Current Market: August 2007 Archives
(I do use one piece of non G-rated language below. I hope you'll agree with me that it was necessary to convey the proper sentiment)
USA Today had an oped, "3 ways to help borrowers without bailing them out"
Bankruptcy reform. About the only debt a bankruptcy judge can't modify is a home mortgage. Borrowers used to get into trouble not because of unsustainable mortgages, but because they lost a job or got ill. Now homeowners commonly fall behind because they can't keep up with their mortgages. Bankruptcy judges should get more latitude to rework mortgages along with other debt.
That's because it's a secured debt. Indeed, it's a debt secured by a specific asset.
Indeed, mortgages on owner occupied property are already subject to more and stronger protections than any other kind of debt. It takes a minimum of just under 200 days for a foreclosure to happen in California, and we're one of the shorter period states. Notice of Default can't happen until the mortgage is a minimum of 120 days late. Once that happens, it cannot be followed by a Notice of Trustee's Sale in fewer than sixty days, and there must be a minimum of 17 days between Notice of Trustee's Sale and Trustee's Sale. Absolute minimum, 197 days, and it's usually more like 240 to 300, and it is very subject to delaying tactics. There are lawyers out there who will tell you if you're going to lose your home anyway, they can keep you in it for a year and a half to two years without you writing a check for a single dollar to the mortgage company. It's stupid and hurts most of their clients worse in the long run, but it also happens. Pay a lawyer $500, and not pay your $4000 per month mortgage. Some people see only the immediate cash consequences, and think it's a good deal.
While all this is going on, the mortgage company is losing money. That money isn't free to them; at the very least it has opportunity costs - other things they could be doing with the money and earning a profit. But lenders are paying a daily fee for almost every penny in their portfolio. They make money off of the spread between what they pay and what they earn. But if their earnings are zero for this particular debt, they're losing money on this particular debt, and they've got to make it back elsewhere - which means that everyone who doesn't default is paying a premium on their loans for everyone that does. This would cause future mortgage rates to rise, further exacerbating the decline in housing values and putting even more people into trouble. If you don't understand this, you need to go back to high school or read an elementary economics text.
Now allow bankruptcy judges to play with mortgage indebtedness, and there just isn't anything they can do that doesn't result in the lender losing money involuntarily. This is a government taking of private property, explicitly and without possibility of exception for private use. Anybody remember the Fifth Amendment? If it doesn't protect all of us, it doesn't protect any of us. The Kelo decision, which generated a huge flap, at least had a public entity taking title before deeding it over to a private developer. None of these cases would have even that fig leaf. Not to mention that in many cases, the lenders themselves are victims of fraud to one degree or another. In a large fraction of these cases, the borrowers and loan officers were assisted by the lenders employees and policies, but in others they weren't and the lender is just as much a victim as someone who's been mugged - and now we want them to get mugged again by the legal system?
A few more things on this topic: Real estate, being for high dollar amounts, is one of the most profitable targets for scams and confidence games. I can see the general outlines of half a dozen scams that would be enabled by giving bankruptcy judges the ability to modify mortgage indebtedness. I mean legally. Most people wouldn't do it to start with, but the temptation of having your mortgage debt legally reduced, or the payments that go with it, would quickly become very attractive. Get your mortgage debt reduced by $100,000 because that's what you can afford to pay and now you can turn around and sell for a profit. Get your mortgage payment permanently reduced from $4000 to $2500 per month, and either you have a negative amortization loan imposed by judicial fiat, or you have a loan that the lender is stuck with that's only worth about sixty percent of its face value. Especially given the general non-enforceability of "due on sale" clauses, this is not only taking property from the lender, but it's essentially going to require them to hold it for the full term of the note, as nobody in their right mind is going to want to refinance or pay that loan off. Net result: everyone starts working these scams. You think the situation is bad now? If the lenders were subjected to that, rates would go sky high, minimum down payment requirements would skyrocket, and housing values would crash worse than stocks in the period 1929-1932, because nobody would be able to get a loan on any sort of terms even vaguely comparable to what we've got now. We'd have people putting their houses on credit cards, not only because the rate would be comparatively attractive but also because most folks would be able to get a credit limit high enough to finance 100% of a property. Statistical Abstract has there being 123 million pieces of real estate with a median price of $206,000, giving an approximate total value of $25.3 trillion dollars. Under such a scenario, I'd be surprised if prices didn't collapse by 80%, wiping out $20 trillion dollars in wealth directly, or about twice the size of the national debt. Second order effects would increase, if not multiply, the size of the loss. The Great Depression would look like an economic paradise by comparison. All because you want to give people "a little help" and don't think about the consequences.
