RSSHey B of A, Can You Spare A Dime?
Michael Haltman | December 16, 2009
As an involuntary current owner of residential real estate that I am trying to sell, I know only to well how shaky the market is, as well as how reluctant the banks are to lend the money that they have in their coffers. We all know about the bottom basement level of mortgage rates, as well as all of the so-called bargains that are available in the marketplace. But, unless the banks loosen the purse strings and allow buyers and sellers to meet on a price with the full expectation that qualified buyers will be able to obtain a mortgage, the real estate will continue to sit unsold.
At the peak of the market, the term of qualified buyer was for the most part a misnomer. No doc mortgages were prevalent, meaning that with a wink and a nod the mortgage applicant told whatever story was required to qualify for the desired mortgage. Typically these were no income check, so many of these sub-prime mortgages were made to people who had no real way of paying it back. Given that the mortgages made were in many cases adjustable, after the initial teaser rate the homeowner ran the potential of not being able to make the payments. Because the market was going in one direction, up, the plan would be to then flip the house for a profit, pay the lender back and pocket the difference. This was a great plan, until a new direction for prices, down, was discovered.
Now that those days are over, underwriting has moved to the opposite end of the spectrum, with banks instituting onerous requirements that even the most qualified of buyers have trouble meeting. While it is understandable that the banks are bit gun shy, many are TARP recipients, sitting on money provided by the government at little cost intended to loosen up the incredibly tight credit markets. Instead, the taxpayers are providing this money so that the banks can earn the spread instead, some making record profits.
This reluctance to lend goes for refinancing as well, a transaction that could save current homeowners hundreds of dollars a month, money that could be used to help stoke the rest of the economy. While approximately 60% of the homeowners in the United States have mortgages at rates above the current 4.8% average rate, refinancing applications have declined, with many borrowers unable to qualify.
Bottom line, while nobody is looking for the rampant excess of the past few years, some happy medium for lending needs to be found or the economy will remain in limbo.
Contributor's website: http://politicsandfinance.blogspot.com/
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