For anyone who really knows whats the deal with this down turn in real estate?

Question

Im a loan officer who began this career 6mths ago. It seems I started when the housing market really started to go south. my predecessors where closing 10-12 loans a month with ease where im literally closing 1 a month with great struggle and frustration. My knowledge of loans and mortgages increases day by day but its really difficult for me to figure out why it really started going south and why over this past weekend half my lenders either closed shop or are asking for fulldoc owner occupied only, or they are asking for 10%-15%dp when 4 days ago i could get 100% finance under the same senario. as time went on i assumed the cause was the borrowers not making payments therefore the mortgage companies would start dieing out. my boss told me in the recent past a lot of mortgage companies provided programs that gave out loans too easily to people who would be a major risk. so for the greatly learned out there what is the cause of it all and what would be the slow nationwide solution(s)

Answer 1

lenders were lending to anyone and everyone without really thinking "can they afford this". Now that the real estate market has slowed and prices are not going skyrocketing anymore (even going down in some places) people can't take the easy way out and sell their property to pay off the lender now. Also, adjustable mortgages are resetting and people are now finding that they can't afford the new price for their mortgage payment. Toss in mortgage brokers who fudged figures so that borrowers could get a loan, builders who just kept building figuring that someone will buy the property. Whole bunch of reasons.

Answer 2

I've been a mortgage lender for more than 20 years and this is the worst shake up I've seen yet.

From my perspective, what happened was that the economy was rolling along at a good rate and people were able to pay their bills but growing ever deeper in consumer debt. Because mortgage investments were showing such a great return the investors offered more and more programs featuring relaxed credit requirements and initial investment requirements for borrowers.

Now the economy has slowed, income has not grown as expected and borrowers who demanded access to homes that stretched their payment abilities are now finding themselves unable to meet their increased obligations. In an effort to relieve themselves of the higher payments they have listed their homes for sale resulting a glut on the market that in turn creates more supply than demand.

When they cannot pay and cannot sell the foreclosure and deed in lieu rates soar and those lucrative investor returns evaporate. Since no one can operate at a loss indefinately, the investors first tighten guidelines and then, as losses grow, withdraw from the market completely.

There will always be prople buying and selling homes. We simply will not see the volume we have seen for the last 20 years and the day of the "order taker" loan officer is gone. Those who will succeed in this market are those who have developed the tools to base their business upon carefully crafted relationships and are willing to work long hard hours to get and keep it.

Answer 3

i am a loan officer and i can answer this. yes, alot of it is greed. The buyers and lenders are both at fault though. The lenders promised people these low interest rates and very low monthly payments so they could get the deal and their comission. what they did not tell the people was that this causes negative amortization and they will end up having to pay alot more in the end and their payments would increase. 2) Most of the big companies that are closing also allowed for "stated income". alot of the income that was stated was not actually true, people werent actually making as much money as they stated on the loan application. 3) people purchased houses that were too expensive for them. so bottom line is.... people could not pay and the lenders are suffering because of it. they are working on a solution right now which is regulation. no more stated income and approving people with horrible credit is a start.

Answer 4

This is analogous to 1929 when Stocks became overpriced and then the liquidity was sucked right out during the Crash and resulting Depression.

In 2003-2007, Chinese and other Asian investors - working with the Fed - injected huge liquidity into the American (and other world) economies by driving up real estate prices and issuing mortgages to anyone. About a year ago, the liquidity party ended and now the Euro and Pound have skyrocketed against a weakened dollar and the Fed is doing everything in its power to ward off inflation and double digit mortgage rates - which was what happened in the late 1970's. Bear in mind that there were not wealthy Asian investors in cahoots with the Fed back in 1929 - this current situation could make the Great Depression look like a baby's temper tantrum.