Lenders will modify notes on their own without compulsion from the courts if you can come up with a scenario where it's in their best interest - by which I mean they'll get more of the money they loaned you back, complete with interest. And if you cannot supply such a scenario, the lenders are correct to foreclose as promptly as possible. That's not just their money. More than half of all Americans have bond investments. It spreads out the risk and the pain, but don't kid yourself that corporations are the only ones hurt. They're not.
Tax code changes. Sometimes, badly strapped homeowners can persuade lenders to reduce the size of a mortgage to reflect a home's plummeting value or the homeowner's inability to keep up with the payments. Sometimes, the lender forecloses and a homeowner can walk away with no house, but also no debt. That would seem to be the end of the story, but it isn't to the IRS, which often considers either action as income to the borrower, and sends a big tax bill. It makes sense to alter the code to keep the tax collector from making a bad situation worse.
I've written on this tax consequence several times in the past. There are good reasons why tax law and tax policy are written that way. What we're trying to do is give people the greatest reasonable incentive not to try scams of this nature. Not to go into debt figuring that if it all doesn't work out, they can just walk away. We're all supposed to be adults. One of the things adults are is responsible for their debts. This is one reason why lenders are willing to loan money - because there are concrete reasons why it is in the borrower's best interest to pay those loans back. Remove that fact, and you've removed the underpinnings of our entire banking system. If you don't understand the economic consequences of that, at least in broad, have the courts declare you legally incompetent and appoint a guardian. You are not competent for any economic matters. You shouldn't be voting. You probably shouldn't be crossing the street without supervision and assistance.
Lenders give great rates on real estate because secured real estate loans are comparatively low risk. Secured real estate loans are low risk because people will do basically anything not to lose their house. Take away the risk of losing their house, and people will do a lot less. It's effectively no longer a secured loan. Combined with the protections mortgages have already, rates will be higher than any credit card. For all the beating of breasts and loud flapping of keyboards that goes on, most people are still handling their loans. Yes, lenders lose lots of money every time a loan goes bad. Ninety-eight percent of all real estate loans are still performing. Let that change, and risk goes up, rates go up, and nobody can get a loan and nobody can make the payments, and nobody will be able to buy, so prices come crashing down in such a way that everything we've seen so far will be as flatulence in a hurricane compared to what will happen.
The number one thing that puts people into home ownership is the ability to get a loan. Rich folks are going to be able to afford property no matter what. Those of us who are somewhat less well off depend upon our ability to use someone else's money. Take away that, and watch ownership rates plummet. As a society, we'll go back to living in rented massive slum tenements, simply because that's what'll get built because the average person simply won't have the economic leverage to afford decent housing, or to incentivize those well enough off to finance housing to build the sort of housing we want. Lionel Barrymore's character in "It's a Wonderful Life" seems like a caricature to us, sixty years later, but it wasn't a caricature at all at the time. The people who made that movie saw stuff like that and its results on a daily basis. Many of them - the ones who never became big stars or powerful producers and directors - lived through it. It only seems like a caricature now because the lending environment has become such that the average person can easily get a loan.
Education and advice. Sometimes, a home could be saved if its owner only knew that it was possible to renegotiate the mortgage -- and that a lender might prefer getting smaller payments to no payments at all. Scores of state organizations and non-profit community groups are working to educate and counsel homeowners, and in many cases to help them renegotiate their mortgages to keep their homes.
And 100 percent of those people could be saved by people doing a very small amount of research before they signed the contract. No sometimes or occasionally about it. But people won't do it. A lot of the people who did these loans to themselves were warned, and chose to not to believe the warnings. Poor disclosure requirements, blind trust in someone who acted like their friend. Lack of elementary common sense. When someone tells you that your payment on an $800,000 loan is $2573 per month (and there are many loans even worse than that out there), all it takes is the mathematical ability of a fourth grader, at most, to realize that even if it's interest only, you're only paying 3.8 percent interest and there just aren't any other loans out there anything like that, and maybe there's something going on that you don't understand. I told hundreds of people first person (never mind the over two million visitors to my websites) about the perils of those loans, and the vast majority of them bought the complete bullshit that someone else fed them because they wanted that house and this was the only way they could "afford" the payments, so they did the loans with other people. If I had just kept my mouth shut and done ten percent of those loans, I'd be richer than if I had won the lottery, instead of scrabbling for the occasional person who wasn't looking to buy a property they couldn't afford.
