Financing…It’s Not Hard to Get

Westcoe Realtors, Riverside, California… While everyone is very aware of the changes that have occurred in the financial markets due to the subprime mess (translation..a bunch of loans made to people who probably shouldn’t have been lent that much money in the first place), it now appears that some legislators and bankers are speaking out of both sides of their mouths.  Specifically, there is both acknowledgement of the bad lending practices that caused all this “mortgage meltdown”, but the beginnings of some rumbling that the new regulations for borrowers are “too tight…making it too hard for some people to borrow money to purchase or refinance a home.”  Wow…amazing.  Talk about crying wolf.  It takes a lot of nerve to complain that financing is getting “too hard” when easy financing is what caused our problems in the first place.

So…let those of us that deal with real estate and financing every day be very clear here. 

FINANCING IS EASY TO OBTAIN…BUT YOU MAY ACTUALLY NEED TO LOOK LIKE YOU CAN MAKE THE PAYMENTS.

We hate to be sarcastic here, but everyone in this business knows that unbelievably loose loan practices the past two years of the housing boom was a joke.  Loans of 100% of the value of the home were being made to people who never had to prove their ability to handle the subsequent payments.  No income verification…no savings verification…no check stubs, etc.  They were called “stated income” loans (as in…state what your income is and we will put it down on the application…no questions asked), and all you needed to get one was a decent credit score.  It was like letting a diabetic loose in a candy store and telling them it will be OK.  Borrowers stretched further than they should because the “candy” was so readily available, and the process was justified by the assumption that housing prices would always go up,  so what was the problem? 

Well, we all know now what the problem is making housing loans to borrowers who may not be able to make the payments.  Which brings us to the housing financing that exists today…right now…on August 20, 2008.

Housing financing is doing just fine, thank you, because some sanity has returned to the financing arena.  No longer can someone get a whopping loan on just their word…they actually have to prove that the payment they will inherit with this new loan is “doable” on their current income.  Fancy that.  The lenders are also checking on the existing debt and payments the borrower has to make sure that with their existing payments, the new loan payment is affordable.  In essence, the lenders are now doing what they should have been doing all along.  It does not seem unreasonable that a lending institution should make sure that the money they lend is affordable to the people they lend it to.  Naturally, no loan is totally safe, because no one can predict what the future holds (divorce, loss of job, huge medical expenses, etc.)…but barring the unforeseen, it is totally reasonable for the lender to make sure that the borrower can make the new loan payments.

And what has this done to borrowers ability to get a loan?  NOTHING.  Those people who can afford a loan can still get one very easily.  However, those people who cannot afford the new loan will find that their “candy” store is closed.  Very simple, very traditional, and very acceptable…because we are all seeing the catastrophic results when a housing boom is in reality a lending boom based upon empty promises and “stretched” documentation.

In the end, there are plenty of good, solid loan programs that require minimal financing to qualified buyers…and new, safe and sane programs are being created daily…so try to ignore the press when they begin to tout that the current “financing crisis” is pricing people out of buying.  On the contrary, the current financing sanity is making home ownership possible for everyone who can afford it…and isn’t that what the banking world should be doing?