Q & A with Jimmy Brenner
High Country Business Review
A: The mortgage industry is hurting in a couple of sectors on a national basis but not specifically in the High Country. In fact the High Country may be somewhat removed from the national problems.
First off, we have strong, stable real estate markets in most mountain areas. Second, we do not have as much of the so called “subprime” business that is seen in the larger urban and suburban areas of the country. Finally, most of our real estate is pretty expensive, requiring borrowers to have strong income, assets and credit to even be looking at it.
The guideline changes currently taking place in the subprime business have trickled over into the “Alt A,” or jumbo mortgage business, resulting in tougher guidelines and standards as well as higher rates. Many experts estimate this will eliminate 10 percent to 15 percent of the potential buyers from the marketplace.
Recent guidelines have allowed many less-qualified borrowers to get in over their heads. Unfortunately, these are the borrowers contributing to the ever-increasing foreclosure numbers across the country today. I guess some of these homebuyers should feel lucky they won’t get in over their heads with the new guidelines.
Although most lenders prefer loans with 80 percent loan to value or less, federally backed mortgage companies including Fannie Mae still allow for 95 percent, 97 percent and even 100 percent loan-to-value loans. Jumbo loans hopefully will allow similar terms, but lenders will be checking the borrowers much more carefully than before.
The current guideline changes do not change loan parameters much compared with drastic changes in the documentation of income and assets that will be required.
Am I buying at the right time, price an location? Do I qualify? Should I be buying a higher-value home or less? Are property values going to slip?
I usually respond by saying I’m always bullish on real estate. Interest rates are good today, and based upon your individual qualifications I’ll give my best opinion.
I would never, in any market conditions, recommend to someone that they buy more than they qualify for by conventional standards. In my mind, real estate is still the best investment vehicle the modern world has to offer. The sooner a person can purchase a home the sooner they can begin to reap the benefits. Just today I heard an old Chinese proverb: “The best time to plant a tree? Twenty years ago. Second best time to plant a tree? Today.”
This is a difficult question to answer. I have lots of thoughts and opinions, but some can’t be printed.
In 2004, there were 484,000 residential mortgage loan officers/originators in the United States. Today there are roughly 230,000.
In 2004, it is estimated that 75 percent of the loan officers had less than five years experience in the mortgage lending industry. That means they had never seen a recession, rampant inflation or even heard of “stagflation.” How could anyone expect them to be looking out for a consumers’ best interests?
Furthermore, in 2004 we had booming real estate economies and values; we had the financial markets trying to shovel out loans to consumers as fast as possible and this led to sophisticated and (very) selfish financial markets taking advantage of innocent consumers.
The pay option adjustable rate mortgages that offered consumers low initial payments, but increasing rates and payments later, will likely go down in history as the largest financial rip-off of the average consumer in our country’s history.
Unfortunately, inexperienced loan officers sold payment, homeownership and the American dream to financially uneducated borrowers. Many, many loans were made to unsuspecting borrowers who had no means to afford a home.
Unfortunately, we all will pay a little for this debacle in terms of higher rates, tighter qualification guidelines and a slower rebound of national real estate values. I do believe the mortgage-=lending industry will recover, stabilize and prosper once again, especially when we start making loans only to those people who truly qualify.
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