I'm not saying don't counsel people on how to make the best of a bad situation. But that's happening now, without this prescription, making it a null act, simply posturing for the cameras. One of the great things about the internet is that you can find the information you're looking for if you will keep looking, and cross check its credibility. "I found it on the internet," may be a joke when it comes to serious research, but you can find the correct information if you keep looking and cross check credibility, rather than just believing whatever you may find on the Flat Earth Society website.
I'm saying that the best time to stop this problem was before it started. People will fool themselves. Indeed, one of the most important measures of how free a society is, is the ability of an adult to decide to do something stupid after being fully informed of the consequences. Indeed, that's also a good definition of an adult - someone competent to make their own mistakes.
However, the law and our governments aided and abetted the sharks who took advantage of these people by making them appear to be in compliance with extensive disclosure rules that allow the sharks to hide all of the really important and nasty things behind a smokescreen of unimportant trivia. The people got so bored of details that just aren't important that they signed off on things that killed them financially without reading, presuming it was more of the same nonsense. The stupidity wasn't informed stupidity, because the lenders and agents were able to conceal the real mechanics of what was going on, and what would happen in the future. This gave even the shadiest operations enough of a veneer of legitimacy to pass the casual inspection given by someone who wants to believe it. There was nothing in all of that government mandated paperwork that explained the consequences that would follow, as certain as gravity. If there was anything, it was obscured by all of the nonsense. I can write (and have written) a one page loan disclosure that would guarantee nobody would ever sign off on one of these things without being informed, in big bold type, about the consequences. Such a disclosure is found nowhere in the requirements of any state, and even if it was, government requirements would allow it to be hidden in hundreds of pages of stuff like equal opportunity housing and equal opportunity loan disclosures, things that everyone knows about, and it's often in the lender's interest to comply with anyway (I can't imagine anybody in this day and age being stupid enough to practice loan or housing discrimination, and even if they were that stupid, I can't imagine them getting away with more than a very few instances before the law put them out of business). How about re-writing the disclosure rules so the deadly traps are as obvious as possible, and the sharks can't hide deadly financial traps behind the insignificant minutiae?
This article got a lot longer than I wanted it to be. The point that I am trying to make is that it's very easy to make the damage orders of magnitude worse by trying to be compassionate after the fact, thinking that you're "only" damaging "major corporations who can afford it", when the fact of the matter is that these measures would bring our entire mortgage and real estate system to a screeching halt. The correct tack to take for the future is to make it impossible for people to fool themselves before they get into trouble. As for the present, yes, people are going to get hurt. But the system will work its way through the problems. I am opposed to any mass bail-out of lenders or those who voluntarily signed upon the dotted line. Especially if it's taxpayer financed. Indeed, I want to see the lenders and brokers who did this stuff sued and bankrupted by the investors and borrowers they suckered, and the money managers who should have known better sued and bankrupted by the people whose money they mismanaged. Such results discourage and prevent repeat performances of the sorts of things we have just lived through far more effectively than any mitigation proposal I've heard, with far less long term damage. Bail-outs allow the offenders to escape the full consequences of what they did, much like during the savings and loan crisis, which in many ways, set the stage for what's happening now. The best thing we can do, the best proposal I have heard, is to allow the consequences to happen. Otherwise, we'll be going through the same sorry mess, even worse, in a few years. As hard as it may be to stand by and watch people get hurt, I have yet to hear any better proposal that will help them without making the problem an order of magnitude worse.
In the last week or so, nonconforming A paper has really been hit. While available conforming rates have actually gone down, nonconforming has gone up by over half a percent. Picking one of yesterday's rate sheet at random, I can do a 30 year fixed rate loan at 6.5 percent at retail par (in other words, no points to the consumer). I appear to have picked one of the worse spreads because I know I've got better than this, but the lowest fee from the same lender on the nonconforming table is 8 percent - which costs 2.5 points retail (I just priced one at 7.25 for 2 points retail).
Fannie and Freddie backed loans are doing just fine. The issue is that "stated income" loans of conforming size traditionally use the same rate table as larger "full documentation" loans. Since the real problem appears to be stated income - even at high credit ratings - tarring both customer classes with the sins of one is not exactly the most competitive thing that lenders can do. I can think of three or four possible fixes to the situation right off the bat. I expect that the smart folks who are paid the big bucks by the lenders to be able to think of all of these and more. I further expect the lenders will do something on the individual lender level as quickly as top management can agree upon what to do.
