Changes in the Mortgage Market
The last 2 years have seen enormous changes in almost all aspects of buying a home, from pricing to sales levels to the mindset associated with home ownership. Many of the biggest changes, though, have come in the mortgage arena.
In the seven year period from about 2000 to 2008, we watched as the mortgage industry moved from a few basic loan choices and approaches to literally hundreds of new (and quite different) offerings. It has only been recently that the industry recently returned to a offering a much smaller list of available mortgage products. A few of the mortgage loan types that quickly appeared and then almost just as quickly either virtually disappeared, or were severely limited, include:
+ 110% Loan to value mortgages
+ 125% Loan to value mortgages
+ Aggressive interest only mortgages (no down payment)
+ Negative amortization mortgages
+ No document–“liar” loans
In most cases it is “good riddance” to many of these loan products, since it was their existence that either added to or created the housing problems we’ve seen in the last 2 years, depending on whose analysis you believe. And, the effects of these loans, since they created so many “upside down” situations (you owe more on the home than it is worth) will continue to influence the market at least for the near future.
The changes in the mortgage market have had an influence on the sales activity levels because, in many cases, loan qualifying is much more restrictive. Less than 2 years ago it would not be beyond the realm of possibility for a buyer with marginal credit and no money down to be able to purchase a home using a interest only loan with an artificially low interest rate. Plus, the qualification ratios for this mortgage could have been so lax that a huge portion of the buyer’s income would need to be devoted to mortgage payments. It is nowonder that we’ve found ourselves in the mess we are in.
Today, that type of loan is impossible to find, which is a good thing for long-term housing prospects. A fairly high percentage of the foreclosures that we are witnessing are results of just the kind of mortgage loan described above. Quite simply, there were tens of thousands of buyers who never were able to come close to being able to afford the homes they had purchased.
In general, the mortgages that will be available today will probably look more like the mortgages from 10 years ago than they will look like those of the recent past. Yes, there still is availability of what are known as “hybrid loans” (a combination of fixed and adjustable mortgages) as well as some limited down payment loans. However, the majority of mortgages that are and will be available are much more of the loan types that were familiar to buyers for many years prior to 2000. This means a few things for the prospective buyer:
+ You probably will need some sort of minimal downpayment
+ You probably will not be financing more than the value of the home
+ You probably will need to qualify for the purchase–the lender must feel confident that you will be able to repay the loan
+ Your loan will not be structured on the hope that there will be a big increase in the home’s value in a short period of time
In the short term, this will mean that it may be a bit more difficult to finance a home than it has been recently. However, in the long term it will mean that most of those who have no chance of being able to afford the payment will not be purchasing homes. This converts to lower rates of foreclosure in the future which means that prices will eventually begin to stabilize and then start to appreciate again. And that will be good news for everyone.
If you are looking for a mortgage, make sure that you compare as many sources as you can. Check with your local bank, or, if you have one and they offer mortgages, your credit union. Check large, national banks. Then, make comparisons of interest rate, loan type, term and customer service to find the loan that best fits your needs.