It’s a good time to lend
Glenwood Springs, CO Colorado
THE FOLLOWING COLUMN CONTAINS ADULT CONTENT. PARENTS ARE ADVISED THAT IT CONTAINS CERTAIN WORDS THAT MAY BE INAPPROPRIATE FOR YOUNG CHILDREN.
OK, all the kids out of the room?
Fine because I’m going to use a phrase that’s very definitely been in ill repute for the past couple of years.
Mortgage banking. There, I’ve said it. That’s right, the activity that allegedly brought the whole world financial system crashing down. This is the business of making loans to homeowners and selling the paper on a secondary market.
Now it’s profitable for banks (and it always was, until the bad loans came flapping back home to roost) and it’s a safe business, because of the changes that have taken place in programs, underwriting, property types, and required down payments. As far as all of these criteria are concerned, it would probably be accurate to say that we’re about where we were in, say, 1980. You might say that we’ve gone back to the future where residential lending guidelines are concerned. Because borrowers now have to show that they have enough money to make the mortgage payments (what a novel idea), that they have good credit, and have to put some money down, it’s pretty hard to make an egregiously bad loan.
And it’s pretty profitable too. Rates are low, and there are a lot of borrowers out there that want to lower their current interest rate, or take advantage of dropping housing prices, and many of these potential borrowers do, in fact, qualify.
The other day I spoke to a longtime mortgage broker in the valley, who said last summer had been one of her best ever. Despite everything, including falling home values, stringent underwriting requirements, tougher down payment rules, and increased documentation.
One area that isn’t robust is the so-called jumbo loan category, that is loans above the Fannie Mae/ Freddie Mac limit. This is because the secondary mortgage market consists of only Fannie and Freddie; all of the others, from Lehman Brothers, to Bear Stearns to Countrywide are gone.
Some banks are realizing this, and taking advantage of it. Others aren’t and haven’t. The latter may be making a big mistake because, strictly from a profitability standpoint, the stars are aligned for residential mortgage making: low rates, first time homebuyer tax credits and low prices.
And the competitive environment for banks couldn’t be better. The disappearance of so much of the secondary market, combined with old-fashioned underwriting standards and draconian government regulation, has driven a majority of mortgage brokers out of the business.
It’s a good time to lend. It’s even a good time to borrow it if you qualify.
Pat Dalrymple is a valley native. He’s been in the mortgage and banking business since 1961. He’ll be happy to answer your questions or hear your comments. His e-mail is email@example.com.
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