FAR FROM SETTLING

The credit crunch appears to be far from settling as we see major bank heads roll.
In this environment, borrowers are asking themselves what is next?
The impact is beginning to be felt in the category normally deemed secure, those with good credit are also feeling the pain brought by tightening lending guidelines across the board. More than 40% of the lenders report that they have tightened access to credit in order to prevent further losses.

Major areas of concern:
1. Appraisals: they have become on of the main reasons for loan denials. This is the case for homes that were acquired during the Real Estate boom usually with little or no money down. People wanting refinance find that the appreciation has not materialized. Homeowners are just settling down which explains why Appraisers have a tough time finding comparables that support a higher valuation.
Helocs are one sector that is feeling the pinch for two main reasons: one is the fact that lenders have lowered the maximum loan-to-value also known as the combined loan to value, the other is the lack of equity.

2. Discontinued Programs: in the recent past, the cancellation of non traditional programs such as pay option, stated income, no income no assets (NINA), bank statements deposits averaging has put both refinancing and purchasing out of reach for a lot buyers who relied on them. Those programs will not be coming back instead lenders are going back to the true and tried offerings that can be easily sold to the secondary market.

3. The high cost of jumbo loans: jumbo pricing has hit the roof and is now up to two points above conventional loans, this makes it difficult to move properties in the high end of the spectrum. The solution for those who can afford it is to get a blended mortgage with one loan priced in the conventional range and the other (2Nd) at a slightly higher rate.

4. Interest rates: the Fed's last rate cut did not have the anticipated effects because it was accompanied by an inflation warning so mortgage rates did not drop by much.

Factoring in the high cost of gas, the dwindling supply of non traditional programs, the tightening of lending guidelines, borrowers must rethink their strategy and prepare themselves to operate in this new environment. There are more bad news in store in the coming weeks and months as lenders disclose the extent of their losses. We are not at the end of this rough ride!
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