yahoo.com/ap/070820/capital_one_financial_wholesale_mortgages.html?.v=8
Once again, if you just cruise the headline you might miss an important piece of information. The division that is closing dealt with one notch above sub prime loans. Don't take this as a lack of sympathy for the some 1900 plus people that are losing their jobs. Don't write off the negative effect ANY layoffs have on our our economic picture, from the people who won't have the income to spend and the people who are not confident about spending. What I am about to go into is that the lenders are going through a correction. A correction that will obviously affect our entire economy.
The reaction from the lending industry may seem like an OVER reaction, and the elimination of entire companies sounds drastic. What I don't know and will probably learn soon is how many of these lending divisions and groups and branches bloomed in the 2003-2006 madness? When hedge funds (or whomever) and stock traders started buying sub prime backed funds? When suddenly illegal immigrants were buying houses with escrow being opened with 7-11 money orders? (When I first learned a Caucasian needed to prove where cash used in a real estate transaction came from, but Hispanics did not. I didn't make the racist rule, I was just surprised by it. Hey loan people, has that rule changed? Alas, I digress..) My point was simply that if the companies that disappeared earlier this year HAD to close their doors because the couldn't make loans anymore, then maybe the lenders were just having the same realization investors had. That realization was- buying 'notes' or 'stocks' or 'funds' that had value only based on loans that were made to people who couldn't actually afford the loans they were sold MIGHT be a bad investment. Especially if a TRILLION dollars in loans were about to get MORE expensive to the families that WOULD NOT HAVE QUALIFIED for a loan in the 1st place if the age old qualifications for mortgage lending had been followed. I am also all for EVERYONE getting into real estate THEY OWN, I just want them to be able to keep it!
Here is a layman's terms and my layman's understanding of a little piece of the picture of what happened. Someone started dumping money into some kind of stock trading that involved buying mortgage backed instruments. We will call them stocks, but please understand that is probably the wrong word technically. So someone started buying these stocks, allowing more money to be freed up for more loans. Pretty quick, all the lenders had ran out of people to give money to, but there was a growing pond of money to loan out, if you could get people to borrow it. Mortgage people of all kinds started trying very hard to get the word out that they could get YOU money, just come and apply PRETTY PLEASE! If you had ears and eyes the last few years you probably saw this. Then money started being shoved into the hands of people who could not have gotten money before. Before anyone gets offended, please understand that me, my friends, and my family have fallen into this category. I am talking reality, not political correctness. The old rules (10-20% down, debt to income ratios, etc etc) flew out the window. Any mortgage broker had access to hundreds of programs and could get almost anyone with a pulse and paycheck a loan, and the paycheck was optional. I very much saw lenders that are no longer in business advertising and 'roping' people into their offices with outlandish promises and worse practices. I saw real estate agents being fed these 'pre-qualified' leads, only the real estate agents didn't inform these particular clients that the agents would be representing the lenders best interests, not the client looking for the property, the one who was paying for their commission by financing a property, the person they were supposed to legally represent. No, really, this isn't a rant.
Suddenly a whole new group of buyers was literally created. These were people who could really get a loan and close escrow on a property. So now you have gone from borrowers being qualified based on rules established to protect the lender AND the borrower to people realizing the dream of home ownership through the deterioration of lending practices and standards. If anyone reading this disagrees, I am listening. This happened at a time of historically low interest rates, and as far as I know, unparalleled investing at both ends of the real estate spectrum. Meaning there was the hype from authors and marketers such as Carleton Sheets and Robert Allen, T.V. shows (that are on still) with names sort of like Flip This House For More Money Than You Ever Thought You Could Make, and the purchases of the 'stocks' that helped create the pool (yes the pond grew to a pool) of funds that became mortgage loans. Money flying everywhere. The new group of buyers were moving into the entry level and up houses, allowing those who had purchased a home in the last 6 MONTHS to cash out and move on. There were alot of people that made alot of money. And anywhere you throw alot of money, questionable practices show up. There are more real estate lawsuits coming out of the mess of the last few years than the previous 5 combined. I can't actually prove that right now, so I leave it to you to prove me wrong. The lending industry is reeling from blow after blow, just cruise some headlines and ask the press.
So here is my point. The companies that are practicing good lending are still here. They are still working their butts off to find the right product for us/you. Not only that, they are trying to do it during a time of incredible flux. I heard from one friend of mine that the rules literally changed 3 times in 1 day last week. Can you imagine being a plumber, electrician, or framer and you get 3 phone calls while you are building a house, each one saying the building code for your trade just changed? I thought real estate was insane? Try that out and see how long you stay sane. Not only is Gary Miljour (for example) staying sane, he is reading and educating himself and his team as much as possible to make sure the details are done to his clients benefit. (Heck not only is Garys company looking very solid, they are hiring the last I heard.) And that goes for the rest of us involved in real estate, all we can do is keep educated and ride this out.
Last parting note. I have heard repeatedly about what a bad time I must be having because I am "in real estate". I feel (insert opinion here) that when it is a sellers market, you are trying to find your next listing. Now its a buyers market, and we are all looking for the next buyers. Yeah yeah I know I know, list to exist etc etc.. but there are supposedly 96,000 or so licensees. The schools are still full. New ones coming out every week. So how many of those will still be here the next time I post? Next month? How many people (existing agents) do I know that are deciding now is a good time to move on because they are bored or stressed? I know I am curious to see what happens to those numbers over the next 2 years. Perhaps this will be a very healthy pruning for different areas of our businesses. Sincerely In Your Best Interests, Steve Wyrick www.housesandhomesinarizona.com