I found this article on RISMedia this morning:
I can’t find anything to disagree with in the more conservative lending guidelines that banks are using. If you have been around this business for a while, you know that a few years ago a rock could get a mortgage loan. (And obviously, rocks can’t pass the “mirror test” — this really did get crazy!)
I do have a couple of concerns about the contents of this article, though.
First, the time to get all this right is before buyer and seller are beyond “the point of no return.” For example, even though I understand FHA’s motivation behind their Loan Quality Initiative announced last month (see Fannie Mae Loan Quality Initiative), pulling a new credit report three days before closing raises the potential for some significant problems. If it turns out the borrower ran out and bought a new car or lost his job, stopping the loan may well be the right thing to do for FHA, but what about the seller who relied on that closing? By that point in the process, they have probably already packed and begun paying movers and/or storage companies, they have probably committed to the purchase of their next home and will likely lose earnest money, inspection costs, etc., and maybe even accepted a transfer or quit a job in the expectation of relocating for another one without the burden of the mortgage that will now not be paid off.
I know agents who have had banks refuse to fund loans even after closing! Fortunately, I have not been involved in these situations, but one closing last month took ten days to fund because of a “last minute detail” that the lender came up with. (And solving that problem cost my seller an extra $1,000!) Is this really the way this business should work?
Second, at the end of the article there is a paragraph about the rise of “private lenders.” Check out the website linked there and you’ll see “Featured Loans” with LTV at 50% or less and interest rates in the 12% range. Yes, that’s 12%, in a 4.5%-5% world! If this is just a new source of hard money, that’s fine. Investors should know what they’re getting into. But I can’t picture a situation in which I would suggest to a buyer looking for a home that this is a good alternative. They’ll be much better off saving some money and fixing their credit issues. Wait a couple of years to buy a house — don’t sign up to be gouged for thirty years!
Again, thank goodness that mortgage lenders have decided they prefer working with borrowers who are likely to make their payments. This pendulum is swinging WAY too far in the other direction, though. There have been plenty of time now to find some balance.