Lender changes will create more foreclosures
August 14, 2007 | Foreclosure | 
2 comments
Last week the lending market changed dramatically as secondary lenders pulled their credit lines for stated income jumbo products. Many lenders have had to eliminate jumbo loans entirely. The entire Alt A classification seems to be all but eliminated.
As these credit lines were pulled many mortgage brokers went out of business almost overnight. Pipelines of loans that were ready to fund were turned away in the 11th hour. Many of these borrowers now have no options.
The real problem lies with those who are in mortgages now that are adjustable, or that will become adjustable in the near future. Especially those that purchased in 2004 on a 3 year fixed rate that is expiring now. These homeowners have seen depreciation in values. Many of them were 90-100% financed in 2004. In fact, purchase or not, anyone with a loan that originated it in 2004 - 2005 @ 90%+ financing is in a pickle unless they paid more toward principal or can fully document the required income and assets.
Unfortunately, many of the homes purchased in 2004 - 2005 are not worth anywhere near what they sold for then. Many of these are homeowners that have made their payments for the last 2 - 3 years, have decent credit but they can not qualify for the same products that they did when they purchased the home. 100% financing is almost completely gone except at very high rates and with many restrictions. In current lending scenarios most of these homeowners will not be able to refinance out of their current loan.
This will cause huge grief for anyone who is living at a break even every month now. They will not be able to afford the higher payment the adjustment will bring and they do not have the credit to get them out of the loan.
The credit that was good enough to get them into the loan is now not good enough to get them out of it. Things are going to get a lot worse before they get better if the secondary market (the wall street lenders that buy most loans) doesn’t do something to correct that.
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It looked like this was coming quite sometime ago. It has been talked about on the Fox Newsnetwork, Niel Cavuto and the Saturday morning programs as well. It was definetly blowing in the winds and we all should have seen the handwriting on the wall. I don’t think we have seen the last of it yet…..still more surprises coming I am sure. - Jerry