Is the Mortgage Industry Sting Still on the Horizon in Charlottesville?

August 22, 2007 |

Just in case you have been in a coma for the last few weeks, the mortgage industry is reeling. Foreclosures are increasing, some lenders are unable to fund loans, lenders are closing mortgage units and laying off employees, and loans are getting harder and harder to find. If you watch the news too closely, you might think the apocalypse is just around the corner.

In the Charlottesville area, however, things seem to be doing a bit better. I haven’t noticed a sharp rise in foreclosures, and none of my clients have had trouble with their loans.

Could this change?

Last week, I attended a closing with some clients of mine. I always attend the closing with my buyer clients, just in case something comes up. In this case, their loan officer attended the closing as well. As my clients were deeply engrossed in placing their initials and signatures on the mountains of required paperwork, I struck up a conversation about the mortgage market with their loan officer. The conversation was quite interesting.

It seems that new lending and underwriting restrictions are soon to make their effects felt in the area. The loan officer indicated that she had more than one customer in the past few weeks who had the rug pulled out from under them when they had their loan pre-qualification revoked. The lending restrictions and loan programs are changing and disappearing so quickly that it is making it difficult to promise anything to borrowers. Some of the hardest hit borrowers are those who are self-employed or own a commission-based income. For those borrowers, loan programs are drying up faster than a snowball in the desert. 100% financing programs are becoming few and far between, as well.

While this isn’t the best news in the world for people looking to buy a home, the people that could be hurt the most are those looking to refinance. There are plenty of people out there who, during the real estate boom, purchased their homes with loans that had adjustable rates. Many of these loans, known as ARMs, are due to have their rates adjust soon. Those borrowers who are smart and proactive know that the rate will adjust, and are preparing to refinance the loan to a fixed rate. This difficulty is that with tightening lending restrictions, it may be very difficult for some people to find fixed rate loan programs to refinance into. This leaves people faced with the prospect of having to live with the adjusted rate and subsequently higher monthly payment. Not fun. There will likely be some portion of those people who will not be able to afford the new payment and will either be forced to sell or face foreclosure. Also not fun.

My point is that we will have to watch the Charlottesville market very closely over the next few months, and especially the first few months of 2008 to find out if new lending restrictions will have a significant effect on the market. If restrictions continue and people are unable to refinance their loans, there is the possibility that inventories could be pushed even higher and foreclosures could rise as well. All of this is speculation, since a lot of things could change over the next few weeks, and will change over the next few months. It is, however, a situation that demands close attention.

[tags] real estate, realtor, viriginia, charlottesville, mortgage, lending, loans, restrictions, foreclsoure [/tags]

Posted by Daniel | Filed Under Buying, Finance, News, Selling 

Comments

One Response to “Is the Mortgage Industry Sting Still on the Horizon in Charlottesville?”

  1. Jeremy Hart on August 23rd, 2007 5:25 pm

    Good point, Daniel - I had the same conversation just two days ago with a local lender here. They use ABN AMRO and Bank of America almost exclusively and had a bit of a different take on it locally, but said they had seen many of the same things happening regionally in their other offices. Here in Blacksburg and Christiansubrg, lenders haven’t tightened the reins down as much … this is still a somewhat conservative market when it comes to financing, so we’re still seeing a lot of buyers with 10+% to put down … so lending requirements have stayed pretty consistent. But elsewhere that has not been the case, and in some instances they’ve seen sellers actually take offers for less than a competing bid, just because buyers were putting down more of their own cash - so the seller knew the deal was more likely to go through. Another reason why it’s good to put your own hard-earned money into a property.

    Good post!

    [Reply]

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