Anyone who has been around in the last two to three years understands exactly what the market is going through. If you are a first time home buyer and you have had trouble getting mortgage loans to purchase that house, then you feel the pain of many others who are in the same boat. The real estate market is in a down time, as lenders just aren’t nearly as willing to give out mortgage loans as they used to. In the past, practically any person with a form of identification could go up to a bank and get a mortgage loan. That has changed, though. Now, lenders are being more careful with whom they lend and it doesn’t look like this is changing anytime soon.
Because lenders were busy handing out loans to people who shouldn’t have had them, there became a huge problem. The borrowers, who became known as “sub prime” home buyers, quickly became a larger risk than the bank had anticipated. Their past credit problems reared their ugly head and bit the banks squarely in the rear end. After a while, those mortgage loans which the bank was so excited to hand out had quickly turned into a foreclosure for people with less than stellar credit. They didn’t have the money, desire, or capability to make any of the payments on their brand new house. That left the lenders with only one choice. They had to tighten up their standards for mortgage loans.
Making that decision was prudent and smart by the lenders, as they had to begin to protect themselves from huge losses. The problem is that they have tightened up their regulations a bit too much. Now, instead of locking out those people who would be considered “risky”, they are locking out everyone with a minor blemish on the credit report. In reality, banks have no choice, though. When foreclosure occurs, they take a big loss. After a while, those losses really add up.
The question that many mortgage loans seekers want to know is whether or not this is going to stop any time soon? Are people going to be able to get a loan when they search for a new home? More importantly for some folks, are interest rates going to drop to a level where it makes sense to refinance or take out mortgage loans? This is important information for not only home buyers, but also home sellers, who are in a bind because of the lack of eligible buyers.
Though there is no clear answer in sight, there are some indications that a little bit of change may be coming. Last week, the Federal Reserve Board announced that it would be cutting Federal interest rates by a half of a point. Though this does not have a direct impact on mortgage loans, it is a pretty good indicator of which way the market might head. By making that decision the government is deciding that they need lenders to hop off of the high horse. They are interested in making it easier for banks to secure funding, so that they might pass that along to consumers. Though the idea behind this move makes plenty of sense, there are some indications that lenders might not be so quick to follow.
Having already been burned once by subprime lenders who had no business getting loans, banks have made widespread policy changes in regards to who is allowed to borrow money. Even with these changes, they won’t be giving out mortgage loans to just anyone with a pen and piece of paper. On the contrary, their rigid standards are likely to stay in place for the next couple of years, regardless of what direction the market takes. If lenders are smart, they will never repeat their actions of giving loans to the unworthy. Those actions played a major role in putting the market where it is today.
For those looking for relief from high interest rates, some help might be on the way, though. Since earlier this summer, mortgage loans have already seen an interest rate decrease. Though it has not been radical, the small change may be an indication that lenders are loosening up a little bit. That is going to be absolutely critical if the real estate market is to pick itself up off of the floor and return to prominence like it was on a few short years ago.
The best advice for home buyers and mortgage loans seekers is to keep your credit rating high and your history clear. This way, you won’t have any trouble qualifying, no matter what moves the market makes. You can’t depend upon lenders to make a choice when they are so clearly in a bind.