My Two Cents: Where Have All the Loans Gone?
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My Two Cents: Where Have All the Loans Gone?

July 13, 2010

With mortgage rates near half-century lows, some are beginning to see a mini-boom occur. Maybe not back to the days when I was a mortgage broker many years ago that I had so many potential borrowers coming into my storefront, that I sometimes wanted to get one of those ticket machines that gave out numbers so I could call their numbers and say “next.”
The problem today is there are many who aren’t experiencing the “nexts.” With these low rates, refinance applications are up nearly 10 percent from the previous week. Additionally according to Clear Capital’s homes values report, values improved by 5.2 percent from quarter-to-quarter and 8.8 percent above last year, due mostly in part to the expiring tax credit. A continuing problem is the support of values being eroded by the very housing market that is in dire need of recovery. With RealtyTrac’s first quarter of 2010 study accounting that 31 percent of all residential sales involved foreclosed homes selling at an average of 27 percent less than homes not in foreclosure, you have the a strong component posing as yet another obstacle in the path of recovery.
How the hell is a purchaser or borrower in search of a refi, even with great credit, going to counter a marketplace that is superficially deflated by these foreclosure sales? The only saving grace from that report was that the reported 31 percent of foreclosure sales was down 14 percent from the last quarter of 2009. Wow ... not!
Where have all the loans gone? Let’s see. We’ve already covered the problem with appraisal values being supported by the lower sales prices from the foreclosure sales, add to that the credit crisis that has forced banks and the investors they deal with to tighten their lending standards and you see why the “nexts” are far and few between.
Lastly, add the number of existing borrowers, even with excellent credit, that are part of the one in four borrowers that are underwater, part of the near 10 percent of unemployed or underemployed and the volume of potential borrowers that can take advantage of these historic rates is reduced to nearly nothing ... zilch ... nada! But not really ...
Efforts to thwart foreclosures have also been met by underwhelming results with a report that only 340,459 permanent loan modifications being granted to borrowers through May 2009 from what was estimated to be a pool of three to four million eligible borrowers at launch in spring of 2009.
Okay, so now that I’ve depressed both myself with the foregoing analysis, as well as my readers, what do we do now? First and foremost, we must keep a positive mental attitude despite the truckload of negativity I’ve unloaded above. Second, the survivors of the mortgage industry that have remained positive will become the ones who thrive in the future. These chosen few who remain have the best opportunity to use the knowledge they have to go out and discover the qualified borrowers looking to capitalize on purchases of owner-occupied and investor properties at some of the greatest values in a decade or more. Add to that, the search for existing borrowers, whose income and credit qualify and whose property can sustain the value needed, who can take advantage of these historic low rates to refinance. Third, never look back! Growth in any market is measured by what you accomplish moving forward and using that as the gauge to forge your future.
I know that there is a daily barrage of additional baggage added to the mortgage originator’s negativity pile, but those who use that added height as a step to overcome will survive and thrive.
You may not need the ticket machine in your office to control the flow of new applicants, but if you stay professional and on course, there will always be a “next” waiting for you.
Anyway, for what its worth, that’s my two cents!