According to my friends who are connected to Wall Street, we are seeing history in the making in regards to the meltdown stimulated by mortgage defaults.
But, what has caused all of this and what does it mean? First, what it means is there will be many lending institutions go out of business. According to Mortgage lending implode http://ml-implode.com/ there have been 115 lenders gone out of business and 14 more on the "watch list." While money is tightening it will force more institutions out of business and create tighter lending practices for those who remain standing. It also means high-risk loans will either go away or will cost more through higher interest rates.
In the past several years "creative" lending practices spurred a flurry of activity for mortgage lenders. It became common practice to issue loans to those with documented bad credit, those who "stated" their income and assets (absolutely no documentation to verify), and made either little or NO downpayment. "Interest only" and "reverse amortization" loans were also created. On the former, the borrower only makes the required payment and their principle balance never reduces. The reverse amortization loan is when the principle balance of the loan increases if the borrower only makes the minimum required payment. I have had several folks call me literally in tears when they realized after years of payments, they owed more on their mortgage than they did when the mortgage was originated! When housing prices were increasing at historic levels, the borrower could sell their house if they got into a financial bind, but when pendulum started swinging the other direction and housing prices started to decrease, many folks found themselves in trouble.
What it all means is this; due to recent events those risky loans will either go away completely or will be available at a much higher interest rate. In the past several months we have seen rates on sub-prime market increase dramatically, last week we saw a huge increase in rates for ARMS and Jumbo loans. We have also seen many loan programs disolve. As recent as today, our "piggy back" loans such as 80/20, 80/15/5, and 80/10/10 now have an added cost. All of the above are cosidered higher risk loans so they will be available at a higher cost.
I feel like we have forgotten that owning a home is a privledge that we must earn through showing financial responsibility. You work, pay your bills on time, live within your means and save money. It is really pretty simple and those people are rewarded.
Let's look at the positive side, we live in a very affordable real estate market - well within the conforming range. The Greater Tulsa Association of Realtors for the Tulsa market reports our average sales price on single-family homes is $124,900. Our real estate market is not as volatile as other markets in the US.
It will be evermore important to use a lender you can trust. Bank of Oklahoma/BOK Mortgage is the top lender in the this area and have solid lending practices. We still have a large variety of programs both through secondary market agencies (Conventional, FHA and VA) and portfolio lending (programs created and funded through Bank of Oklahoma).
Just remember as with everything - this too shall pass. People will still buy and sell homes.
If you to talk about this subject you can reach me at 918-488-7353
Karen Heston, Mortgage Banker
Bank of Oklahoma Mortgage
But, what has caused all of this and what does it mean? First, what it means is there will be many lending institutions go out of business. According to Mortgage lending implode http://ml-implode.com/ there have been 115 lenders gone out of business and 14 more on the "watch list." While money is tightening it will force more institutions out of business and create tighter lending practices for those who remain standing. It also means high-risk loans will either go away or will cost more through higher interest rates.
In the past several years "creative" lending practices spurred a flurry of activity for mortgage lenders. It became common practice to issue loans to those with documented bad credit, those who "stated" their income and assets (absolutely no documentation to verify), and made either little or NO downpayment. "Interest only" and "reverse amortization" loans were also created. On the former, the borrower only makes the required payment and their principle balance never reduces. The reverse amortization loan is when the principle balance of the loan increases if the borrower only makes the minimum required payment. I have had several folks call me literally in tears when they realized after years of payments, they owed more on their mortgage than they did when the mortgage was originated! When housing prices were increasing at historic levels, the borrower could sell their house if they got into a financial bind, but when pendulum started swinging the other direction and housing prices started to decrease, many folks found themselves in trouble.
What it all means is this; due to recent events those risky loans will either go away completely or will be available at a much higher interest rate. In the past several months we have seen rates on sub-prime market increase dramatically, last week we saw a huge increase in rates for ARMS and Jumbo loans. We have also seen many loan programs disolve. As recent as today, our "piggy back" loans such as 80/20, 80/15/5, and 80/10/10 now have an added cost. All of the above are cosidered higher risk loans so they will be available at a higher cost.
I feel like we have forgotten that owning a home is a privledge that we must earn through showing financial responsibility. You work, pay your bills on time, live within your means and save money. It is really pretty simple and those people are rewarded.
Let's look at the positive side, we live in a very affordable real estate market - well within the conforming range. The Greater Tulsa Association of Realtors for the Tulsa market reports our average sales price on single-family homes is $124,900. Our real estate market is not as volatile as other markets in the US.
It will be evermore important to use a lender you can trust. Bank of Oklahoma/BOK Mortgage is the top lender in the this area and have solid lending practices. We still have a large variety of programs both through secondary market agencies (Conventional, FHA and VA) and portfolio lending (programs created and funded through Bank of Oklahoma).
Just remember as with everything - this too shall pass. People will still buy and sell homes.
If you to talk about this subject you can reach me at 918-488-7353
Karen Heston, Mortgage Banker
Bank of Oklahoma Mortgage
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