Now conforming is what those whose properties are worth up to 125% of the conforming limit of $417,000, or $521,250, should be looking for. This is most folks, even in high priced San Diego. As long as Fannie or Freddie likes your loan, rates are still good and the loans are easy to do. This is part of the reason for my mantra about "guard your credit and only sign up for loans you can afford."
For Fannie and Freddie, investing in mortgages is what they specialize in. In fact, it's the only thing they're allowed to do, assuming I understand correctly. Other investors are allowed to do other things, and right now The Word is out the mortgage investments aren't as secure as they usually are, so investors are panicking and doing other things even more than is rational. Panicked people do strange and silly things, as anybody who watches the financial markets knows. It'll likely settle out fairly soon. Meantime, the tightened supply of mortgage money means that if Fannie and Freddie don't like your loan, the price of the money is going to be higher.
The buyer's market is rapidly aging. Properties that are priced correctly are moving, and moving well. On properties with potential for profit, they're moving fast, and sometimes getting multiple offers. Of the last twelve properties clients of mine were seriously interested in, four went "Pending" before they put an offer in, and three more were situations where the listing agent claimed there were multiple offers, and in retrospect, I believe that contention. Bargain property is moving.
This isn't just personal experience. I do get a fair amount of exposure to the experiences of other agents. Four other full time agents in my office, and dozens of others through property scouting. Another agent in the office had a Notice of Default hit her listing. We told her she'd get an offer if the client reduced the price to where we told her. She didn't get one offer. She got four offers within forty-eight hours, and we were able to play them against each other to get almost the previous asking price. I wouldn't say that's a statistical argument that can be extended to the entire San Diego market, but with as much direct evidence as I've accumulated, I'd say it goes beyond merely anecdotal evidence. The market is getting ready to turn.
This isn't to say it's a great time to be a seller. It isn't. Many sellers - and listing agents - seem to have their heads stuck in the days of two years ago, where a highly upgraded property meant a major boost in selling price. No longer. The buyers out there now are highly sensitized to both price and condition, and they are looking for the best overall bargain. Not just beautiful, highly upgraded properties, but at a competitive price also. With the seller to buyer ratio having ballooned to 42 to 1 as of the start of August, they are getting both.
Here's what I'm telling my buyer clients: There's nothing out there right now that's worth getting emotionally attached to before the sale is consummated. If you like the property, make an offer of an amount you would be happy to pay for that property. If the seller will sell for a price you're happy with, great. If not, I'll find you something just as good where they will. If this seller won't deal, the next one will. A large proportion of sellers don't have any choice. They have to sell, most of them because they really couldn't afford the property in the first place. Security guards making $33,000 per year should not be getting $800,000 loans, to name one situation I walked into not too long ago.
What I've told prospective listings is "If you have any choice, don't". I've got signed instructions to keep my one listing as a "pocket listing" until next Spring. In other words, if I can bring him a buyer, great, but don't market the property via MLS or other mass media. But he doesn't have any particular need to sell. If he did have a need to sell, I'd tell him to make it as pretty as possible as cheap as possible, price it as low as he can stand, and be willing to negotiate his price so low it hurts - and maybe a little bit more. If he doesn't need to sell so bad that he's willing to do that - and he's doesn't - then he doesn't need to sell and should wait for a better market for sellers. The only way to attract a buyer is to out-compete the other 20,000 sellers out there for one of the about 500 serious buyers' business. Location and physical size are fixed. Condition and price are not. The buyers out there are highly sensitized to everything. Instead of a beautiful gourmet kitchen boosting the sales price by $25,000, what this market means instead is that an otherwise identical property is more attractive at the same price than one that hasn't got it. You are unlikely to get enough extra money to notice. What you are likely to get is the property sold, while the otherwise identical property sits on the market for the same price.
Indeed, the property in less than desirable condition is going to sell at a substantial discount, if it sells at all. There's starting to be substantial opportunity for flippers once again, albeit with the mirror image of the way things were going two years ago. Instead of buying at the market price and selling the upgraded property at a premium, now they're buying at a large discount and selling the upgraded property at about market price. It may be intelligent, but the average buyers out there aren't interested, and they're not willing to deal with the ten people who'd rather be foreclosed upon than take the only offer they're going to get to get to the one who will take the offer. I hate short sales and I admit it. Most of the profitable opportunities for buyers out there right now are nonetheless ugly properties in a short sale situation. Not just for flippers and investors, either. A family that wants a place to live that they're willing to fix up can do extra-ordinarily well for itself right now. It's better to buy at a discount now, when you are in complete control, than to hope for a premium when you eventually sell. This is also the historically normal way of the market.
