To say the mortgage industry has been turned on its head, run through a few wash and rinse cycles and left in the dryer on high for a week would be an understatement. When the mortgage industry started showing a few cracks in the summer of 2008 things went rapidly downhill and about 80 percent of the people who worked in the industry lost their jobs and companies vanished like rain in the desert.
Only Game in Town
For the past five years or so the only game in town if you wanted a mortgage was something that was government backed. Fannie Mae, Freddie Mac, FHA, VA and USDA were about the only players. There were a few loan programs out there for those who probably really did not need a loan made by banks who kept the paper in house but their market share was in the low single digits.
And if it came from the government, for the most part one size needed to fit all. If you were self-employed and could not show enough taxable income, then you were out of luck, even if you already owned your house and wanted to lower the payments dramatically. And if you had a bunch of equity and a pile of liquid assets, but were a dollar shy on your monthly income, too bad. If you are retired and living off your assets for the most part, then you could get a loan but had some tough hurdles to jump through.
Add to that the requirements of the Dodd-Frank act that regulated even what private individuals can do in regards to lending out their own money when real estate is held as collateral in some cases, and many consumers that were well qualified can’t get a loan.
But the one thing that is great about America is that if there is a need, free enterprise will usually find a way to fill it. It has been a long time coming but there are some upstart funds and companies that are doing their best to lend money to people who are well qualified but fall outside of the parameters of government lending.
One company, Western Asset Management, has announced it will aggressively raise capital and seek out residential mortgage borrowers who fall outside the guidelines of (now) traditional lending. It is starting to reach out to mortgage originators to develop a network of companies to buy loans from.
It will take probably several months before consumers start finding any wide spread availability of home loans, but I do think by next year there will be even more lenders rolling out non-traditional mortgage products, and in my world, that is big and exciting news.
I don’t think we will see a return to the days of NINJA (no income, no job or assets) loans, but I think there is a solid demand out there for loans to individuals who show they can handle a loan obligation but don’t fall within the parameters of government guaranteed programs.
I expect we will see programs that have more liberal qualifying rules in relation to lower loan-to-value loans, or to individuals with higher levels of liquid assets. Also, if there is a legitimate reason some fell behind on their credit (such as a divorce, illness or job loss) and they are back on their feet again they might find themselves eligible with only a modest down payment.
All this will help increase homeownership, consumer confidence and increase the value of real estate, which will cause a lot of momentum in the overall economy.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at www.mtn mortgageguy.com.
I do think by next year there will be even more lenders rolling out non-traditional mortgage products, and in my world, that is big and exciting news.