Mortgage Finance Blog

Market Stabilization Triggers Aggressive Mortgage Lending

April 15th, 2010 12:00 PM by Diego Quintero

As foreclosure rates surged to their highest levels in five years, I found it interesting to have received an email from one of the most conservative lenders in the country stating that they are getting more aggressive on the lending front. It’s great news for new home buyers as they are now able to place a 5% down payment versus the 10% that we have been accustomed to, in Arizona, over the past three years.

Arizona, Nevada, California and the Florida markets have all been struggling to elude the “deteriorating market” label. Upon this new announcement, the “sand states” now find themselves borrowing at the same levels as all other states like Connecticut or North Carolina. Appraisers are beginning to write “stable market conditions” on reports and banks are gaining confidence.

However, we continue to have naysayers who call doom for the real estate market. Despite those naysayers, banks are reporting strong figures as JP Morgan Chase reports a 57% jump in quarterly profits. The velocity of money is about to be ‘turned-up’ with this latest aggressive mortgage lending announcement. Our national economy may actually feel the money flowing, once again.

Up until this latest announcement, the only method of obtaining a loan value greater than 90% in the ‘sand-states’ was to buy a home utilizing the FHA programs. The major drawback of FHA is the FHA Funding Fee. In my post from last week, I described the increase in fees that the government is considering, from a 1.75% to 2.25% of the loan amount. Its a great time for conventional lenders to step-up and gain a larger market share as markets stabilize.

Prior to the risky lending practices, the 95% loan to value was a customary lending practice. This is not the beginning of a return to sub-prime lending and stated income loans. This is merely a return to normal lending conditions that kept us stable for many years before the risky players entered the lending arena.

Chief Executive of JP Morgan Chase, Jamie Dimon said recently, “The last thing we need is to enact new policies that over-regulate and work at cross-purposes without reducing system-wide risk. None of us can afford the costs of unnecessary or bad regulation.”

Dimon gets to the point in describing the fact the money must continue to flow and that the latest regulations, although prudent, may slow down the pace of money flow and further deteriorate the economy.

Keep a look-out for some upcoming reports by other large banks and determine whether or not you are ready to make a 'step-up' or buy your first home. The timing is now and better than ideal.

Posted in:General
Posted by Diego Quintero on April 15th, 2010 12:00 PM


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