The mortgage lending market is a complete mess. A significant number of people are dealing with the affects of over a decade of irresponsible and frivolous lending practices. Some of the leading lending institutions are being forced to close up shop, entire workforces of talented sales and servicing individuals are being wiped out with a single word or letter from their failing companies CEO, consumers are facing record breaking numbers when it comes to foreclosures of their homes, stockholders are losing money and the government is pumping funds into the market to help keep it from bottoming out. All this, while the guilty stand around saying, “How could this have happened?”
Over 90 mortgage lenders in the past year have filed for bankruptcy protection. Is this a sign? Yes, one of the largest lenders, American Home Mortgage, Inc. most recently filed Chapter 11 this month and was forced to close its doors. Over the past decade more mortgage lenders have created complicated products designed to trick the public into a “fresh start” in a new loan that “saves them money.” The fact is all of these products are designed to make the lender money today, not save the consumer money. The consumer is left to worry about their rising mortgage payments and deflating property values later. What these lenders failed to consider is the fall out a market full of bad loans and consumers who can’t afford to pay for them. This gone wild lending attitude, allowed to perpetuate over time by virtually every lender in the market, has finally caught up with them and given them a little taste of their own medicine.
Consumers began feeling the affects long before now and analysts have been threatening a market fall out for years. Did anyone listen? No, the fact is that the Securities and Exchange Commission turned a blind eye, while lenders, who knew exactly what was happening, continued to make enormous profits selling poorly written loans and pumping the market full of non-credit worthy customers with over extended loans on property values that don’t exist. The private mortgage lenders are here to allot you a huge amount of huge while keeping the original papers of an individual’s house. They keep it for security purpose so they can be at safer side while allotting a loan.
The Government is now taking action to help the failing market. In my opinion it’s a little too late. The market will never be the same. Millions of dollars have been funneled into the market to help keep it stable. European markets are also being struck with this fall out. Investors and stockholders are losing money, sometimes massive amounts overnight.
As a result, the lenders that remain in business are being forced to tighten the lending requirements on the loans they sell. Underwriters are dealing with changes on an almost daily basis. Alt-A loans and piggy back loans have nearly stopped and private mortgage insurance is back with a vengeance. Consumers previously approved are now being told they do not meet the lending requirements and are turned away or being forced to pay for insurance that only benefits the investor and higher interest rates.
This is just the beginning. With thousands of people now out of work due to failing operations and a struggling market, things can only get worse. Expect property values to decrease, record breaking numbers of foreclosures and higher interest rates. If you’re looking for a loan, be prepared for a thorough review of your credit and income documentation and good luck.