The San Diego market has been on the bleeding edge of the national trends through this whole boom and bust cycle. The "good news" that came out of that was that all of the exotic programs that are usually dead were still available to the less ethical loan officers, at a point in the cycle where they're usually historical toast. The bad news was that while the rest of the country was still going gangbusters, we were basically banging our heads on concrete walls in trying to get short sales approved by lenders. Well, the lenders now have their heads in the right place to approve short sales, just when there's signs of a rebound in the local market.
Indeed, the slopes and inflections in trend lines had me believing we might see a small bit of recovery this year, and we actually have, if only at the most competitive edge of the market. Now, with the peak spring and summer season largely past us, I think we're going to see the buyer's market mostly continue until spring of next year. This means another several months where those buyers who are willing to come off the sidelines at a time of year when most buyers aren't are going to be able to drive hard bargains. Sellers can either choose to out-compete other sellers for the buyers that are out there, or have the property sit unsold until the market turns. Even in trendy, highly desirable communities, buyers currently have the power. As a seller, you can accept this or your property can sit unsold. The longer it sits unsold, the less bargaining power you have.
Here's the statistical run-down on the most recent six months: 13,272 properties sold, 3335 in escrow - versus 19,265 canceled, withdrawn, and expired. Assuming seventy percent of those in escrow eventually close, that's about a 43.5 percent probability of any sale at all - in the best time for sellers there is. On the other hand, the comparable figure last year at this time was 39.8% - and last year I didn't discount pending sales by thirty percent - I just took them as presumptive sales.
Furthermore, we're now in the period where most of the unsustainable loans that were written have already bitten the people they are going to bite. We're coming up on two years since the music stopped and everyone ran for the sidelines locally, which means that most of the two year fixed rate loans have already adjusted, and many, if not most, of the negative amortization loans have already hit recast. Furthermore, unless they've been living in a cave, and they haven't - they bought a home - almost everybody who has an upcoming adjustment they can't afford has figured it out. Their homes are already on the market. The difference between selling now, before the Trustee Sale, and later, after the Trustee has deeded it to the lender, are not large as far as the buyers are concerned. The only difference is that after the Trustee Sale, the lender knows how much money they're losing every day.
My point is this: There's only so much desperation out there, and we've already seen the largest influx of it into the sellers' listings here locally. San Diego is a resilient market, one of the most resilient in the country. People want to live here. People are willing to pay higher prices to live here. The ones making more income than national average - a large percentage with technology and biotech and defense and other highly paid industries here - can afford to pay those prices. That's the demand side. On the supply side, there just isn't a lot of dirt left. Unless we change our laws and attitudes about what constitutes a buildable lot and the acceptability of high density housing, there just isn't a lot of room for our population to grow further. We're hemmed in by immovable obstacles on about 330 degrees of the circle (The Pacific Ocean, Mexico, Camp Pendleton, and Cleveland National Forest). Since this is the United States, and we don't tell our citizens where they can live, the way we discourage people from living here is that the price will keep going up until enough people decide voluntarily that they're not willing to pay it. Thus far, we haven't lost as many people to out-migration this cycle as we did last cycle. Back in 1991 and 1992, U-Haul was essentially allowing people to move here for free, there was such a demand for their inventory on one way trips out. They haven't gone nearly so far of late.
I'm also seeing a lot more pent-up demand this cycle than we had last cycle. Instead of moving out, people are waiting for the market to hit bottom. Well, the local market isn't going down as far as most people think it is. As I've said, at the most competitive edge of the current market, sellers are seeing not only fast action but lots of interest. People are willing to pay those prices. People are very willing to pay those prices. Even with the psychological fear of further market decreases, those who are willing to buy are not only willing but also able to pay current prices. So much so that they're practically racing to be first in line when they find something that is a worthwhile bargain. What do you think is going to happen as soon as the average buyer, who's been holding off for two years, gets it into their head that the market may have hit bottom? Without the psychological fear that's keeping them on the sidelines now, expect to see a large influx of serious buyers, drastically curbing the ability of buyers to drive harder bargains. In short, a seller's market. It's a positive feedback effect. The more people come off the sidelines, the more strongly the market will turn, and the more people will want to come off the sidelines.
