Mortgage Finance Blog

Over the last couple of years we have seen the fall of real estate values. If you were trying to sell, buy, or were just sitting on the sidelines – you have taken note of where the market has gone. I encourage everyone to look into the deals that are out there and keep in mind the following information as you purchase real estate in the next few months. The expectations should be, “buy and sit-tight,” for a while. Make sure not to mistake the bottom of the market with a vigorous rebound. This does not mean that you should not buy a home or re-invest in the stock market, just expect a gradual increase. We still have the factors of weak income, depleted wealth, and tightened credit to hinder our path to high returns on real estate.
What happened over the last five years? Simply put, more of the population reached the home-buying age, hence posing a greater demand for homes, driving prices to the highest levels ever. The home prices made it possible to borrow more. Additionally, the industry created loan programs that facilitated the ease of becoming a homeowner. Even Countrywide’s motto was, “to make the dream of homeownership accessible to everyone” – A vision that, at the time, seemed prudent. In retrospect, the reality of providing homeownership to everyone is not easily attainable. There are those who simply do not have the capability of handling finances or budgeting appropriately, and it did not help that these individuals were set-up to fail with the recent market trend.
Expanded credit, like Alt-A finance and Sub-Prime loans, are gone – which is favorable for a stable economy. However, let’s see what the long term effects are going to be due to the inability of borrowers to get financing on the fancier homes or larger estates, even though they can afford those larger homes. Moreover, cash-out programs for homeowners with exceptional credit and low ‘loan-to-values’ are being held to a high standard within the underwriting process. Stricter guidelines and more expensive loans follow suit with the cash-out requests. If you are looking to cash-out, there are a few options out there, so  make sure to call and ask me about it. As for Jumbo loans (loans greater than $417,000), there are very few lenders willing to entertain the notion of funding. This is also a sector of the market that I can align you with, if the need arises.
The economy will improve, markedly, as individuals begin reducing debts to more manageable levels (levels that are relative to income and to the much lower real estate values). The measurement of improvement will be vague and difficult to quantify. The one major factor is “preferred” levels of savings and debt which will take into account the individual’s assets, retirement goals, expected income, risk tolerances, access to credit, and age, which all play a role in calculating the methods of debt reduction. This is known as de-leveraging and requires consumption to grow more slowly than income in the upcoming years. A sudden rush to return debt-to-income ratios to where they were in the year 2000 would require household to shed $3 trillion in mortgage debt. How are we going to do that? Time will allow the mortgage debt to grow more slowly than the income – as well as the combination of banks writing down the impaired loans, homeowners paying down existing mortgages, and new homeowners taking out smaller mortgages than in the past. It will take some time but we’ll make it! Our expectations need to be in-line with a buy/hold perspective. Good luck out there. Use this market to your advantage!

Take care!
Your trusted mortgage professional,
Diego L. Quintero