Aug. 10, 2007: Mortgage meltdown? The end of the world has been delayed again
If you watch the TV news, you can't miss the video clips of financial pundits screeching about the imminent collapse of the mortgage industry. In fact, the world probably cannot end more often than once or twice a day, but it's worthwhile to remember that television is an entertainment medium. Financial news is inherently boring -- unless it's reported by a shrill demagogue.
So what's really going on?
Investors are pulling the plug on the most liberal -- or most willfully gullible -- mortgage underwriting firms. Investment banks that bought or brokered portfolios of shaky loans are also suffering.
Does this mean you can't get a home loan? Not at all. You just need verifiable income, good credit and a down payment. That wouldn't even sound odd if we had not lived through 2005, when all you needed was a reliable pulse.
What really happened in the home loan market? There was so much money available, and homes were appreciating so quickly, that some lenders stopped worrying about the financial qualifications of borrowers.
Has there been a surge in foreclosures? Yes. Had there been a substantial number of loans made to high-risk borrowers? Yes. We're paying the piper now, that's all.
There is still plenty of money in the mortgage market, but guidelines are stricter. Nothing-down loans are harder to obtain, as are stated-income loans. Some lenders are charging higher rates for jumbo loans -- amounts over $417,000. But the rates for a 30-year conforming fixed-rate mortgage -- the bread-and-butter home loan -- are actually down. This fact will have been omitted by the demagogues on TV.
While things shake out, sellers will want to stay on top of their buyers' loans, and buyers might want to ask their lenders to submit their files to more than one underwriter. Some parts of the Valley are suffering more than others, but buyers are buying, sellers are selling and home values are holding up fairly well through the down-turn. It would seem that the end of the world, contrary to televised reports, has been delayed yet again.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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