Is the current mortgage crisis a bad thing? Well yes in the larger scope of the national and world economies that had largely been built upon the skyrocketing home values and record mortgage productions it is. However upon reflections this crisis may be exactly what the doctor has ordered for this industry and for the average consumer. I will explain in detail how this crisis is improving things for the average consumer in measurable ways. Here are four good reasons why this crisis is benefiting a new home buyer.
- Interest rates are low. I won't bore you with the details of exactly how the market affects interest rates, but there are some things you should know. For on the Federal rate cuts have not been the cause of our good low rates. In fact virtually every time the Fed's cut their federal lending rate it is bad for mortgage interest rates. This is due to one simple process that is easily explained. When the stock market is doing well, investors don't invest in the safer products that drive interest rates. Therefore if the start market does well, interest rates increase. If the stock market is doing poorly, the interest rates naturally decrease. This is as simplified but effective explanation of how the market affects rates. Needless to say the current market is horrible, which in turn is providing us with lower interest rates.
- Housing prices are falling. Yes this is bad for a large portion of Americans that rely on the equity in their home for additional income. But for an equally large portion of Americans this is opening a whole new door for home ownership. New buyers have access to much more affordable housing than they have seen in many years. Sellers are willing to contribute funds for closing cost assistance and are becoming much more willing to negotiate favorable terms for buyers. Look at some numbers from the National Association of Realtors. From 2000 to 2006 median family income rose almost 14 percent, to $57,612. Over the same period the median-price of an existing home increased about 50 percent, to $221,900. By other indicators the increase was even greater. Home prices couldn't continue to rise at over 3 times the rate of the income level. Finally the average buyer has access to pricing in his income level. If he doesn't know he surely will soon as prices continue to fall across the U.S. The sooner hoem prices fall into affordable ranges the sooner the market will turn around and continue the inevitable cycle of the housing market.
- Mortgage products are far more secure. In the past many people that could qualify for a low rate 30 year fixed mortgage on an FHA, VA, community mortgage product, or USDA loan were not being offered these products. Instead because they were easier to close, required less documentation & accreditation, and paid better; these buyers were being put into sub-prime ARM loans. This is not the case today. While the ARM loans still exist, sub-prime for all intents and purposes is officially dead. This means that new buyers are offered the secure 30 year fixed rate loan programs through either the conventional methods or the programs previously mentioned. This is a huge boon to new buyers. Had someoen looking to purchase a home today been doing so two years ago, the odds are he would have been offered a loan at 3% or higher more than they would be offered today. In addition the loan was most likely have been a 2-3 year ARM that would have increased their payments by another 3-5% interest when it reset. In addition it would have carried a prepayment penalty which none of the previously mentioned programs being offered today impose. These are all postivies for the new home buyer in today's market.
- Quality of service. Some reports show that as many as 60% of all loan originators from 2004 level will have left the industry by the end of 2008. What does this mean to todays home buyer? Quality and competence! The majority of the originators leaving the industry are the ones that survived and thrived off the easy loan programs the sub-prime industry offered. They are the ones that were not well versed in all of the programs available to their clients. They are the likely the ones that would have committed fraud or steered their client's into bad loans just to make a few extra dollars. The people who remain in the industry are far more competent and have stronger relationships with lenders and industry professionals that has allowed them to survive or even thrive during this mortgage crisis. That means that today's home buyer will be dealing with more seasoned professionals that have the ability to understand the clien'ts situation and offer them a program that is right for them, not one that will make them extra money at the cost of the home buyer. To remain in business originating loans in today's market the industry professionals must know their programs from top to bottom. They understand that they must answer the client's questions completely and clearly. They understand that phone calls must be taken timely and follow up done often. Today's home buyer benefits from the great purging of the mortgage industry that this crisis has caused. While there have been many good men and women left jobless, there are far more that have been removed from an industry that they were exploiting.
In closing it is important to point out that while these are benefits there have also been numerous negative impacts that this crisis has caused. The news media has gone over them in great lengths over and over so there is no need to rehash them here. It is important that we see the silver lining in our current situation. While many homeowners have been left with homes they are upside down in, the government is trying to expand their FHA programs to allow these homeowners to remain in their homes. New loan programs are being offered to upside down borrowers, borrowers with toxic ARM loans or negative amortization loans, and to investors that have gotten in over their head. Anyone predicting to know the end to this chapter in the lending industry is deluding themselves. There are too many variables and daily changes taking place daily for anyone to accurately predict a true end of this crisis and return to normalcy. All we can do is deal with the situation at hand and try to continue to find ways for home owners and home buyers to take advantage of the current environment.
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