Mortgage Credit, a Thorn in the Economy’s Side, Posted by Charles

Scientist Hugh Miller said: “Problems are only opportunities with thorns on them.”

We have a great opportunity right now to get the housing market back on track. Affordability is at an all-time high, thanks to low prices and record low interest rates. And, for the first time in a long time, consumers are actually returning to the market. With Spring home-buying season around the corner, we have a real chance to increase momentum in the market.

Yet, standing between us and this great opportunity for business are a few remaining thorns. Perhaps the biggest one is mortgage credit.

Sure, Congress raised the loan limits, purchased troubled loans from big lenders, and we even handed money to financial institutions and encouraged them to dole it out. One might say that large banks are awash in government money and support. So, why isn’t that money making it into consumers’ pockets?

We know that many banks have made underwriting so restrictive that good-credit buyers can’t get a loan. In many cases, they also have shut down their warehouse lending arms, making it all but impossible for small and mid-sized lenders to access funds. And, some of the largest banks are using pricing and market power to limit the flow of funds. In other words, while REALTORS® are working to help the economy, lenders are doing everything they can to boost revenue and avoid the costs of increasing capacity.

A couple of weeks ago I sent a letter to Treasury Secretary Geithner, Federal Reserve Chairman Bernanke, FHFA Director Lockhart, and FDIC Chairman Bair, asking that they get together and resolve this problem now. Our message is clear: The “buck” should not stop with big banks. – Charles McMillan, 2009 NAR President

  1. Thank you for your discussion of this. Once again, the banks have over reacted. In most industries people learn by history, but not in the banking business. They over loan and when it hits the fan they pull back. Decades ago lenders started making no income verification loans to those with good credit and 30% down payments and it made sense. Fast forward and banks made these loans to those with bad credit and no down payments. Now they are reluctant to make sensible loans. But, if they don’t make loans how will they earn an income? We have to stop giving them money.

  2. DaneO

    That article is so realistic! Thanks.Housing starts are down – which isn’t exactly a surprise, given that the housing market is in the tank. However, April saw fewer housing starts than the last few months, which IS surprising because April is when a lot of homes start to go up, more building permits are issued, and more people look into a fast loan for new housing. Slower starts were reported for multifamily homes, such as an apartment complex, as were multifamily unit sales and new home sales, and also military loans for new base housing. The housing market was incredibly hard hit by the recession, credit for housing has slowed dramatically, and mortgage loan modification has gone up as housing starts have gone down.

  3. Thomas Vogel

    Hi Charles,
    Let me share with you that it is not just value we have are having problems with. Because we have no ability to communicate directly with the appraiser, minor mistakes are causing borrowers delays, they are losing locks on interest rates, and transactions altogether.
    I had one this week where the number of units listed on the appraisal verses the HOA cert was wrong. Since we cannot contact the appraiser directly it took a week it get the error on the appraisers part fixed. Each day the seller threatened to cancel. The borrower almost lost the purchase altogether. I finally called the appraiser and left a message that he was going to be held liable if he did not change it right away. If we could have spoken to the appraiser directly, this would have been a 2 minute delay. Instead it took a week!
    In addition the new law hampers borrowers from refinancing, especially if they have few funds to spare. They do not want to risk the 425.00 for an appraisal they know it is a crap shoot at best. Instead they decide not to try. For the 20 years I have been in this business I would simply call my appraiser and ask him what he thought the value would be, he would check comparables and give me a range. I could then tell the borrower whether or not we could get it done. I would add the cost of the appraisal to the loan instead of an upfront cost and they were happy. I cannot do that now when I have no idea who is going to evaluate the property. Everyone loses.
    I would love to know if the attorney general has ever originated a loan before. What his qualifications are to mediate Real Estate Practice. This law is absurd. There is not a business in the world that runs efficiently when lines of communication are intentionally broken.
    If they want to solve lending practices, all they need to do is go back at a time when foreclosures were low and the market was moving forward, put those lending guidelines back in place. Nothing could be more simple.
    Thank you,
    Thomas Vogel
    West Coast Financial
    1 Bella Vita Way
    San Marcos, Ca 92078
    PH: 760-703-0433
    FAX: 760-591-3507
    A member of WCFRE, INC