Contrary to what you’re hearing, “The Sky is not falling”!
by Kelly Krauth
Disclosure: Kelly is a mortgage broker at Vanguard Mortgage. Your editor is a Vanguard customer.
Every time you hear the news or see a report on the current economic status, you are sure to hear those words, “The Mortgage Crisis”. The national media continues to publicize and advertise to consumers that investing in real estate is a bad idea. What they are trying to do is to make real estate into a national market and look like the Crash of 1929! This is simply not the case!
The majority of the delinquencies and foreclosures that are being publicized are concentrated in the subprime market. Agreeably there is a huge increase in foreclosures but it is mainly because of borrowers who, in most cases, would not have previously qualified for a conforming loan. These borrowers were given a “golden ticket” to buy a home that they obviously did not qualify to own. Lenders began to advertise these great new programs, i.e. adjustable rate mortgages, “no fee” loans and many people signed on in order to obtain the great American dream of home ownership. Things like Stated Income, and Stated Asset loans (SISA) allowed these borrowers to do this easily without much verification; basically negating normal conditions that would traditionally be required to “qualify” for a home loan. Normal requirements such as steady, dependable employment, assets, reserves, and good credit were no longer a necessity. Basically anyone could now buy a home. But at what cost?
Now many of these borrowers have defaulted on their loans, or simply cannot afford the adjusted interest rate that has doubled their payment. This is what we are hearing so much about, otherwise known as “The mortgage crisis”! As an honest and ethical mortgage broker, I do need to clarify somthing for those who are quick to blame the lenders and the brokers…Every single one of these borrowers were informed both verbally and in writing that they were obtaining an ADJUSTABLE RATE MORTGAGE. There are duplicate forms that acknowledge and inform the borrower that their interest payment will adjust both in their application process and at their closing. So although, there were a few, I am sure, of unethical practices by some lenders and brokers, much of the blame goes directly to the borrowers who just signed their paperwork and assumed they could handle the adjustment “down the road”! (I just had to get that off my chest!)
The good news now is that those who qualify for conventional financing are still able to find favorable interest rates. Although we are seeing a pattern of rising interest rates, please remember that the rates now are still historically low. Does anyone remember paying 11%? 12%? So even at today’s average rate of 6.75% people are still able to buy homes at a terrific rate. People will always move or transfer and will always need to buy or sell a home. There will always be those people that would like to consolidate their debt by using the equity in their home to restructure this debt, by refinancing. My point today is to go ahead and buy the great house you’ve been eyeing, or move forward with your refinance, because the sky is not falling people; we are just riding the storm and sunny days are ahead.
Kelly Krauth
5 Responses “Contrary to what you’re hearing, “The Sky is not falling”!”
There’s certainly blame to go around on this, and much of it can probably be assigned to people who made foolish choices regarding their finances. However, in designing a system that will prevent – or at least minimize – such large-scale upheavals in the future, it seems that dishonesty (on the part of either broker or borrower), irresponsibility, and essential ignorance are factors that must be taken into account.
I’d be interested in hearing your views on how this has affected the local housing market.
Touche!! ARM’s have been a touchy idustry for a long time. They are great for people under the right circumstance, but not for the average home buyer. You would think that when making the biggest purchase of your life, you’d take the time to read before you sign! The current situation is simply adjusting the market back to where it should be. People who qualify can buy homes or refinance, people who don’t, can’t!!
John, thanks for your input. I can gather some statistics for you on the area sales and refinances if you would like. I can tell you Santa Fe has been established as a declining market, and now we are getting reports of the ABQ west side declining as well. New sales are slower, but gradually coming back. My own company statistics have not changed from August 2007 until present, so I think we are stable for the moment. I still believe that Edgewood is going to see an explosive burst of growth in the next few years after the election and the economic state calms. In my heart I still believe Edgewood will be THE place to live in New Mexico. I do many trainings for Realtors and I have noticed that many of the Albuquerque Realtors are starting to pay more attention to the East Mountains. I jokingly tell them to “stay on their side of the mountain”. Please let me know if you would like some statistics for a specific region and I will be happy to get them for you.
That sounds like the basis for a great article; looking forward to reading it!
It’s not surprising to see Santa Fe categorized as a declining market – any economic development strategy that focuses so heavily on residential construction as a primary source of growth is bound to run into its limits sooner than later. Similarly, the west side of Albuquerque faces some limitations, including the not-insignificant issue of transportation. While the RailRunner has some potential, it does not serve the purpose that a real, “intra city” commuter rail service might. Those who once looked to the west side as a relatively inexpensive, short-distance alternative may now be looking at the REAL Central Valley and the
EastWest Mountains as a cost effective, short-commute solution. Not to mention that it’s just plain nicer out here.