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Marie asked:
It is my opinion that because so many people are defaulting on their mortgages, they are probably defaulting on other loans in order to try to keep their homes.
It is my opinion that because so many people are defaulting on their mortgages, they are probably defaulting on other loans in order to try to keep their homes.
If a high percentage of Americans have bad credit, then will the financial industry have to lower the standards for credit in order to continue making loans/money????
I worked in the mortgage industry until recently and am aware that lending practices are becoming stricted because of the abundance of foreclosures. But eventually these companies are going to feel the effects of these recent changes and will have to offer subprime mortgages or lower the standards if they want to stay in business.
Tags: Abundance, Foreclosures, Money, Mortgage Industry
September 13th, 2008 |
Tags: Abundance, Foreclosures, Money, Mortgage Industry
September 15th, 2008 at 2:22 pm
Gee no! It is making it harder for even people with outstanding credit to get loans. In other words, the credit market is tightening its standards.
September 16th, 2008 at 6:57 pm
No - it will force people to live within their means and stop using their homes as giant ATM machines.
September 17th, 2008 at 3:18 am
A lot of the foreclosures are being gobbled up by people who would otherwise be unable to afford a home.
The interest rates are LOW!
The problem might come when the banks and lenders run out of money to fund this sudden spike in home buying. And, from what I hear, this is going to continue well into 2009.
September 19th, 2008 at 11:02 am
Your question supposes that mortgage companies have to continue to make loans. They don’t. They can go out of business, and many small and medium ones have. The larger ones are part of a diversified financial services company and can get dragged along for some time.
Most mortgage companies don’t have any money to loan. They “originate” loans for a fee and then these loans are funded by investors. The recent experience has shown that investors can’t make a profit by loaning money to people who don’t pay it back. A few extra percent for a “high risk” doesn’t make up for a 40% write-off of the principal, which has been typical with many recent foreclosures.
If investors will no longer take sub-prime loans at any price, the mortgage companies can’t originate them. No origination fees means out of business.
September 22nd, 2008 at 5:21 am
In the short term, obviously not. Credit is drying up for nearly every type of borrower, not just the ones with bad credit. Loans are even harder to get for small and large businesses, with the money markets being tighter now than a year ago.
But in the long run, you may be on to something. Banks may not just hand out money to people with bad credit to buy whatever home they want, which was one reason so many deadbeats took out loans they never intended to pay back. Credit scores, though, may become less of a deciding factor in purchasing a house in the future.
Obviously, credit scores determined whether borrowers would get a lower or higher interest rate, but neither subprime nor prime borrowers are having an easy time keeping up with ARM payments. And no matter how much they make and how good their credit is, people do not like the feeling of paying more for a house than it is worth.
Since one consequence of the fallout in the housing market will be lowered credit scores for large numbers of people, lenders may begin focusing on the borrowers’ financial positions, instead of just pulling a credit score. That means down payments, stable income and job history, and some extra cash in the bank may be more important in the next few years than having a great credit score.
A lot of people won’t have great credit scores to show, and having a foreclosure/bankruptcy in the previous few years is not going to help at all. But if they’ve saved up some money and can make an investment in their next home purchase, banks may be willing to overlook the credit situation.
So we may be moving from a wide-ranging credit scoring system to group potential borrowers to a more case-by-case basis of looking carefully at financial positions instead. With so many facing foreclosure, repossession, bankruptcy, or charged-off credit cards, a more adaptable system seems to be needed.
Hope that helps. Interesting question.
ForeclosureFish