In our current economy, it seems like we have one foot on the gas and one on the brake. One the one hand we are hearing from the government that lenders are not lending enough of the bailout money to consumers.
When you look at this and tie it into the “Mark to Market” accounting practice then you realize that all the money we are infusing to the banks will NOT go to loans but instead boost the capital reserves of the individual bank.
Think of it this way, if I am servicing one million dollars of loans, which would allow me to use that one million as collateral to lend out 15M. But due to Mark to Market, I have to evaluate the million that I am receiving and value it like I had to sell it today, even though it is performing within tolerable levels.
If I had to “write down” the value of the million dollars asset to $500,000 I would still have the 15M out in loans giving me a leverage ratio of 1:30 instead of 1:15. Since the Fed’s guideline require a leverage of no more than 1:15, I am out of the aggressive lending world until I a, reduce the money I have lent out (fat chance) or b, raise Capital back to 1 million. Either way, with Mortgage Back Securities being priced for a 25 to 50% default rate it makes for hard lending.
The truth of the matter is if 50% of our mortgages fail, lending will not be the question, Ammunition and self preservation during the anarchy will become the number one priority.
At the same time the big Three, no not the car manufactures’ but Fannie, Freddie and Ginny are requiring more down payment, less investor homes loans and taken away stated for the true Self employed.
The way to get out of this mess is to attack both sides, Supply and Demand. Bring back Seller Funded Down Payment Assistance for the buyer, increasing demand, work with folks currently in trouble thru loan mods and true short sales, keep the tax loan of $7500 and keep FHA limits up and allow qualified investors ie, full doc, 20% down investors to have more than four mortgages and we could see a significant portion of our excess inventory soaked up.
It is time for a coordinated effort to recover the housing market, which in turn will bring peace of mind to home owners, stimulate the economy and stabilize our market.
Just one person’s thoughts and as always, I am open to discussion.
Comments(0)