Over the last several weeks we have seen nothing but complete upheaval in the financial markets.  In fact, one Wall Street analyst was quoted as saying this was the worst and most rapid contraction of the financial markets anyone has ever seen.  Turn on the news, open the paper, talk to the grocer, and you will be hearing or seeing something about this crisis.  Clearly, this situation is being revealed through major corporate bankruptcies, layoffs, loan product changes, etc.

It is important to understand a bit of the history surrounding this “crisis”.  It can be said that most of the issues have been created by decisions that lenders have made over the last 3-5 years.  Some of these decisions are as follows:

1) No Down Payment Loans, 2) Aggressive challenged credit loans, 3) Limited Documentation loans (stated income, stated asset, etc.), 4) No documentation loans (no docs, no ratios, etc.), 5) 100% sub-prime loans, 6) Piggy-back second liens, 7) 1 mo, 3 mo, 6 mo, 1 yr, 2 yr, etc. teaser rate loans, Initial Interest Only amortized loans, 9) High LTV, alt A loans

 Lenders’ decisions to offer these products DRAMATICALLY increased liquidity in the market, and more and more people were able to get into homes.  This, of course, drove home values up, making it more dificult for “fringe” borrowers, which created the need for more and more aggressive loan product.

These loan products also became increasingly profitable for mortgage lenders, encouraging them to take more and more risk.  Everyone from the secondary market to the originating market turned a blind eye to the looming problem, and then, SUDDENLY, it HIT.

When it hit, the banks, hedge-funds, etc., IMMEDIATELY stopped purchasing questionable loans, creating the “liquidity crisis”.  When originators can’t sell a loan, they can not originate a loan, and the result is what you are seeing in the papers.

So, What does all this mean to your sellers and buyers? 

For sellers

1) Home Values will stay or potentiaaly decrease

2) Qualified borrowers will look for the DEAL

3)  Fewer borrowers will qualify for a home loan

4) Foreclosures are going to increase, which can affect market values

5) Increased DOM increase likelihood of “possible deal”

6) Continued stress in the financial markets will affect consumer confidence

7) Loans may take longer to close

8) Appraisals are becoming ,ore difficult to obtain

9) We believe that we have 18-24 months of recovery

For  buyers,

1) Make decisions to buy sooner than later, because loan guidelines are changing so quickly that an approval today may not be an approval in the future

2) Protect your credit with your life

3) Make sure your lender is placing your loan with a bank that can close on the loan

4) If someone is telling them something that is too good to be true, it PROBABLY IS!

5) Putting down payment on a property not only strengthens the file…it may be a necessity in the very near future

6) Fly-by-night lenders will say anything to get the deal.  Verify anything being offered through a reputable lender.

7) Rate locks, product locks, etc are all subject to change when a market is changing

8) Loans are taking much longer to close given the current market

Buyers and sellers to be aware of the changes in the market so that they are able to make informed decisions.

SOURCE:  Keller Williams Mortgage Services