offer you my insight and professional opinion about what is going on.
The mortgage industry is in, well, a shambles. But, there is a nice
silver lining forming out there. The good news is Fannie and Freddie
will likely survive. In today's economy they really are "too big to
fail" as the saying goes. If they went under almost all home lending
would come to a screeching halt, the dollar would lose most of its value
and governments the world over would see massive devaluation of their
assets as most of the US dollars they've earned in trade with the US
have been used to buy mortgage bonds and US treasuries. Basically, it
would trigger a world-wide depression.
Do you see the silver lining yet? :)
Let's take a closer look. With the Government extending an unlimited
credit line to both institutions it is restoring investor confidence and
dramatically diminishing the likelihood they will ever need to use that
same credit line. However, I think we will see a very different Fannie
and Freddie in the future. Using tax dollars to bail out private
enterprise is generally not a good thing. If no changes are made a
bailout encourages more risky behavior in the future. After the current
crisis is over you can expect either a complete Government takeover of
the companies (Fannie Mae started as a Government agency in 1938 during
the Great Depression so that would be a return to its roots) or they
will fully privatize both companies and break them up into smaller
pieces. I think the last option is most likely and the best for
taxpayers and Wall St investors. In the mean time we can still do
loans.
Today's loan standards are really very similar to lending in the early
90's but with better rates. As with everything in history it's all
relative to your point of reference. What makes a good borrower today
has very little in common with what made a good borrower 6 months ago.
That's the problem most Loan Originators are having right now, they are
taking a borrower that would have looked good on paper 6 months ago and
trying to fit him into today's standards and having a rough time getting
it done. We have to be willing to look at each borrower with fresh eyes
and be very clear about what we can and can't do with today's standards.
We can still get a lot done, but it's all in how we present the package.
Most Loan Originators are too filled with fear to think about doing
things a new (or very old) way.
I believe we are going to look back on the last two weeks and view them
as a bit of a turning point in the industry. Not only did we have the
Government explicitly back up Fannie & Freddie, we also had the Fed
release new lending regulations for the industry. No need to go into
details, but on the whole they did a good job. The new regulations will
make it easier for lenders who give quality advice to thrive and make it
much harder for mass-marketing bait and switch methods to be effective.
They will hold lenders more accountable as well as allow free market
enterprise and innovation. Everyone in the industry has been waiting to
see what the Fed put in place before moving forward. Now that we know
the new rules to the game the capitalistic creative juices will start to
flow again. We may see some new and improved loan products show up in as
soon as 6-12 months.
So yes, we are currently on the front lines of the worst financial and
economic crisis since the Great Depression. But that does not mean this
will BE another Great Depression. The whole world is tied into our
mortgage market and has a vested interest in seeing us survive to buy
another day. In the mean time we have the buyer's market of a lifetime,
especially for first time or returning homebuyers with a good job but
little savings. When in history have we had drastically slashed home
prices, desperate sellers willing to pay huge concessions, and mortgage
rates below 7%?
I encourage you to take a step back and look at this market with a new
prospective. It won't last forever, but it's still going to take
another 12-24 months to clean up the mess. In the mean time there is
business to be done. It just looks a lot different than business in the
recent past.
Sincerely,
Theron Wall, Sr. Mortgage Consultant
Certified Mortgage Planning Specialist
Wallick & Volk Mortgage Lending
3615 Crossings Dr, Ste A
Prescott, AZ 86305
Cell (928) 533-7473
Office (928) 778-7167
Fax (928) 445-5308
www.theronwall.com
