Perhaps you think I am kidding? The deteriorating credit markets are holding the economy hostage, and no matter what the industry comes up with, nothing seems to help. But before you cry “Uncle…Sam,” look at this cautionary tale from the Coachella Valley, best known for the city of Palm Springs, California, where our government directly and indirectly has set up a conundrum of epic proportions. Through the Stimulus legislation, they have come up with a form of jumbo loan with a maximum of $500,000 which expires in a little over 90 days. It will be replaced with a new conforming loan limit (conforming loans are smaller loans, in dollar amounts, than jumbo loans) of $625,500 through the Housing Bailout legislation on January 1. How could this be? A conforming loan with a $125,000 higher limit replacing the jumbo limits? And one wonders why the credit markets are screwed up. This example definitely inspires a “no” vote on the headline of this column.
On the other hand, lenders really aren’t interested in lending at this time. They do not want to entertain any thought of losing more money. If you have read any of my recent columns, you will note how often I have written about this phenomenon. Our government isn’t afraid of losing money; in fact you might say that “it’s job one!” They are so used to giving it away that the chance they might get it paid back could influence a culture change in Washington. In all seriousness, the SBA business loans are a very successful program for both those who get these loans and the government because the government gets ample collateral for the guarantee they supply. If the programs were designed like the SBA programs, I might have to give a “yes” to the headline of this column.
When the credit markets are working, loans are generated and funded based on a set criteria where everyone is treated equally. Let’s say you need a $550,000 loan and the value of your property is a little over $800,000, creating a 68% LTV, or loan-to-value. If your income and credit scores fit the parameters, you and anyone else who has this same financial profile would get a loan. Could you imagine the Feds running such a fair system? What would happen to cronyism, to favoritism, to the unlevel playing field that has become the birthright of big donors and lobbyists? Call me caustic but I haven’t enough faith to see the necessary changes in Washington to keep the fairness and equality in the mortgage market. This is definitely an area that prompts a no vote.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.