As I said yesterday in my loan market article, the gonzo 100% stated income low credit score programs are gone, and they're not coming back any time soon. This means you're not going to see the same kind of frenzy as drove the market three or four years ago. Personally, I doubt that sellers - or listing agents - are ever going to have that kind of power again. The loans that enabled that stuff are no longer being offered. People are going to have to have at least two of three things: Good credit score, a significant down payment, and ability to prove they make enough to afford the loan. Failing that, they're going to pay very high interest rates, high enough to keep them out of properties that they could otherwise qualify for. That's going to keep a damper on market increases, at least until the lenders develop collective amnesia again.
At this point, where most of the buyers who are going to buy this year are already out there in the market, I don't think the market is actually going to turn until next Spring. Meanwhile, those buyers who are willing to come off the sidelines now, before the market has actually turned, are going to be much happier than those who wait until the market has already turned. The time of very best bargains locally is already past, but since I don't know anyone with a time machine, we have to consider what we've got looking forward.
While the subprime meltdown continues, A paper rates have actually dropped a little bit in recent weeks.
Subprime is in a world of hurt. Lenders are fleeing the market for below average credit in droves. It seems like every day, we lose the capability to do something or other, and the rates have gotten high as well. I just priced a 580 credit score on an 85% loan. Rate/term, no cash out. Six months ago, I could have found something around 7% par. Today's best rate? 10.7% at par.
The last several years, with real estate values rapidly appreciating, it was hard for lenders to lose money. Even if the property did go into foreclosure, it would have appreciated in the meantime, and the lender would get their money. That's no longer the case. Properties aren't appreciating, and as a result, subprime lenders are now having to price loans for the borrowers to bear the full risk of their low credit score.
I've been saying for some time that if you don't have good credit, the rates are going to have to rise. That prediction has now come true. As of when I'm writing this, I could do that same loan A paper at 6.25 at par. Cost of having a below average credit score? 4.45 percent! If your loan balance was $400,000, that equates to $17,800 per year in increased cost of interest!
Alternatively, that below average credit score means that instead of a $400,000 loan someone with good credit and a monthly income of about $7000 can afford, you can only afford a $265,000 loan. Instead of a 3 bedroom house with a decent size lot, you're in a two bedroom condo, at best! If you could have paid the bills but chose not to, you have only yourself to blame. It's hard for me to imagine anything but a house or a business that's worth spending that kind of money, and credit scores can be improved if you're willing to try.
Furthermore, it's getting harder to find subprime lenders willing to loan at high Loan to Value ratio (or CLTV). This means that you have to have a bigger down payment than someone with a better credit score. I can still do 100% loans, usually split 80/20, pretty darned easy if you qualify for A paper. It's getting to the point where it's a waste of breath to ask subprime lenders for 100% financing. This means that you can either have a substantial down payment, or you can improve your credit, or you can remain a renter. Given the economic advantages of home ownership, you don't want to remain a renter. Of the remaining two options, it's usually quicker and easier to improve your credit than it is to save 10% of the price of a $400,000 property. How quickly could you save $40,000 if you had to?
Stated Income, especially for low credit scores and high Loan to Value Ratios, is rapidly going the way of the dodo. 100 percent stated income is essentially gone. The lenders want you to have some serious equity, so that if the property gets foreclosed upon, they're likely to get their money back. The lower your credit score, the more of a down payment you're going to need. negative amortization loans are finally hitting this wall, as well. Not only do those lenders living on those abominations want a higher rate, they also want you to have enough equity so that they're going to get every penny when they foreclose. As a result, fewer people are willing to sign up for them, and fewer still qualify, a development I am all in favor of.
Lenders, specifically sub-prime lenders, have in the past few months suddenly re-awakened to the possibility that they're going to lose money in the real estate market. Those who have been advising people that they're not risking anything with 100% purchase money loans because "purchase money loans are non-recourse" are soon going to be the subject of court and regulatory action, not to mention that the lenders are no longer willing to cater to that line of thinking - at least not for those who have demonstrated that their credit rating isn't important to them.
It is not difficult to qualify A paper. I have in the past done A paper loans with 100% financing at a 630 credit score. More people qualify A paper than think they do - and if you'll work at it, getting yourself a thoroughly acceptable credit score of 680 or better usually doesn't take very long. Now, more than in the last few years anyway, being able to show that you make a habit of paying your bills on time is worth some serious money. It also means you can get the loan now, instead of several months in the future at best. And, as tomorrow's article will attest, you really want to buy now if you can.
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