Don’t look now, but a new era of mortgage lending is upon us and the changes are rapidly affecting the housing market. This article is designed to inform readers as to the drastic changes we are seeing not only to the lending guidelines, but more importantly to the industry as a whole. While some readers may disagree with my following comments and opinions, it is what I see from the inside on a day-to-day basis.
First and foremost, the industry is reeling from the regulatory changes put forth by those in Washington, D.C.. Barney Frank fired the first round of angry words in early 2007. In his opinion it was as he put it, “the mortgage brokers” who caused the sub-prime implosion. He cleverly shifted blame to the people at the bottom of the chain while ignoring what are the real facts as we now know today: It was greedy Wall Streeters along with large banks and hedge funds who were the true culprits.
What many people never realized was that a majority of the sub-prime lenders were owned by those now receiving federal monies, or in simpler terms, your tax dollars. Goldman Sachs, Morgan Stanley, Bank of America, Merrill Lynch, Citi and the list goes on, all owned operations that pushed sub-prime lending down to the pawns (mortgage brokers and mortgage bankers) to sell to consumers. As an aside, let’s not forget that some consumers caught the same greed as did some of the brokers and bankers. But the orders came from the top.
I inform you of this because as of today there are very few mortgage brokers operating and soon there will be none. Those of you who think this is a good idea may eat your words as we follow the efforts to leave only the large banks as your source of mortgage financing. New regulations, without saying as much, were designed to oust the brokers and were put in place in May. What does this mean to you? Simply, competition will be lost, fees that are already increasing will rise further and when rates do begin to climb, you will have no choice but to turn to the same people who began this debacle.
In my opinion, Barney Frank, Andrew Cuomo and Chris Dodd and others, have laid the groundwork for the future of lending and all financial services to be handled strictly by those who have been rewarded for their part in the sub-prime debacle, the banks and Wall Street.
As for the new era of lending, today’s borrowers have very few options. The programs have been whittled down to a standard 30-year mortgage with 20 percent down, an FHA with 3.5 percent down, VA loans, rural housing and just recently the return of some adjustable-rate mortgages. This is not a bad thing for the industry; however, you as a borrower will be required to jump through significant hoops to obtain financing.
As I tell as many people as possible; “There never was an issue for me to collect a pay stub, W-2s or tax returns to show the ability to repay. Further it was not me, or the many mortgage brokers who made the decision to not collect these essential items. It was the same people who will now be your primary source of mortgage products. It will be those same people who now have tightened the strings so tight that unless you are squeaky clean you will be declined.”
While this may appeal to many, try being one of those people who cannot complete a refinance due to the stringent guidelines imposed by the same people who put them into the unsustainable mortgage they have or for those completely underwater who need the same lender to simply lower their rate, but refuse. A tragic irony I see daily.
For young people who have run up credit card debt, auto loans payments, etc, and who have few dollars saved, buying a home will remain a dream. For those hurt by the sub-prime mess and those now hurt by the unemployment which I will attribute to the sub-prime and housing issues, you will not be able to obtain financing until your credit is clean.
The combined changes of new guidelines along with who provides mortgages and who does not, will greatly reduce the pool of buyers we drastically need. Yes, there’s a new era of lending happening and unfortunately as we have seen so many times before, it may not be in the taxpayer’s best interest. This dynamic shift to allow the large banks to control lending may appear too many as a good thing.
In my opinion, I say “watch carefully what you wish for.”
Joe Adamaitis, a senior loan consultant, works at Prospect Mortgage in Sarasota.