My
how time flies. The housing boom America experienced in the past is now almost
a decade old. If anyone can remember that far back, the boom was made possible
in part through an unregulated market for home loans which brought us such
programs as "no money down -- we don't ask about your income -- low credit
score -- you can't believe how low your payment will be" adjustable rate
loans. Basically, if you could breathe then you could purchase a home. The
subsequent housing crisis ended all semblance of this easy credit as the credit
pendulum swung drastically the other way. For some time you needed not only to
fog a mirror to purchase a home, you needed to walk on water. For a while the
secondary market in which lenders were able to sell loans to unsuspecting
investors totally disappeared and government alternatives such as FHA, Fannie
Mae and Freddie Mac dominated the residential finance markets. For years
readers have been asking, when will credit loosen again?
My
answer has been very standard. There were two conditions that must be in place
for credit to ease. First, the real estate market must get stronger. After all,
it is real estate that secures these loans and if the investment is not stable,
lenders will be more reticent to lend. Secondly, rates must rise. You may be tempted
to think that lenders were waiting for rates to rise so that they could make
more money on each loan. However, these loans are typically originated to be
sold on the secondary markets to alleviate market rate risk. Rates needed to
rise so that lenders were not inundated with refinances. If lenders don't have
time to process the applications they had in their pipeline, why would they
loosen credit standards to bring more in? Well, if you read the article in the
news section -- this is exactly what has been happening. In the long run credit
standards have been easing very, very slowly. But now that the real estate
market is stronger and rates have risen to slow refinances, the trend
potentially can accelerate. Keep in mind we are not talking about returning to
the standards of the boom times of yore, but we expect standards to get more
reasonable if these trends continue.
Mike
Ervin
Senior
Mortgage Banker
NMLS # 282715
Cell:
650-766-8500
mike@mikeervin.com
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