Sometimes it seems that the mortgage business has gone insane!

By
Real Estate Agent with BERKSHIRE HATHAWAY Georgia Properties 157561

Sometimes it seems that the mortgage business has gone insane!

real estate mortgageSo, can someone explain this to me??  Perhaps I have simply missed the "logic boat" here, but I don't think so.

I have a buyer with $190k CASH to put down on a house.  He has good credit, and has lived in the same home (which he just refinanced) for many years.  He is a successful business owner of 10+ years, but he can't get a mortgage for a $340k second home with a 56% down payment because his "ratios are bad".

Now we're not talking about a "problem child" here - just a business owner whose income dropped slightly due to the economy, but who still makes a great living for his family.  They have money in the bank, a secure business and $1.5m in personal assets.  They even have the remainder of the payoff in an IRA that they will have access to in just over a year.  (Heck, I may even loan them the money for the right rate!)

Contrast that with a buyer whose has only 10% to put down (but great ratios). This buyer will get signed up immediately!   

So what happens if the real estate market drops just a bit?  Which one of these buyers do you think is likely to bail out on their mortgage?   Which one is likely to leave the bank with a foreclosure that's worth less than what is owed?   I can all but guarantee that it's not the one with the HUGE investment!

I can tell you that if it were my money involved, I would bet on the buyer who has great credit, a strong business history and a huge down payment.  Oh, well... at the end of the day it's not my money, but I still don't follow the logic.

 

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Rainer
241,526
Michele Miller ~ REALTOR®, LMC, HSE, CHS, SRES, CMRS
ERA Key Realty~Worcester County Realty Group - Worcester, MA
'Helping You Make the Best Move"

Gayle,

I wish I knew! Doesn't make sense to me either!

Make it a great day!

Jan 21, 2011 01:36 AM #1
Rainer
34,945
Jacquie Cliff
Champions Real Estate Services - Lynnwood, WA - Lynnwood, WA
- Real Estate and Short Sale Expert

Didn't make sense before when everyone could get a loan and now it is all crazy the other way!  Did hear earlier in the week that some banks are bringing back no-doc loans for people that have great scores and a solid down payment, but have difficult to verify income.

Jan 21, 2011 01:47 AM #2
Rainer
288,529
Thomas McCombs
Century 21 HomeStar - Akron, OH

It is all about saleability in the secondary market. Lenders are more comfortable with predictable income streams than they are with available assets.

Lenders know that assets can disappear quickly -- just ask anyone who had lots of equity in real estate before this crash.

And they also know that folks with good credit are often smart enough to know "when to fold 'em" if it makes good busniness sense to do so. This is especially true of self employed people, as they did not get where they are by blindly following someone else's concept of right or wrong.

 

Jan 21, 2011 01:53 AM #3
Rainmaker
807,856
Cindy Edwards
RE/MAX Checkmate - Johnson City, TN
CRS, GRI, PMN - Northeast Tennessee - 423-677-6677

It's crazy.  I don't understand. Let me know if you find out!!!

Jan 21, 2011 02:11 AM #4
Rainer
265,645
Gayle Barton, Forsyth County Real Estate
BERKSHIRE HATHAWAY Georgia Properties - Cumming, GA
Cumming GA Homes For Sale (404) 710-0204

Jacquie, I agree that we were out of control before. It seems like half of the loans made in 2006 had no real possibility of being repaid....  Unfortunately, I think that the pendulum has swung back a bit too far. I hope we do reach a middle ground soon.

Thomas - Interesting comment and probably correct.  Though I don't agree with their view point.  I just think that it's easier to walk way from a 10% investment than a 56% investment. But, like I said, it's not my money so I have no say.

Thanks Michele, I will.

Cindy, I'll update this post if we find something works.

Jan 21, 2011 02:42 AM #5
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Rainer
265,645

Gayle Barton, Forsyth County Real Estate

Cumming GA Homes For Sale (404) 710-0204
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