Friday, April 22, 2005

Low Lending Standards Lure First Time Buyers

It may be too little, too late, but CNNMoney wonders if the easy money loans weren't the best move. "Among first-time home buyers in 2004, according to the NAR, the median down payment was 3 percent, half what it was in 2003." First time buyers, getting in at the top, with a 3% cushion; oh boy.

"What is new today is that lenders are allowing for the layering of risks on top of one another. What we don't know is what if we put all these risks together and put them in a rising interest rate environment, a declining housing market, or a weakening economy."

"The shift in lending standards started after the dot-com stock bust in 2000. By 2003, with the refinancing boom coming to a head, banks quickly set about trying to recruit more first-time home buyers, encourage second-home buying and promote home equity lines of credit as an easy and responsible way to fix up the house or finance a vacation."

"The amount Americans owed on home equity lines of credit jumped to about $491 billion at the end of 2004, up 42 percent from a year earlier, and more than triple the amount at the end of 2000." Responsible? Actually, the re-fi boom fizzled after 2003 and lenders fell upon less sound borrowers to keep profits up.

6 Comments:

At 3:58 PM, Anonymous great caesar's ghost. said...

Anyone else here getting unsolicited zero down mortgage offers left on their answering machine. While I realize these are more than likely scams of the "you've just won a Lexus" or "you've won a free vacation" ilk, I find it quite telling that easy money mortgages are so ingrained into the public's consciousness that they can be used to entice people into scams.

 
At 8:12 PM, Blogger Ben Jones said...

gcg,
no but i'm unlisted. i have "opted out" of the credit system and i still get credit card approvals in the mail.

 
At 9:25 PM, Blogger deb said...

The one that always gets me are the radio ads. I swear over half the ads on AM radio are for mortgages. "Borrow $800k for only $2500 per month" or some such insane number. Then at the end if you listen carefully, you will hear the disclaimer at high speed..."this is a negative amortization loan which will reduce your equity in the property, blah, blah, blah".

I even heard one soliciting borrowers with FICO scores as low as 475!!! I don't know what kind of life you have to lead to have a FICO of 475, but it can't be good.

 
At 11:40 PM, Anonymous Anonymous said...

The refi boom may have peaked in 2003, but the HELOC boom is still with us. We are getting near the end of the Ponzi scheme. Given how long this boom has run, how many folks are left who have either 1) refinanced or 2) borrowed as much as they care to against their inflated equity?

The only way to keep this going is to pump it up higher to create more equity against which folks can go the HELOC route. I don't anticipate that.

Plus, with homeownership at 70% nationally (an all-time record), how many folks are left to buy who haven't already? They're already scraping the bottom of the barrel (475 FICO...lol!).

Here in San Francisco, the radio is still wall-to-wall mortgage and HELOC ads. So they are milking the last drips. But all of them include the fateful phrases, "Bad credit, no problem" and "Bankruptcies, no problem." If the mortgage players are now focusing on people who have bad credit or who are bankrupt, who's left to suck into the Housing Matrix?

 
At 8:00 AM, Blogger Ben Jones said...

(The refi boom may have peaked in 2003, but the HELOC boom is still with us)

That was one of the more nauseating developements. When the industry could no longer profit from lower rates, they just went after homeowners' greed and stupidity with HELOC. I don't watch TV or listen to the radio, so thanks for the info about the ads. Housing matrix; that;s a good one.

 
At 8:42 AM, Anonymous Anonymous said...

Does anyone have an idea about whether and how much money has flowed from the National Association of Home Builders (NAHB) to our elected officials in Washington, in exchange for their recent efforts (through legislation and follow-up actions at HUD, Fannie, Freddie, etc.) to greatly boost the share of minority homeowners at the height of the bubble? This link to Y2003 testimony by NAHB First Vice President James R. Rayburn before the Senate Committee on Banking, Housing, and Urban Affairs, may be the tip of the iceberg:

http://banking.senate.gov/03_06hrg/061203/rayburn.pdf

The saddest aspect of the whole sorry situation is that, after enticing many first-time homebuyers of marginal credit quality with zero-down interest only ARM loans, President Bush and his Republican-controlled legislature have offered these soon-to-be bankrupt homeowners a pre-emptive kick in the teeth with the just-signed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:

http://releases.usnewswire.com/GetRelease.asp?id=46148

This plays into the hand of anyone who is betting the aftermath of the bubble will be nastier than generally perceived; a large share of recent homebuyers will soon find themselves permanently locked into a household financial position where their credit rating and debtor status prevents them from any possibility of future homeownership. Ironically, many of these households will be the very targets of all these recent government initiatives to boost the level of homeownership among low income Americans.

 

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