By Kay Wilson-Bolton
March 5, 2007
The lending community has either caught on, or been caught; and the days of many creative loans, created just to make the deal, are over.
Subprime loans (less than desirable but available for those who need them due to low FICO or credit scores) have been all but eliminated for the next generation of homebuyers. Many of the subprime lenders are suddenly out of business.
Real estate agents who promoted these loan programs share in the responsibility for the hardships on borrowers who cannot now make their payments. There is no doubt that these loans were viewed as great opportunities as home ownership potentials were created, but there is a price to pay for programs that appear to be “too good to be true.”
Also on the wane, if not disappear, is the “stated” income loan where a borrower can simply state their annual income without proving it. If the income stated lines up with the charts of predictability, the loan can be approved.
More and more loans will be approved only after full documentation, like the good old days. The adjustment to this trend will have as much impact on the housing market as any we have seen to date.
Many of us view this as a favorable move towards the stability of families and homeowners across the board. Some borrowers are able to make the sharp adjustment in payments based on the adjustments in their interest rates; many cannot.
The results are catastrophic for most, but for those who had no investment in the property in terms of down payment or closing costs, it is easier to walk away.
Banks are working with borrowers on short payoffs, but they are making borrowers work for approval by requiring hardship letters, tax returns, monthly bank statements, budgets and explanation for spending propensities.
Banks are not paying buyers closing costs and they are requiring agents to reduce commissions. They do not want to foreclose on borrowers, but they are not taking losses lightly.
A cycle of adjustment is ahead of us. It is overdue and it is the right kind. We might see predator lending practices disappear.
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista and CENTURY 21 Ability. She brings a regional perspective to local issues. She can be reached at 805.340.5025. Her website is http://www.readysetkay.com