Living in Portland

Mortgage Corner:  “What’s happening in the mortgage biz and why you should be informed—the inside scoop you won’t get from the media.”

I had a friend of mine ask me the other day what’s different about the mortgage business versus 2 years ago, and all I could say was “Oh…wow!  Where do I even start?”  Because our industry was on the front of the recession, we in the real estate business were the first ones to experience financial pain and career uncertainty.

So what do those of us who want to buy or refinance a home face in today’s lending environment, is it true that banks are not lending and how long is it going to take to regain a sense of normalcy in the real estate sector?  I will address these questions separately:

1. One of my clients mentioned to me in an email how disenchanted he was with the whole mortgage financing process of buying a home this spring, and I had to tell him that I haven’t had anyone who’s bought a home before tell me they had an easy experience.  For those who haven’t bought a home before and are considering jumping in now, you’ll only know how challenging it is, so you won’t know any better and will only appreciate how much simpler it will be the next time around .  So what does it look like to get residential financing currently?  It’s pretty paperwork-intensive and very, very regulated to the extent that peoples’ close of escrow dates as written into the contracts between buyers and sellers are no longer the date that–up until recently–was an absolute deadline all parties were expected to perform to.  Now, we as lenders–and also the real estate brokers–have a PR tightrope we have to walk in explaining to our clients that we may or may not close their transaction on time, that they must be flexible in all respects and be prepared for having to provide what were previously considered unreasonable requests on the part of underwriters but are now very much the norm.
2. It is true that banks are approving and closing residential real estate transactions, be they refinances or purchases (commercial transactions, on the other hand, are something quite different).  BUT, the banks are rigorously underwriting people’s loan files to the extent to which they are having to chase down items for underwriters from the initial underwriting of the file all the way down to the closing table.  This can be–and is–a very frustrating process for people, whether they’ve closed multiple real estate transactions in the past or they’re just buying their first home.  All of this makes it incumbent upon us as mortgage and real estate professionals to properly set the expectation level from the onset so that people are aware that there are some minor inconveniences to grapple with during the processing of the loan that make the reward that much sweeter of a lower rate and payment at a time when mortgage rates are near historic lows, or the purchase of a new home at a time when the housing affordability is at its highest level in 18 years.
3. To answer question #3 sufficiently, we have to briefly analyze the circumstances that gave rise to the current state of mortgage lending and explain why the banks have tightened so dramatically their lending standards.  First, we should all have a basic understanding of what happened in the mortgage and real estate industry over the past few years regardless of who shares what portion of accountability.  Second, banks are in a mad scramble right now to make sure that every single loan they fund and wish to turn around and re-sell to the secondary market (i.e., Fannie Mae and Freddie Mac/the taxpayers) conforms to every single conceivable underwriting standard in these two Government Enterprises’ (previously known as Government-Sponsored Enterprises, but I will refer to them as GE’s) underwriting guidelines–and rightly so.  They have to continue to rebuild their reputation in the minds of the American taxpayers who are buying these securities as well as in the minds of foreign investors, whose money they (and we) desperately need to keep the wheels of the industry turning.  What’s more, the banks are making good money off of the mortgages that they’re re-selling to the GE’s.  So how long will it take to get back to reasonable underwriting?  That all depends upon our economy, but it’s going to take a few years.

So what’s still available out there in the world of home mortgages?  Everything that always was available for people who can qualify for the loan.  There’s 100% government financing for first-time homebuyers, there’s government financing for buyers who are fortunate enough to have parents or an employer who can gift the money for the down payment and/or closing costs, there’s jumbo financing for people needing to refinance or buy a home with a loan greater than $417,000 in our market, and there’s conventional financing for 5%, 10% or 20% down payment buyers.

Right now is truly one of the best times in recent history to buy a home with the $8000 first-time homebuyer tax credit that expires on November 30th, 2009, the low rates and the impressive affordability with home prices sagging.  You just need to align yourself with a seasoned mortgage professional to help you navigate the marketplace so that you can reap the benefits.

Jay Bennett, Columbia Mortgage

503-593-9893  jaybennett@cmortgage.net