- UNION-TRIBUNE April 15, 2007
Critics say the tough new underwriting standards that were imposed to prop up the sagging subprime mortgage market are harming some creditworthy borrowers by trapping them in high-cost loans.
Reacting to a nationwide spike in subprime loan defaults, lenders recently raised their requirements for loans to borrowers with low credit scores. Some analysts say the industry is overreacting.
“I see it as definitely a bad thing,” said Greg Wickstrand of GMAC Mortgage Corp. in San Diego.
Subprime borrowers whose adjustable loans are about to reset at higher interest rates now have “dramatically fewer opportunities to lock in a longer-term fixed rate, giving them more stable payments,” he said.
The collapse of the subprime market “is something that was waiting to happen, with investors buying any loan originated, regardless of the risk,” Wickstrand said. “You have got people who are good citizens, worthy borrowers, who are being caught in the pinch. They now have a loan they can’t afford the payments on and they are not being offered reasonable options” to refinance.
Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies agrees there is a risk of overcorrection as investors and lenders rush to bring more stability to the subprime market.
“The danger is that we might turn the clock back and curtail credit to borrowers perceived as credit-impaired,” he said. “The challenge is to develop products that appropriately price and disclose risk, while reaching out to the underserved.”
At the Springboard consumer credit counseling service, President Dianne Wilkman says new lending practices will keep homeownership beyond the reach of many middle-wage earners in Southern California. “Tighter underwriting standards are going to keep a lot of people locked out.”
In contrast, economist Zoltan Poszar of Moody’s Economy.com says raising the bar for borrowers was necessary. Lenders were taking too many risks, he holds.
“Subprime borrowing has been tightened significantly,” he said. “It is a market that is getting healthier and healthier. If you have a decent credit score, you are a breath of fresh air to the lenders.”
Advice for Buyers & Sellers
Buyers, prime property in the best school districts is selling quickly and, in some instances, with multiple offers. Buyers need to be prepared to make an offer immediately on prime property. That means you need to have a loan in place. For more information about buying in a multiple offer situation, call me.
Sellers Factors such as where your home is, the condition and what segment of the market it’s in (entry-level, move-up or million plus) are the determining factors in whether or not you will be able to sell your home quickly and for a good price. Demand in the entry-level market has fallen, which will impact the move-up market. The million dollar plus market is pretty much immune to the sub-prime mortgage tightening. The real estate market is very hard to generalize. It is a market made up of many micro markets. For complete information on a particular neighborhood or for an evaluation of your home’s worth, call me.
Sellers Factors such as where your home is, the condition and what segment of the market it’s in (entry-level, move-up or million plus) are the determining factors in whether or not you will be able to sell your home quickly and for a good price. Demand in the entry-level market has fallen, which will impact the move-up market. The million dollar plus market is pretty much immune to the sub-prime mortgage tightening. The real estate market is very hard to generalize. It is a market made up of many micro markets. For complete information on a particular neighborhood or for an evaluation of your home’s worth, call me.
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