Yes Virginia, There Is Still Mortgage Money Available

One of the misconceptions that has resulted from the current credit crisis is the perception that there are no mortgages available to people who need them to buy houses. Nothing could be farther from the truth. Mortgage money is abundant and lenders are willing to lend to qualified applicants.

What has changed is what the profile of a qualified applicant looks like. Gone are the no documentation loans and most of the sub prime loans. Those are the loans you may have read about that are partly responsible for the soup we find ourselves in. Today a qualified applicant is someone who can verify that they have a job, can verify how much income they earn, have at least 10% of their own money to put toward a down payment and can prove it's their money and have credit scores at least in the upper 600's. If you fit that profile, you are likely to be a qualified applicant and mortgage money is available to you.

We do have a problem with loans to people who own their own businesses and their income is hard to verify. In the case of a business owner who isn't on a salary, the lender will rely on the tax returns of the applicant. If the business owner doesn't report all their income, they will not get as much of a mortgage as was the case when the funny money loans were widely available.

What has happened is that we have returned to the lending standards that served us so well before this decade. It's true that those standards do take a number of would be buyers out of the market, but in the long run, we will probably be the better for it.

Will The Government Bailout Help the Real Estate Market?

After all the hoopla of last week, the government passed a record Wall Street bailout package with the hope of easing the credit crisis. Now the question that is being asked is "Will the government bailout help the real estate market?"

From what I know of it, I can't figure out how it will. Much of the talk of the bailout seemed to center on unlocking the credit markets which experts had said were "frozen". That all seems odd, because mortgage financing wasn't frozen. During the entire crisis, there was abundant mortgage money available to qualified buyers. In the current financing climate, a qualified buyer is one who has money for a 10 to 20% downpayment (depending how how they plan to use the property), a good credit profile and can verify both employment and income. Since mortgage money wasn't frozen, I don't see how the bailout can help us there.

Another theme that was voiced was the need to help people who are behind on their mortgages so that they can stay in their homes and avoid foreclosure. I guess the idea there is that with fewer foreclosures on the market the oversupply of housing will be less. In our area, there are foreclosed homes on the market but they represent a very small percentage of the total inventory. There are homes on the market where owners are behind on their mortgages and face foreclosure, but those too are a relatively small percentage of the homes currently for sale. To what extent the bailout will help these people I don't know. But even if it does, it will impact a small percentage of the total inventory.

So when it is all said and done, it's hard to see where the bailout will help firm up the real estate maket in any meaninful way. It looks like we can expect prices to decline further which means we will have more of the problem that led to the bailout in the first place. Does that mean we can look forward to another bailout? Only time will tell.