Natural Selection at work in the Mortgage industry
By admin | May 23, 2007
Darwinism in the Subprime market? A “natural selection” process or correction is rippling through the Subprime lending market.
We have already seen tighter credit standards becoming the norm and higher interest rates are bringing home sales down in total. Loan production is predicted to be way down in comparison to years past. Many of the fly by night mortgage companies are always going the way of the dodo as the faith in subprime lenders is down.
What Lenders, Brokers and Consumers Can Do
Mortgage executives at realty affiliates offer the following advice in light of the latest flap surrounding subprime loans and other risky mortgage products:
• First and foremost, owner/brokers should be involved in their mortgage companies; if engaged in a joint venture, they should sit down with the venture partner and discuss the lending model being used.
• Lenders should educate agents in their realty firms about the consequences of putting people in homes they really cannot afford; now is a good time to also talk about mortgage insurance as an option.
• Consumers should be made fully aware of what they’re doing. If customers have no doc loans, they should be given separate disclosure statements that identify the loans and reveal that a lower mortgage interest rate loan could be obtained if more documentation is provided.
• Agents and lenders should talk to customers about getting qualified under the new standards and also discuss the pitfalls of subprime loans.
• Agents and lenders can also talk to customers about why they need to either improve their credit before trying to get a home loan or wait six months to build up enough money for an appropriate down payment.
A move to quality in mortgage lending could be in the future. The subprime mortgage may bounce back but with a higher detail to quality. Watch out for changes in the housing market in the future.
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