The mortgage lender meltdown by sub prime providers is the result of behavioral "cause and effect". Another description might be simple "selfishness and greed". Regardless of what it's called, it was no accident. It was actually predictable.
Once mortgage lenders and bankers evolved to the point they could sell their
mortgages as marketable securities, their desire or greed for more profits
overshadowed their basic underwriting fundamentals.
Home finance facts indicated many unqualified borrowers were actually encouraged to complete mortgage applications even though they would typically not be considered a good prospect for a home mortgage. At one time it was believed if you could "fog a mirror" you could get a mortgage.
For many of the sub prime lenders creating mortgages, packaging them for sale as "mortgage backed securities" and selling them to wall street investors was their pathway to riches. Instead, for many it signaled their destruction.
According to the Mortgage Lender Implode-O-Meter 62 lenders have now gone
kaput! That's the latest count of major US mortgage lenders that have croaked
since late 2006.
There are several lessons to be learned from what we have seen. First, as nice as it might be, everyone is not a good prospect for home ownership. Home
ownership is actually a privilege, not a right. Most long term home owners are
people of good character resulting from their experiences. They have learned the importance of expecting the unexpected and planning for contingencies.
Second, the creation of the sub prime mortgage lending market, which is
characterized by more stringent cash and credit requirements than it's prime
mortgage counterparts has always been a disaster waiting to happen. It just
doesn't make sense to expect people that have demonstrated they don't pay their bills on time or at all, to suddenly change their behavior because someone gave them a home loan.
These practices have created a reality in which we have the lowest mortgage
rates in recent history while also having the greatest number of foreclosures in
American history!
Third, add to this reality the fact that more than $1.1 trillion in ARMs (adjustable
rate mortgages) are scheduled to "adjust" upward over the next two years. The expectations are for the foreclosure floodgates to open unless immediate and dramatic actions are taken. Here's an example of what is being considered. FHA, the Federal Housing Administration, is being encouraged by the U.S. Congress to be reformed to become a more viable mortgage alternative.
That reminds me, we do have separation of powers in our form of government, and for good reason. Thankfully, this is America where we really don't have to depend on the U. S. government to solve our problems for us. Former Congressman and frontiersman Davy Crockett, from the great state of Tennessee once said, "A government big enough to give you everything you want is also big enough to take everything you have."
The message here is there are many ways to solve these problems. Proper
oversight of the existing structure will be a good beginning. There is no need to
reinvent the wheel. When most things get out of whack, we often speak of
"getting back to basics". This situation is no different.
There is also no substitute for old-fashioned creativity and ingenuity. As a matter of fact we know of some very simple, legal, ethical, and moral ways to sell and purchase homes that result in real capital appreciation instead of foreclosure for the home owner. It's not that hard to win when you have the right game plan.
By the way, there are very simple, creative, and profitable ways to sell or buy your next house without the need for a traditional bank or mortgage lender!
The need for alternative home financing is abundantly clear. Considering the
problems the banks and mortgage lenders are facing, it will be a while before
things get back to normal. We can expect certain voids to be created in the
mortgage lending markets while things get figured out and finally settle down.
A very simple yet very powerful alternative that is immediately available for home sellers and their home buyers is properly structured and creatively implemented seller financing.
The increased need for seller financing is created when there is a void in the
traditional lending market. The factors that affect the void are:
*Interest rates
*Borrower Underwriting - Credit and Income Criteria
*Acceptable Collateral (Yes Margo, redlining does still exist)
*The time frame to process the loan
In the old days property sellers took on a lot of risk to close their deals, and the
rewards were sometimes questionable. Today, with proper guidance, home sellers can fund their buyer's home purchase and get their cash at closing! This is just one solution to many of the problems. It's a great home mortgage solution!
Copyright 2007 TDO Properties, LLC All Rights Reserved
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