Jason Bernabei, TriCastle Realty
DEL MAR, March 12 2012 – Goooooood Monday morning San Diego! Spring is in the air! Daylight savings is upon us, and a chorus of pundits, experts, and industry folks are singing the good word of a slowly recovering real estate and mortgage lending landscape! Ah, to drink or not to drink the kool-aid, that is the question. Well, let’s get into it.
This past week, the global analytics firm Capital Economics detailed why they have joined the choir. Simply put, CE expects that the housing crisis is not long for this economy. In fact, they believe the misery will end soon. How soon? 2015? No… 2014? Ah, nope, but you’re getting warmer… Next year, you say?? Nope, even BETTER than that. CE believes that 2012 WILL BE the year that the crisis comes to an end. Sounds like a load of malarkey to me, but let’s look at what they are hanging their hat on.
Among the evidence detailed by CE is “loosening credit.” They note that the average credit score required to ascertain mortgage lending is 700, a score that is certainly higher than pre-crisis qualification parameters. We at the pre-collapse Loan Officers Guild remember well the countless subprime mortgage banks on the wholesale market, where in most instances the prospective borrowers’ credit worthiness only spoke to what exorbitantly high rate they qualified for. Yes, there was a time when just about any credit-score at all was enough to qualify. And while I confess a bit of hyperbole, it’s not far from the once truth. But 700, as an average is a descent credit score that is not pie in the sky for many prospective borrowers. Over the past 4 quarters, this average score has not increased, which in itself can be viewed as having loosened, compared to the constricting environment of the overall housing holocaust.CE also points out that banks are now lending up to 3.5 times the prospective borrowers’ earning, up from a post-collapse low of 3.2. Certainly this is more encouraging news for housing and lending. Loan to value parameters are loosening as well, a fact that CE points to as “the clearest sign yet of an improvement in mortgage credit conditions.” Additionally, banks are now lending at 82% loan-to-value ratio(LTV in loan officer speech); a HUGE leep forward from some of the darkest days of prospective lending (74% in mid 2010).
Now yes, interest rates are still very low. And yes, jobs data has been positive and steadily moving in the right direction. And yes, all that CE points out is fine and dandy. But enough to END the crisis in 2012? … I just don’t see it. Not without new legislation, and not without new new parameters in lending that solve the problem of a still softening housing market, and the sheer lack of equity in the marketplace. Lending at 82% is fine and dandy for those whose property appraises as such, but not so swell for the vast majority whose properties do not. Further, mortgage insurance (or “MI” in the mysterious dialect of the Loan Officer) just went up again, like it did last year, to a number much higher than pre-collapse (and rightfully so, with a nation of strategic mortgage defaulters about to come to term on their adjustable mortgage of yesteryear). So to me, even with rates still oh so low, it’s still all about demonstrating an 80% or stronger equity position for a refinance to make sense. And on the purchase side of mortgages, CE also points out that 8% of contract cancellations in November were due to a prospective buyer NOT QUALIFYING for a loan. And THAT is still the problem.
So enjoy the sunshine San Diego, but drink the kool-aid and taste it for what it is.
Until next time, feel free to contact me, Jason Bernabei, at jasonb@tricastle.com, and check me out each and every Monday on www.therealtyinsiders.com for more, and be sure to tune in to see myself, and local industry experts talking real estate on “The Realty Insiders,” THE ONLY real estate show in town!
Jay’s Outlook: Partially Sunny
Jason Bernabei, TriCastle Realty
