1 out of 4 Lenders Survey said…..
That it’s harder to get a mortgage now than what it was 3 months ago.
That’s down from 75% of the banks who were tightening requirements in July of 2008, but it’s still a pretty substantial portion.
So, it’s harder to qualify for a mortgage now than it was. What does that tell us?
- That if lenders are tightening up their guidelines it’s probably because they are seeing growing losses on loan portfolios that they have written with looser criteria. (See 3rd quarter losses from Fannie and Freddie as proof of that).
- That lenders don’t feel that the housing market is truly recovering yet. If they did, they wouldn’t be tightening down more, would they?
I was talking to a good friend of mine the other day (I like to do that). He does a lot with real estate investors and we had an intriguing discussion about mortgage backed securities and the appetite that the market has for buying mortgage backed securities. A couple of conclusions we came to:
- The market isn’t quite ready to believe that the problems in owner occupied mortgages are over. Frankly, it’s probably going to be 2011 or 2012 before the appetite for mortgage backed securities really returns.
- That lack of an appetite for mortgage backed securities is going to have quite a substantial upward impact on mortgage rates when the Fed stops buying mortgage backed securities come March of 2010.
- There is probably a market out there for well funded, conservatively underwritten, fully documented, high credit score, substantial downpayment, cash reserves, investment property loans. But beyond Fannie and Freddie, the market has dried up. He’s had a couple of banks and credit unions who opened up their pipelines to portfolio these deals but ran out of funds because the demand exceeded the money supply.
- Getting more of the foreclosed units out of the hands of banks and into the hands of buyers who are well qualified to afford them would be a big boost to the market and would help stabilize and turn around the housing markets. But alas, we don’t have a systematic and substantial way to turn these properties from a neighborhood blight into a viable enterprise.
You’re probably thinking that I’m advocating we do a lot of low downpayment high risk loans to people who think easy money can be made by buying and renting houses. Not a chance, Vance. I’m talking professionals, with experience, who have not only the cash to put down, but also the cash reserves, the credit score and the personal income to handle these type of properties.
Ask yourself a couple of questions and I’m sure we’ll be continuing these conversations over time:
- All of the people who have lost homes in foreclosure – where do they live now? Some are living with family or friends while they get back on their feet. But eventually, they’ll all need a place to rent. Why not turn some of the REO inventory back into usable housing?
- I’ve read a number of economists who have suggested that we’re going to see a 4 to 5% drop in the homeownership rate. That means we’re going to see a 4 to 5% increase in rental percentages. That’s a huge swing and it creates opportunities, but those opportunities aren’t able to be capitalized on and utilized well because the financing options aren’t available.
- Is there anyone out there who really thinks that Fannie Mae’s new program where someone can deed their house back to Fannie Mae and then turn around and lease it back is really going to work? If you do, explain to me why because I don’t see it.
I’ll have more later…….
Let me know if I can help.
Tom Vanderwell
The portion of lenders that increased standards for prime residential mortgages and revolving home equity lines of credit increased slightly this quarter, according to the Federal Reserve’s October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices.Demand for prime residential real estate loans was strong for the third consecutive quarter, the lenders reported, while demand for construction and industrial (C&I), commercial real estate (CRE) and nontraditional mortgages weakened over the past three months the survey covered.
The rate of banks that reported tightening lending standards for prime residential real estate loans was 25% in October, up slightly from 20% in the July survey, the Fed said. The current rate is well below the peak of 75% reported in July 2008.
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