Sunday, March 30, 2008


As noted earlier on these pages, the mortgage industry – having thrown prudent underwriting standards out the window over the past number of years, is (along with the investment banking industry), not solely, but greatly to blame for the current mortgage crises/fiasco, and, by extension, the extreme economic downturn of late. But, to add insult to injury, they now continue to make the situation worse. How? Rather than returning – as they should – to the common sense underwriting practices that had (for the most part) ruled the mortgage industry until the last few years, those in the industry (not all, but most) have now swung the pendulum way too far in the other direction. Borrowers with no money down, no income verification, and (in essence) no ability to afford to buy a home are now being denied financing (a good thing, and long overdue). But, additionally, borrowers with sizable down payment amounts, sizeable and steady incomes and good (sometimes, even very good) credit ratings are also being denied financing, or offered relatively poor financing terms (a decidedly bad thing).

The reason for this, of course, is that the mortgage industry, having gone on a bender of lending, and having caused all manner of havoc while doing so, is, like the person who got drunk and overturned all the furniture last night and, with a hangover, acts extremely contrite and cautious in the morning. That may work for the weekend partier – it doesn’t and shouldn't work in the lending industry. As harmful as the extremely lax lending practices of the last number of years was, so too is the overly cautious lending practices the mortgage industry is instituting today. For the economy to get back on track, the real estate buying/selling industry (and all the industries it effects -- builders, designers, furniture manufacturers and sellers, property
inspectors, appraisers, home improvement specialists, and lawyers, to name but a few), has to get back on track. And the only way that’s going to happen is for the mortgage industry to lend money to those who prudently qualify. But, because the lending industry is now under the microscope, they’ve gone into an overly tight, ‘cya’ lending mode (as one local mortgage rep., referring to the lending industry, stated recently, “It's just not nice out there right now and it’s getting worse.”

What can prospective homebuyers and refinancers do about it? Unfortunately, not a lot. It took the lending industry a number of years to get itself into this mess, and it will take time for them to get out of it (and, as an outgrowth, go back to the prudent underwriting standards they never should have abandoned in the first place). In the meantime, the few things consumers can do are: 1) recognize that unless you have pristine credit, very low down payment loans are going to be much more difficult to get; 2) Make concerted efforts the to raise your credit score (the technique for improving one’s credit on the website is one place to start); and 3) seek pre-approval for a mortgage well in advance of when you plan to purchase or refinance, to find out what you can, in fact, qualify for in this tight lending market, and to learn from your prospective lender what specific things you can do to your financial situation to improve either your ability to acquire financing and/or improve the terms of financing you qualify for.