What does all this mean to the consumer / borrower, who needs or wants to refinance, get cash out of their property or buy a house? If the borrower can fit into the conforming realm, $417,000 or less for his or her loan then the problem isn't to big. If the borrower can fit into the underwriting guidelines of the bank's portfolio products and desires that particular type of loan he or she is okay. It's the rest where the problems arise.
What I am seeing happen is lenders are raising rates by at least a point (extremely unusual) in the sub-prime and Alt A markets particularly. In the prime market, rates are not coming down , even though the Treasury rates are falling. Up until the last two weeks, when the 10 year Treasury note moves the mortgage backed securities follow, both up and down. Not now. The risky loans are being curtailed by the lenders which are the higher loan to value loans and the shorter term arms. One sub-prime lender moved all their potential 2 year fixed loans to 3 year fixed loans without raising the interest rate. They just decided they needed to go further so they moved the 3 years to 5 year fixed arms without a corresponding rate hike. Why?
Every lender is trying to find the perfect scenario that will sooth the Wall Street investor which will let the money flow from investor to lender to borrower once again. Anything short of this will put a tremendous crimp in the real estate market, which has already been in the midst of a major sales slow down. Although many believe this will force prices down in the real estate market, which also would have a detrimental affect in our economy, it may not work that way. Foreigners from areas with stronger currencies than ours, Europe, Canada and Asia to name a few, are already getting a discount on our assets as their currency strengthens against our dollar. They could come in and buy our real estate which could cause shortages that eventually would force prices up. Anything is really possible if we don't quickly find order in the financing industry.
We do not need additional government regulation, more and more negative press and those who find trying times a "license to steal". We need the best and the brightest to solve the problems through a real assessment of the value of mortgages in this Country and not "experts" giving their opinions through the various media outlets and adding fuel to the fire.
We need a return to the basics of the industry that has financed the home ownership all these years. That doesn't mean getting rid of every loan that someone thinks is bad. It means that everyone who takes a loan should have complete understanding of the ramifications of that loan. Consumers MUST bear some of the responsibility in the financing of their houses because in the end they are ultimately responsible for the debt.
In a short while this all will be past history and we will go on with business as usual. I hope that good comes from this in the form of better products, sensible guidelines and a more informed
consumer. If that happens this current disruption may turn out to be extremely beneficial.