Answer 5

Well let us take a look at the scenario over the last 10 years
Housing rising at double digit inflation
Wages rising at 2-4%
Energy prices doubling
Easy credit because of reason #1
Interest rates rise exasperating reasons 2 & 3
Everyone saying no it is just the subprime market now showing that is not true
Tightening of credit with many homes on market producing less eligible buyers.
People using their homes as an ATM to lose equity at cheap teaser rates
Market correction that will ultimately lead us into a recession
The correction and following up clime will not happen until housing prices get in line with wages, in comparison to cost of living, especially energy prices. Have been predicting this would happen for six months now, time has shown that I have been right.It is not just supply and demand, but supply, demand, and available funding that drives the economy, we have lost one of the three. The subprime market was just the beginning as those where living the closest to the edge, it is now starting to go beyond that to the Alt-A market and I foresee it going even further than that. The root cause was not the subprime market but the advance of home prices fueled by speculators looking to make a quick buck, thus artificially inflating the worth of those houses.

Answer 6

You missed the boat.

The easy money has been made.

When real estate goes up. Lenders are willing to loan to anyone who can fog a mirror.

The risk of default is very low.

Now that prices of Real Estate are going down with all the mortgage re-sets lenders are "Backing away from the table"

Think this sub-prime mess is going to get better?

Think again!

Look at the mortgage resets for the subprime mortgage market next year.

Aug (07) 52 Billion Dollars
Sep 58
Oct 55
Nov 52
Dec 58
Jan (08) 80
Feb 88
Mar 110!!! WOW
Apr 92
May 72
June 75
July 50

Answer 7

Your boss is correct. Two years ago, a ham and cheese sandwich could be qualified to obtain a mortgage. Lenders were giving out ridiculous loans on the premise that the real estate value market would continue to go upward, so they had no real fear of foreclosure, since the increased values would allow them to at least get back their investment if a foreclosure occurred.

Suddenly things changed. These silly loans started heading to foreclosure at a very rapid rate and the market started to become flooded with unsold properties, causing valuation drops in many markets, which just further accelerated foreclosures as owners walked away from homes on which they owed far more than market value.

Because of this fiasco, lenders started screwing down tightly on formerly loose criteria to underwrite a mortgage. What you are seeing now is a normal flow of folks (financially stable) who are in need of a mortgage. The riff-raff is now out of the picture.

Answer 8

Your boss has largely answered the question. There are 2 primary factors behind what it going on today.

First off, property values have risen beyond reason in many parts of the country. When this happens, the market will eventually "correct" itself. In the interim, in some areas builders overbuild on specuation of continuing price increases. This compounds the problem when the market corrects as there is now an excess supply on the market. When you combine an overheated market that is cooling its jets with an oversupply of housing, prices will head south.

During the "boom" interest rates were unusually low. Buyers were able to buy much more house than they normally would have been able to afford. Some of them had marginal credit and were schmoozed into taking on excessive debt with short term teaser rates by unscrupluous lenders looking for a killing. When those notes started to adjust to market rates earlier this year, many of those buyers found themselves unable to make the payments on their homes and walked away. This dumped even more properties onto an already saturated market and put further downward pressure on prices. The greedy lenders from 3 or 4 years ago found themselves with a large block of non-performing loans on their hands backed by properties worth far less than the outstanding debt. We all know what happens when you owe more than you own -- you go bankrupt -- and that's exactly what has happened to those lenders.

Answer 9

its both, lenders were lending high risk, no down pay, and buyers were closing loans with shotty at best intuitions. then the off set of arms swung into position, begining the foreclosure fiasco, people began the refi and with these substandard lenders and brokers who had the dwellings appraised at the highest numbers, rendering their loans actually higher than the market value, next time there flipping arm swung again they couldn't make payments, in many coastal states escrow accounts Begin and still are flying wildly out of control due to the quadrupling of the homeowners insurance and their counties were reassessing property values thus increasing their insurance payments, to where the borrowers were paying in 500 a month to their escrow accounts on top of the loans.
now they cant sell the homes cause the loans are higher than the resale, and people are stuck in a tight spot and giving it back to the bank, the bank is loosing gobbs of money on each foreclosure and off to freddy mack fanny mae they go.

Answer 10

I share your fustration, I'm a Realtor and I've been experiencing this slow down for 3 years now and I've been in the business for 19+ years.!

If you can still salvage your day job, I would ask for it back. I don't see this turning around any time soon.

As for me, damn I hate the thought of working for some smoozer who thinks they have all the answers again!