Mike’s Real Estate Show

Listeners,

  This comes from Ardythe Brandon of CTX Mortgage. She’s a very good mortgage person and specializes in “Land” loans for those thinking of building their own home. Land Loans have gotten very accesible to all folks thinking of building. Her contact information is at the end of the post.  

The headlines are once again full of news from the mortgage and real estate front…and this time, the “subprime meltdown” is taking center stage.  What exactly is going on, what does it mean to you and your clients, and what should be done now?

 
A “subprime” home loan is much like it sounds - a loan where the client has some significant credit issues, or was otherwise unable to qualify for a standard, conventional loan.  Due to the fact that these loans tend to be quite risky for the lender…they also bear higher interest rates to match, as well as often being adjustable rates that quite likely have recently hiked sky high, not to mention the steep prepayment penalties they generally carry.
These loans have been around for years - so why all the drama now? 

Many subprime and other adjustable home loan rates have moved dramatically higher, due to the Federal Reserve Boards recent rate hike cycle.  So as these rates are adjusting higher - and the payment right along with it - some homeowners are finding that they are unable to keep up with the dramatic increase in payment. 
In the past, homeowners in this situation would simply throw the house on the market, realize enough of a profit to cover any prepayment penalties, and literally move on.  But a softer real estate market isn’t making this quite so easy any more - houses are not selling quite as quickly, and the fat home appreciation rates enjoyed in the past have moderated. 
So the subprime homeowner is stuck - and many of these homes are falling into foreclosure, causing even more problems.  As more and more loans are defaulting, mortgage lenders are forced to tighten up their lending standards across the board in response…making it tougher for a troubled homeowner to even refinance to get out of trouble.  Many subprime lenders are feeling the pain, and in some cases, actually being forced to close their doors as they are hit with all the defaulted loans and foreclosed properties coming back home to roost.

How does this impact you and your clients? 
In the short term, home loan rates are benefiting.  The stock market is taking a beating, causing money to flow into Bonds and Mortgage Backed Securities, which benefits home loan rates.  But the longer term picture may spell higher interest rates ahead, as lenders have to absorb the cost of the loans that went belly-up, combined with the cost of increased compliance and accountability standards.
Now in many cases, the advice and loan strategy given to the client was perfectly appropriate for the client at the time they took out the loan…but the “perfect storm” of colliding economic events may have just worked against them.  Yet unfortunately, many homeowners are paying a very steep price for what may have been poor advice and counsel given them at the time of their home purchase or refinance.  Now more than ever before, it is clear that it pays to work with a true professional, especially when a home is on the line.  If you ever thought it’s too expensive to work with a real professional…just wait until you work with an amateur.  The price paid is clear - and in this case, it’s a very painful one.

Because of these events, credit and lending standards are tightening across the board, so it’s a great time to recommend that all your clients and prospects have a “financial check up”, even if they are not immediately in need of any home loan financing.
  
  
As your partner in success at CTX Mortgage, you know that we build relationships for the long run, not just to provide a “transaction” - so although your clients may not have a need for home loan services at this time, we’d like you to encourage them to contact us for a review of their current credit and financial situation.  There may be recommendations we can make that will ensure they are in the best possible shape to obtain the most favorable financing terms when the need does arise in their life.  As always, simply give us a call or email – we’re always glad to hear from you, and happy to answer any questions regarding this matter or any other way we can be of service to you and your clients.
 
 Ardythe Brandon
(707) 573-8129 245 - phone
ardythe.brandon@ctxmort.com