Mortgage madness
It's March and we should be celebrating March madness and college basketball, not the mortgage madness gripping the media with the implosion of the subprime lenders and the impending foreclosures of those who cannot and may not make their mortgage payments.
Mortgages were given to people who shouldn't have gotten them. Speculators took advantage of lax underwriting to obtain mortgages on investment property claimed as their primary residence, put no money down and when they couldn't flip that house, or even sell it, are simply walking away. Other borrowers who wanted to simply purchase a home rather than rent but had tarnished credit were attracted to low monthly payments without reading the fine print, that their monthly loan payment would increase over time. In addition, they were being charged a higher interest rate because of their troubled credit history and of course, those who can least afford are often charged more.
Both groups have tried to sell and of course, real estate is not as liquid an asset as, for example, a stock. It takes time to sell a home. With lots of people putting their house on the market at the same time, there are not nearly enough buyers available to buy everything for sale. Charleston real estate has not really dropped in price in the past year, actually it is up a few percent. But there is plenty of inventory in Charleston and unit sales have fallen. With 8000 homes and condos on the market and 1000 unit sales per month, you can look at it as an 8 month supply of inventory.
Or you can look at it this way, only 1 out of 8 houses is selling. If you are selling, that doesn't sound very good.
If you listen to the media or read what is available online or in your newspaper, you might think that just about every home in the country is about to be foreclosed on with millions soon to be living on the streets. Not a pretty thought.
While the numbers of delinquent payments are increasing, let's not forget that all borrowers are not subprime borrowers. So when you see that 13% of subprime mortgages are behind or that almost 5% of all mortgages are delinquent, while both are too high, the glass half full says that 95% of all mortgages are being paid on time. One half of one percent (.005) are entering foreclosure. Ninety nine and one half percent (.995) are not entering foreclosure.
Many buyers did not understand the consequences of the mortgage that they applied for. While most lenders advise the borrower and must provide a good faith estimate of closing costs and quote a monthly payment, many buyers didn't necessarily listen or fully understand what they were getting involved in. As I pointed out in a previous post, I have had good credit in my life and not so good credit in my life and of course, I am fortunate today to have excellent credit. So someone who does not have good credit is not necessarily a bad person.
The reality of loaning money to someone who has a history of not repaying debt is to expect that new debt will not be repaid either. The trouble is that the mortgage originators didn't really care, they were going to sell the debt anyway. Now the people they sold the debt to want to be paid back and the originators actually promised to buy back the bad debts. The originators don't have the money, the people they loaned the money to don't have the money. No one has the money and in many cases, the collateral, the house, isn't worth as much as it was just a few months ago.
I personally work mostly with clients with very good credit but I once had a referral from out of town and they had made contact with a lender who it could only be kind to call predatory. The lender told me that I should add X dollars to the sale price and they would wrap it into the mortgage. I was a bit confused by that concept and when I asked why, the lender got irate and told me to stick to real estate and let him handle the financing. I explained to my client that he didn't have to do that, shouldn't do that and that should find a new lender. I referred him to one of the better lenders that I associate with who got him a loan that made financial sense and there was no need to finance additional X dollars.
The real estate market is not easy to navigate and an excellent real estate agent can make all the difference between a good transaction and a bad transaction, not just during the house hunt to closing but now, more importantly than ever, once you are in your home. Our referral network of service providers includes professionals that have been field tested and with whom I am totally satisfied with the quality of service they provide. I am proud to associate with them and have them join my team to help you in the purchase of a home.